So, you’ve been trading forex for a while and have racked up some decent profits. Instead of increasing your profit per trade, you are looking for ways to reduce your costs and improve your earnings. Electronic communications network (ECN) trading might be the solution to your problem. This guide explains what ECN trading is and provides you with a list of the best forex brokers for ECN.
Our List of the Best Forex Brokers for ECN
When evaluating the best forex brokers for ECN, we examined the regulated brokers with the fastest execution, lowest trade fees, lowest spreads. Below is a list of the best brokers that we came up with based on these criteria.
What Is a Forex Broker for ECN?
A forex broker acts as an intermediary between the forex market and traders. The function of a broker is to execute trades in as little time as possible at the best price. In return, we pay our brokers a commission for carrying out this trade on our behalf. In recent times, it has been the trend for online brokers to charge zero commissions. Other brokers may charge commissions or fees, one of which is an electronic communications network (ECN) fee that allows you to have direct market access. It means your trades are automatically matched at the best available price from available market participants, which should allow the broker to offer tighter spreads.
How Does a Forex Broker for ECN Work?
With standard forex accounts, some brokers hold an inventory of currencies such that the broker becomes the seller for every buyer and the buyer for every seller. This allows the broker to charge a fixed spread between the bid and ask price.
When you place a trade with an ECN broker, your trade automatically goes to a market participant like an exchange. Your trade is matched with another buyer or seller and is executed at the matched price. In ECN trading, brokers cannot trade on their own account against the client.
Key Features to Look For in a Forex Broker for ECN
The features you should look for in a forex broker for ECN are an ECN account (obviously), the trading platform, market access, and regulation.
The broker you chose must offer accounts that are ECN connected. Usually, ECN brokers will offer a standard account and an ECN trading account. If ECN trading suits your trading style, you need to ensure that your broker allows this type of trading.
When choosing a broker for ECN trading, your broker will need to offer the best and latest trading platforms. Platforms that give a lot of trouble or glitch out may be the deciding factor between a winning or losing trade. Having a good platform will also help in the fast and accurate execution of transactions.
Most brokers have access to the major currency pairs like GBP/USD, USD/EUR, and AUD/JPY. However, a good broker will have more exotic currency pairs like AUD/MXN or GBP/ZAR. If you focus on these less popular forex markets, you need a broker with access to these markets.
It is always a good sign when your broker is registered with a reputable regulating body like the Financial Industry Regulatory Authority (FINRA) or the Commodities and Futures Trading Commission (CFTC). Choosing a registered broker reduces the risks you face, like hidden fees and compliance violations.
Pros & Cons of Using a Forex Broker for ECN
How to Choose the Best ECN Forex Broker for Me?
Not all brokers allow ECN trading, so the first thing you want to ensure is that your broker can give you direct market access. You also want to ensure that your broker has a good platform. You can read reviews on the different platforms offered and ask to use a demo account to ensure this is the right platform for you. In many cases, choosing the right broker is the deciding factor between profits and losses.
How to Safely Use a Broker to Make Money Online Trading?“ ECN trading can be very profitable, but it is not for inexperienced traders. Spreads can become very wide and change quickly. Prices can also run away from your target before you can enter your trade to close your positions. To reduce the risk you face while ECN trading, you can use hotkeys that automatically send in orders at the click of a button. You can also use a limit order to enter positions and set a stop loss to cap the potential loss. ”- Mircea Vasiu
As effective as ECN trading can be, it is not for inexperienced traders. Having direct market access requires larger account sizes and gives you higher leverage. ECN trading also comes with higher fees, but it gives you faster executions with lower spreads. Before applying this trading style, ensure you have done your research and perfected your skill.
Frequently Asked Questions
An exotic currency pair is when one of the currencies is from a developed market like the European Union (EUR) but the other currency is from a developing or emerging market like Turkey (TRY). Exotic currency pairs tend to be less liquid, so the spreads on these will be larger than major currency pairs.
Spread is the difference between the bid price (price to sell) and the ask price (price to buy). Having a wide spread means that the bid and ask are far apart. In forex trading, the spread on a major currency can be as low as 0.00 pips.
ECN trading gives a trader direct market access where the spreads vary from 0.00 pips to as high as 0.80 pips. Usually, when using a standard account, brokers offer their clients fixed spreads with guaranteed price executions. ECN trading can become more expensive than regular trading when misused.
ECN fees are charged to the trader by the exchange where the trade occurred. This is a pass-through fee charged to the client and paid to the exchange.
Most ECN brokers charge clients a fixed commission per transaction.
This depends on your trading style. If you prefer fixed spreads on your trades and like guaranteed price executions, having direct market access may not suit your trading style.