Electronic Communication Network ECN: Definition and Examples

An ECN account is a type of forex trading account that offers traders direct access to the interbank market, which is where financial institutions like banks and hedge funds trade currencies. STP (Straight Through Processing) technology eliminates the need for a dealing desk, allowing orders to go directly to liquidity providers such as hedge funds, banks, and investors. This results in trades being filled at the real-time bid/ask pricing provided by these counterparties. Most STP brokers have access to internal liquidity pools comprised of different liquidity providers who compete against each other for better spreads on broker orders.

People don’t pay attention to the cost of execution, which is a long-term killer if you’re not careful. However, if you are more likely to have a position for days or weeks, at this point, neither will make a big difference as there are not many costs involved. However, as a general rule, the network will keep spreads relatively tight most of the time, especially if it is a huge network because there are many operators involved. Finally, a trader who is profitable can have an advantage in any type of broker, be it a standard broker or an ECN.

There are also some drawbacks to trading on an ECN account, including:

This article represents the opinion of the Companies operating under the FXOpen brand only. Since the Internet connects people from all parts of the world, Forex brokers find it easy to attract new customers. All information on 55brokers.com is only published for general information purposes. We do not present any investment advice or guarantees for the accuracy and reliability of the information. For example, the trading pair EUR/USD reflects the value of the euro in relation to the U.S. dollar. It is pertinent to note that all transactions were done manually prior to the 1970s, with a restricted amount of e-trading existing in the 80s.

ECN brokers are non-dealing desk brokers, meaning that they do not pass on order flow to market makers. Instead, they match participants in a trade electronically and pass the orders to liquidity providers. An ECN account is a type of forex trading account that allows traders to access the interbank market directly. The interbank market is where large financial institutions trade currencies with each other.

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ECN brokers have the tightest spreads, sometimes down to zero with just a commission, because they reflect the interbank market conditions. This makes it easier to place traders with a Dealing Desk broker, but traders miss out on some very small price fluctuations they may want to trade. Electronic communication network (ECN) fees are applied on a per-trade basis, usually fractions of a cent.

Regardless of the commission fee, an extremely narrow spread makes the trader’s expenses on each trade smaller than they would be on standard Forex accounts. I.e. don’t source their prices directly from the forex market, are more apt to offer wider spreads, quote prices that are less reflective of market conditions, and provide less price transparency. In summary, a forex ECN broker uses the MT4 or MT5 trading platforms, and manages ECN trading as a ‘hub’, where all the major market players act as a liquidity source. The broker uses this network to provide its clients with direct access to other participants in the market. Through the use of FXCC’s API, clients can easily connect their trading algorithms, expert advisors, models and risk management systems to the live market data feed and the price matching engine. FXCC’s live, neutral, executable market data includes the most competitive bid and ask prices available at any given time in the market.

A Guide to ECN Trading

ECN brokers match a trade with other market participants in the forex market rather than passing on the orders to market makers. ECN forex brokers use non-dealing desk trading platforms and execute trades through automated straight-through processing. Basically, the standard account is can come with a fixed spread or floating spread. The EURUSD pair is usually the lowest spread, but it can get more expensive than an ECN during news releases. Yet, the standard account can provide more stable execution and better cost for day traders.

Consequently, ECN agents can only support their marketing model by imposing a modest fee per order. Some agents might also prefer to incorporate their commissions as profit spread, which enables merchants to use full ecn account states without factoring in any extra charges of trading. Always choose the account that matches your investment style and trading strategy. As a leading investment platform, AximTrade is the ideal choice for professional traders and investors who are seeking the best conditions to access the market and start trading with ECN accounts.

Start Trading and Monetize your Knowledge

An ECN forex account is a specialised trading account that allows you to trade through an ECN broker. Price feed transparency is also a byproduct that many consider a benefit because of how the information is transmitted. All ECN brokers have access to the exact same feed and trade at the precise price that is provided. A certain amount of price history is also readily available, allowing for easier analysis of particular trends within the marketplace.

• Basically, the standard account is can come with a fixed spread or floating spread.
• The fixed spread/counterparty situation doesn’t always work against the trader.
• This website contains detailed information on crypto currencies, forex, contracts for difference (CFDs), stocks, commodities and indices.
• Typically, No Dealing Desk brokers require a higher minimum account balance.
• The ECN provides an electronic system for buyers and sellers to come together for the purpose of executing trades.

The trading Brokers offering ECN Accounts and connection usually offer an interbank spread from 0.0 pips and charge a fixed commission per lot as a trading cost or fee. Instead of making money off the bid-ask spread, ECN brokers usually charge a flat commission rate on each trade. Trades are carried out immediately and at significantly thinner spreads.

What is the STP Forex Broker?

Choosing an ECN forex broker can help you maximize returns on currency trades as they offer variable bid-ask spreads and have low slippage rates. Classified by the SEC as an alternative trading system (ATS), an ECN makes money by charging a fee for each transaction to meet financial obligations. It attempts to eliminate the third party’s role in executing orders entered by an exchange market maker or an over-the-counter (OTC) market maker and permits such orders to be entirely or partly executed. Orders placed through ECNs are usually limit orders, which is particularly useful for safely trading after hours, given the volatile effect that can have on a stock’s price.