Retail Forex trading is usually executed through either market makers or electronic communications networks, also referred to as ECNs. A lot of Forex traders favor ECN brokers because of its several inherent pros.
What is an ECN?
ECN brokers can be thought of as a bridge connecting participants in the forex market directly to one another, eliminating the need for a dealing desk. ECNs acquire prices from multiple market participants, such as banks and market makers, and other traders who are members of the network, and stream the best bid/ask prices on their trading platforms.
What are the advantages of using ECN brokers?
Trade in anonymity
Oftentimes, trading with the use of ECN brokerage firms can be done in an anonymous manner. This allows traders to deal on neutral prices. Being able to execute trades anonymously is attractive to some traders, specifically those who wish to complete large trades. It is because it allows them to trade without drawing attention to their strategies or recent market positions, that could influence market prices.
Better prices
Given that an ECN broker gets price quotations from numerous market participants, it can offer you with tighter bid/ask prices than what you can obtain from other kinds of Forex brokerage firms. Also, ECNs do not play any role in setting prices, and thus, there is a much reduced risk of price manipulation.
Spreads aren't fixed
In contrast to market makers, ECN brokers have no control over the bid/ask prices and so cannot give a fixed spread at all times. Throughout very active trading periods, you can get little or no spread at all, especially for extremely liquid currency pairs such as the majors. A tighter spread is sought after by some market participants, day traders specifically, as it enables them to fill their orders at the prices they desire.
Better market access
Apart from retail Forex traders, ECNs also relay bid/ask prices from numerous institutional market makers such as banks, financial institutions and other big organizations.
Instantaneous trading
Using an ECN broker enables you to trade immediately. As an ECN client, you get to enjoy reliable live streaming of best executable prices, and you receive immediate confirmation of trades as they are dealt. As said before, there is no middleman, so re-quotes are unlikely.
They aren't going to trade against you
Since an ECN broker directly matches market participants, there is no chance of them trading against you - a criticism that is often directed against some market makers. An ECN broker will just pass your orders to a financial institution or another client on the opposite end of the transaction.
There are several trusted ECNs used for Forex trading, and you can learn about one here.
More and more Forex traders are placing their orders via ECN brokers. This preference can be explained by numerous advantages inherent to this type of broker, which include tighter spreads and better market access. To know more about forex trading and what are the benefits of forex trading using ECNs, please tap here.
