ECN brokers: who are they and what is their use
When it comes to the forex or currency market, you probably hear the phrase – ECN broker. Many use these two words frequently without realizing their true meaning. If you are just starting your journey in the forex markets, you are probably curious to know what ECN brokers are, who they are and how they can help you. This guide will provide you with detailed information about ECN brokers and explain the benefits you can get from dealing with them. Let us begin!
What is an ECN broker
An ECN broker is a brokerage firm that operates over the electronic communications network to facilitate trading in the foreign exchange markets. An ECN broker is responsible for routing your orders to the interbank market or liquidity providers. This means your trades are continuously matched to those of other traders within the real market (acting as an exchange to facilitate trading). There are many ECN brokers that you can open an account with, but before taking that step it is necessary to compare different brokers on sites like EarnForex .
How does an ECN broker work
ECN brokers earn their income from the difference between the buy and sell price (the spread). This means that it is in their interest that their traders are profitable and active as this will work in their favor as they continue to execute more trades. ECN brokers provide an aggregated list of the best bid and ask prices they receive from liquidity providers such as financial institutions and major banks. The broker then matches trades with the lowest spreads and the best prices available, regardless of the liquidity source. Generally speaking, the ECN broker acts as a link between seller and buyer and therefore has no interest in price manipulation as they work fully to provide appropriate leverage and steer the market in your favour.
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About ECN trading
ECN trading is like a bridge that connects small market participants to liquidity providers through an ECN broker. This bridge is built using FIX technology or the Financial Information Exchange Protocol. This technology automatically matches and fills orders based on the best available prices.
Benefits of using an ECN broker
Here are some of the advantages of ECN trading with an ECN broker compared to other trading solutions that we list below but are not limited to:
Instant Trade Execution – ECN clients take advantage of real-time FX trade execution. This capability is provided by providing actionable live price feeds with real-time confirmations. ECN trading reduces the risk of price maker intervention as all trades are confirmed within the network once matched and executed. There is no revaluation or intervention in the course of trading.
Client Access to Liquidity – ECN offers clients the ability to trade within a liquidity pool spread across many qualified and regulated financial institutions worldwide, which in turn make competitive bids to attract business.
Variable Spreads – The ECN also provides access to variable spreads in the absence of a market maker or agent controlling bid and ask prices. Working with an ECN broker also gives you the opportunity to access real market prices directly. Exchange rates fluctuate constantly based on supply and demand, factors of volatility and other market conditions. This mode allows investors to trade with tight spreads between the buy and sell prices, which can be as low as 1 pip depending on prevailing market conditions.
Automated Price Feeds – ECN trading provides clients with access to and communication with expert advisors, automated trading tools and risk management systems via live data feeds. Market data includes both the competitive bid and ask prices available at any given time. This means the trading process remains stable and disciplined while you trade live prices or backtest different strategies.
Anonymity – ECN trading is characterized by the anonymity of traders. This allows investors to benefit from neutral pricing at all times, reflecting real market conditions across all data feeds. This prevents any bias towards the client as a result of using any kind of trading tactics or-strategies for the purpose of influencing current positions in the market.
Price – ECN brokers do not manipulate spreads, so when you work with an ECN broker you can be sure that you are getting the best rates currently available.
How to find a real ECN broker
Finding a genuine ECN broker might not be an easy task, especially if you don’t have enough knowledge to start the selection process. Here are some tips on how to choose the right ECN broker for your personal needs.