The ECN broker can be described as a kind of foreign exchange brokerage which makes use of the Electronic Communications Network (ECN) to match orders for buy and sell within the trading market. The ECN is basically a computer-based trading system that is able to match diverse orders between sellers and buyers on the Forex (foreign exchange) market.
In addition to matching orders for buy and sell on the market In addition to matching buy and sell orders in the market, the ECN also provides up-to-date prices for buy and sell which show the most expensive bid price and the lowest offer price currently offered on the market for each trading pair of forex.
Trading pairs are made up of a currency that is priced in relation to another. For instance the pair EUR/USD is a representation of the value of euro relative with the U.S. dollar.
Forex is based on the volume of dollars traded, the biggest market for financial transactions worldwide. But, trading in forex is not conducted via exchanges, as stocks are traded, but instead through the exchange-traded market where buyers and sellers interact.
Characteristics of ECN Brokers
- An ECN forex Brokers handles trades on the ECN for investors who are interested in investing. Because of the way in which an ECN operates, working with these kinds of brokers can result in lower prices and more trading time.
- ECN brokers don’t transfer the flow in orders directly to marketmakers. Instead, they match electronically the traders in a transaction and then transfer the order to intermediaries on the market for securities.
- An ECN broker is not permitted from trading against its customer or clients due to its matching trades between market participants. Because ECN spreads are smaller than the spreads used by regular brokers ECN brokers charge specific fees per trade to customers.
ECN Brokers Vs Dealing Desk Brokers
ECN brokers are regarded as superior to brokers who deal desks because ECN brokers are superior to dealing desk brokers because ECN creates a direct link between sellers and buyers.
Contrary to this, desk brokers perform trades by either taking on the opposite of the trade themselves (i.e. they sell to a buyer who places buy orders or purchase from a customer who puts in an order to sell) or they pass on the order to market makers.
Dealing desk brokers are often criticized on two grounds. In the first, if they’re doing the opposite of client trades and are in effect creating investments that are not in line with the interests of their clients which could create an interest conflict. Additionally, if they’re transmitting orders to the market makers this can lead to slower execution of orders. This could result in client orders being fulfilled at a lower price.
Advantages of ECN Brokers
ECN brokers can provide traders with forex the following benefits:
● Spreads between bids and asks
In the case of buying or selling financial assets, there’s always a gap between the highest available price for selling and buying. A buyer must pay the highest selling price, and a seller has to pay the most affordable buy price.
Since ECNs instantaneously matches requests received from traders to the highest available price for buy and sell for all participants on the forex market which usually results in tighter bid-ask spreads. So, traders can take or exit positions on the market at much more attractive prices than the ones offered by a dealing desk broker. Dealing desk brokers typically provide higher bid and offer spreads since they earn their profits by taking a portion of the spread.
● Flexibility
ECNs permit clients or investors to to take part and facilitate trades on exchanges that are not open during normal hours of trading.
● Speed
The trades are executed instantly and at much lower spreads. A variety of different providers of liquidity are competing for the orders of traders. They are motivated to offer the lowest prices possible to compete with the market and draw traders.
● Flat commission rate
Instead of earning money from the spread between bid and ask, ECN brokers typically charge an unbeatable commission for each trade.
● A Caution for Traders
There are a myriad of best international broker companies operating around the world. Some aren’t controlled by any financial institution. Many of these brokers who are not regulated are claiming they are ECN brokers, but are in reality trading desk brokers.
The only method to be certain that a forex broker is an actual ECN brokerage is to be sure that you’re trading with a licensed broker. Any brokerage that is regulated will disclose information about the status of its regulatory authorities through its site.
Another method of ensuring that you’re dealing with an authentic ECN broker is to ensure that ECN brokers don’t present customers with the issue of quotes being requoted. Requotes are a result of the slow processing of brokers who use dealing desks. A trader can place an order to purchase to sell or buy at the current current market rate however, instead of seeing the order immediately filled, it is presented with a requote that is at the current market price.
The delay in execution of orders caused by requests may cause significant losses to traders and, for a fast changing market, stop traders from being able to make a trade in the first place.
FAQs
Are all fees the same?
It will depend on the type of assets you exchange as well as your country of origin. If you’re not certain, be sure to check before making an important decision.
Can I make trade deals with any country around the world?
Some brokerages are limited in regards to the number of exchanges. If you’re interested in wanting to do business with a certain country, look into the platforms that have.
Is every International Brokers regulated somewhere?
Even before deciding to accept a proposal, ensure they have the right documents in the correct place.
Are there any kinds of insurance for trading?
Actually, yes. But, not all companies provide this service. If you feel that you need a safety net, call an insurance company to discuss the possibility of it.