ECN Broker Overview, Characteristics, and Advantages

« This provides a chance to react to new information that arrives outside of hours when exchanges are open, » Fink says. Just beware that « market quality deteriorates rapidly after exchanges close, meaning it is more expensive to trade at these times. » ECNs allow for clients or investors to be able to participate and facilitate trades in market exchanges, outside the normal trading hours.

I have already mentioned many times such a concept as the commission charged by the broker. Let me explain in detail what the ECN commission is and how it is calculated. The broker should not restrict the placing of orders, which are only regulated by Bid and Ask prices in the ECN system. Any true ECN broker has the only source of income, commission fees. Automatic execution of trade orders at the best price selected from all offers of counterparties.

Electronic Communication Network (ECN): Definition and Examples

Per-trade-based commissions can be costly and can affect your bottom line and profitability. The delays in order execution caused by requotes can cost traders significant money or, in a rapidly moving market, prevent them from being able to execute a trade at all. When buying or selling financial assets, there is always a spread differential between the best available buy and sell prices. A buyer needs to pay the best available sell price offered (the “ask”), while a seller must take the best available buy price (the “bid”). 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.

You place an order with your broker, and your trade is put in the list of orders of the system, the Depth of Market. As your order hasn’t yet been open, it remains in the system, adding liquidity to the market. The ECN system encourages you and doesn’t charge a commission until your order is executed. Once you’ve found a bona fide ECN broker you have to ensure you pick the right one. With the names of two or three brokers you can compare trading conditions, regulation and spreads and pick the one that has everything you’re looking for.

Broker by Country

It does this by providing access to information regarding orders being entered, and by facilitating the execution of these orders. The network is designed to match buy and sell orders currently present in the exchange. When specific order information is not available, it provides prices reflecting the highest bid and lowest ask listed on the open market. Unlike an ECN broker, a market maker will not typically hedge its clients’ holdings with otherliquidity providers. Instead, market markets pay winning customer positions from their account. It also means that a market maker broker loses when a customer has a profitable trading position.

As such, it is in their own best interest for their clients to be winning, or they wouldn’t be able to charge a commission. When trading with ECN brokers, you will receive the best available price at the specified time. Another disadvantage of using ECNs is that the platform is less user-friendly than those provided by traditional brokers. Furthermore, the lack of integrated charts and data traditional brokers provide on their interfaces may make it difficult for beginner investors. One of the biggest drawbacks to using an ECN is the price to pay for using one. Access fees and commission charges can be costly and are difficult to avoid.

Market Maker vs. ECN broker

You will have instant access to market pricing if you choose such a broker. This enables trading on narrower ask/bid spreads, which could be as low as one pip. It is important to remember that market prices always change in response to demand, supply, instability, geopolitical events, and other factors. When you come to the market to buy some meat, for example, you study the prices offered in the market and understand that nobody sells meat at the price you want. This means that at the moment, there are no market participants that can provide enough market liquidity, or very there is little liquidity for the desired product.

Traders choose brokers according to their trading style and purposes. I chose the LiteFinance broker eight years ago and have been working with it since then. As for the networks accounts, I like that LiteFinance charges a fixed commission, and I always know how much I will pay. Moreover, it provides an opportunity to use demo account to get accustomed to the platform. You should consult experts if you are uncertain whether or not the broker operates as a non-dealing desk. Trading desk brokers (also known as market makers) execute deals on behalf of their customers.

Disadvantages of an ECN Forex Broker

By comparing these factors among different brokers, you can select an ECN Broker that best aligns with your trading needs and preferences. Live prices are constantly moving and especially when trading sessions overlap, a true ECN broker may offer floating spreads. The main caveat is for traders who always use the same ECN, Fink says.

LiteFinance has such access through overlapping liquidity providers. The trader needs to understand that brokers also wants to make money. The only adequate income for an ECN broker comes from a commission. Since the commission depends on the volume, it makes no sense for a broker to have clients who have deposits of $10 or $20. For this reason, brokers set minimum deposit sizes in the ECN system, which start from $100 and can go up to $1000.

Due Fact-Checking Standards and Processes

ECN brokers work as the market makers whose job is to act as the intermediary in order to find the best application for you in the system and issue it to you, charging a commission for this. The broker cannot influence trades and prices due to the lack of access to them. Clients of such brokers are guaranteed to receive accurate price data in real time throughout the entire trading process in the equity and currency markets.