As you may know, Forex is a profitable market and it is attractive to those who aspire to invest their hard earned money and increase its value in a short period of time. As Forex has a high level of interest around the globe, new Forex brokers are always coming to light in the market. There is an endless number of Forex brokers in the financial world, so selecting the right one is absolutely crucial when begin your trading journey.
What does ECN stand for? It stands for electronic communications network, and this is what provides a marketplace for people and organisations across the world. This marketplace allows them to bid and offer against each other. Knowing this, the next question is what is an ECN broker? It is an FX financial expert who uses electronic communications networks to provide access to other currency markets' participants.
Since an ECN broker integrates price quotations from several participants in the market, it can offer its clients tighter ask/bid spreads that wouldn't otherwise be accessible to them. As an ECN broker merely matches trades between market participants, it cannot trade in opposition to the client - an accusation regularly directed against some unscrupulous retail FX brokers. Because spreads in ECN are much narrower compared to those used by everyday Forex brokers, ECN brokers charge clients an established commission on each transaction.
It is can be more beneficial to choose an ECN broker owing to the fact that they will never trade against you like market makers. Their key source of revenue is through the previously mentioned commission, so it doesn't matter to them whether your trades win or lose. Nonetheless, there are a lot of brokers who pretend to be ECN brokers to establish a client base, when their services represent nothing but fraud. This is a pretty serious matter and it can have a terrible impact on your trading. For this reason, we have prepared this article to help you learn how to determine the true ECN Forex brokers.
ECN brokers can be divided into three groups:
Those groups are widely known among traders and brokers, but if you are a novice trader it will be useful to go over the following descriptions.
A true ECN broker offers a fully transparent platform where Forex traders, banks, and different organisations can compete against each other by sending various offers and bids. FX traders get the best deal for their orders at that particular time.
Those that are known as Forex ECN brokers by association act as level two FX brokers that form a bridge between Forex traders and the marketplace (often referred to as true ECN brokers). This kind of broker has their own in house trading platform and thus can manipulate your trades if they wish.
The last group is Outright Bucketshop. Such brokers are nothing more than fraudulent scammers who are out to steal your money. Be careful and try to avoid them at all costs.
With so many brokers trying to secure you as a client, it can be hard knowing which one to choose. Fortunately, we have some tips that may help you.
First of all, the majority of new Forex traders will probably never read the broker agreement, but it is this document that usually informs you whether the broker is a true ECN, or just an ECN by association. All regulated brokers involved in ECN will state that, as it is obligatory for them to disclose this kind of information to their clients. True ECN brokers will also have variable spreads. When an ECN broker promises to offer established spreads, then it is most likely not a true ECN broker.
Remember that if it is an ECN Forex broker, there must be no dealing desk at all. Market makers usually have a dealing desk, meaning that they will trade against you. If you want to find out whether a prospect is a dealing desk broker, then you can open a demo account and maybe even a real account to test them out.
Are there limitations in establishing the distance of take-profits or stop-losses? If a broker does not permit scalpers or day traders, that should tell you that they are not a true ECN broker.
If your chosen broker is giving you only negative slippages, then it is not a true ECN broker. In fact, slippage is a normal occurrence, especially in a true ECN market. However, slippage can be both negative and positive.
Moreover, the best ECN Forex broker must enable traders to place any number of trades. Also, such brokers will not promise you big discounts when opening an account. The last tip we would like to outline is that good ECN brokers will show all pricing updates every minute, as the prices come in live directly from the market.
One could claim that even those who seem to be the best Forex ECN broker take money in order to make money. Using the example of one leading ECN broker like FxPro, you may observe that they have a relatively higher minimum deposit than most regular FX accounts. Similarly, you will not find any mini-pip traders just playing around with an ECN broker. An ECN can be compared with an interbank trader, so you have to be capable of trading $7-$10 per pip trades as interbank trades in $100,000 increments. You can forget about not paying commission. ECN Forex brokers mainly charge commission due to the fact that they are not making their money from taking the other side of your specific trades on the spread.
Owing to the concentration of the niche traders involved, there is only a handful of good brokers around. They can be easily found on the internet - and it is clear that they are only out to attract serious FX traders and the ones who have the capital to back their trades.
Additionally, retail FX brokers offer spreads that might vary compared to the broker you are using currently. That is how they make their money - and that is why you are not charged commission. Still, on the other hand, ECN will often have no spread at all, or just a small one. Your FX trade is passed through the interbank, so you are trading with an authentic trader.
With a retail FX broker, we may say that the broker is on the other side of all the trades. By utilising a Forex ECN broker, the other side of the trade could be a bank, insurance pool, hedge fund or even another particular speculator. Since the buy or sell spread is of negligible or no concern, this creates an attractive opportunity to both day traders and scalpers.
A true ECN broker can be useful in your ECN Forex trading. By following the rules we have specified, you should be able to find exactly what you need. You need to be able to know how to distinguish genuine and false claims, but that will come with experience.
There is a good saying relevant to Forex: there is a time and place for everything. Whether the best ECN broker is appropriate for you, that is a judgement call on your part. For instance, the advantages of going through a retail FX broker are countless. Moreover, you will have a Forex demo account, which you can use as a learning tool. In addition, the minimum monetary requirement is considerably less. There are many FX traders doing well through retail brokers. Nonetheless, if you meet the comparatively high demands of trading in big numbers and retaining a high balance, then an ECN broker may be beneficial to your trading, especially using ECN Forex brokers with MT4.