Home » Want to Trade With Tighter Spreads? Read our Helpful Guide to ECN Brokers

Want to Trade With Tighter Spreads? Read our Helpful Guide to ECN Brokers

When it comes to foreign currency trading the aim is to make a profit as often as possible. While it may not be humanly possible to be a winner every time, it is in your own best interests to increase the possibility in whatever way you can. When you’re looking for a partner to help with the journey, there are a number of choices if you’re looking for the best possible broker. Should you choose a market maker? Would an STP broker be the wisest choice? Or is an ECN broker the best way to go? We’ll be looking at ECN Forex brokers here on this page, and after you’ve spent some time reading what we’ve got to say, you’ll be in a much better position to make the right decision.

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What is an ECN Forex broker?

ECN or Electronic Communication Network is an electronic system that buyers and sellers can use in order to execute trades. When trading Forex, ECN brokers pass on prices from a number of market participants such as banks and market makers, as well as other traders connected to the network, displaying the best bid/ask prices on their trading platform. With an ECN broker, a trader is able to deal directly with others, without a dealing desk getting in the way. There are a number of advantages that will come when you find the best ECN broker. These include:

  • Instantaneous trading – Because trading takes place via live streaming a trader can benefit from instant trades. Which means they also enjoy the most competitive final prices and confirmation of orders with no delay. Once the trade has been made it is final and confirmed, and therefore there is no worry about requotes.
  • Anonymity is guaranteed – No one else will know who you are when you trade with ECN brokers. This also means that trades can take place on the basis of neutral prices that reflect true market conditions.
  • Flexible spreads – The spreads offered by a true ECN broker are always variable and never fixed. Unlike a dealer, an ECN broker cannot control the spreads.
  • Data is automated – Traders are able to connect their own personal trading model and risk management strategy to the broker’s data feed. Which means they are able to access the best prices as well as a host of other types of data.
  • An ECN broker never trades against its clients – A common worry when trading with a market maker is that there is the possibility for them to trade against their clients. This is not a problem with an ECN broker as they are only matching trades between market participants and never take any side themselves.
  • Connecting with global liquidity providers – Choosing an ECN broker means you are able to trade on the global liquidity of leading banks as well as other qualified financial institutions.

Now you’re probably wondering whether there are any disadvantages. Well, there are, but thankfully not very many. The first is the fact that they usually charge a fixed commission for every transaction. But on the other hand, this is usually cheaper that charges made by a money maker, and definitely more transparent. If you decide to use an ECN broker it will be very challenging when it comes to calculating stops and targets. The reason for this is that prices are constantly moving and spreads are always variable. With ECN trading also comes the possibility of slippage. Most noticeable when sessions overlap and because a variety of factors could be influencing prices at the same time.

Now you’ve got a better understanding of why ECN trading has become so popular, let’s look at how you can find the best ECN brokers to help improve your chances of success.

Our quick and easy guide to finding the best ECN Forex broker

If you are planning to become a serious long term trader, or you may already be one, an ECN broker is definitely worth considering, as they offer a reliable and solid trading environment. And the fact they never trade against their clients is another tick in the box. But, there are a number of brokers who claim to offer ECN trading that blatantly do not. Before we look at how you can find the best ECN broker let’s share some important questions you should ask in order to sort the true from the fake.

  • find-the-best-ecn-forex-brokerVariable spreads or fixed spreads? An ECN broker that is true to their word will only ever offer variable spreads and never fixed ones.
  • What about negative slippage? Is there any? With a true ECN broker, there will never be any negative slippage.
  • Is there any mention of a dealing desk? If you see any mention of a dealing desk in the broker’s website you can be certain you’re not looking at a true ECN broker. One way to find out for sure is by opening a demo account and a real account and observing the difference in pips being offered during news reports. There will be no pip difference with a true ECN broker.

Once you’ve determined whether the broker you’re considering is a true ECN provider it’s time to get down to the nitty-gritty of picking the best one. When you’ve got a few names you can make some comparisons. And you need to be considering such factors as regulation, spreads, and trading conditions. You also need to consider what you want from your Forex broker. We will, of course, be reviewing some of the best ones, as well as a number of other types of broker.

What sort of qualities should you be looking for?

An ECN broker will always have fixed commission fees, and tighter spreads, so these are two aspects that are relatively easy to compare. All the best brokers will have sections of their site dedicated to giving all the pertinent information. However, you also need to consider trade execution and liquidity. The ideal broker will be one that promises instant and seamless execution. Prices can change in seconds, so it’s vital to be able to react to such changes.

A good place to start is by opening a demo account with a few different brokers so you can get a real feel for the service. We’re not saying you shouldn’t spend some time reading broker reviews as they can be very enlightening. But, there is no match for first-hand experiences and you will only get these by testing some different brokers. And best of all, you can do it without risking any real money.

Once you’ve found a broker you’re happy with there is one final step before you sign on the dotted line and start trading with real money. A common mistake that many traders make is to not worry about reading the terms and conditions. In fact, when you read many of the negative reviews regarding Forex trading, it is often the fact that this wasn’t done that trips many traders up. Each individual broker will have their own set of rules, prices, and services and it is important you fully understand what you’re signing up for.

There are other Forex brokers to choose from

We’d be the first to admit that trading with an ECN broker is a wise move to make. However, there are a few other options it would be only fair to mention.

ecn-fx-brokerDealing desk broker – You will also see these referred to by the initials DD. Basically, this is the type of broker also known as a market maker. A dealing desk broker will be the type that offers fixed spreads that can either be above or below real market prices. Rather than charging a commission like an ECN broker, this broker makes money by way of the spread.

No dealing desk broker – This could be either an ECN, or an STP broker, or a combination of both, and is one that offers direct access to the interbank market. This broker is also known by the initials NDD.

STP – STP stands for Straight Through Processing and a broker who uses these initials offers computerized transactions that are processed instantly through the interbank market, without any broker intervention.

Multilateral trading facilities – This isn’t a type of broker we would generally recommend as they tend to be unregulated. Non-discretionary rules come into play when buyers and sellers come together.

As you can see, ECN brokers have a lot of benefits and there is no wonder they have become so popular amongst Forex traders. Providing you follow our helpful advice you should have no problems. With an ECN broker, you can take advantage of tighter spreads, no commission, instant execution and total anonymity. And the fact they will never trade against their clients is always going to be a bonus. If you like the sound of ECN trading be sure to read some of our reviews. And keep us as one of your favorites because we’ll be sharing lots more useful information in order to help you achieve better trading results.