Trading in the foreign exchange is an exciting proposition. It is believed that ECN is the future of the Forex market. ECN stands for Electronic Communication Network. Brokers who use this network can consolidate price quotations from various market participants and generally are in a position to offer firmer bid spreads to its clients rather than those who are trading with retail forex brokers. Today within the scope of this post we will learn about the various advantages of trading with an ‘ecn account’.
ECN – How It Works
The Electronic Communication Network is described as a bridge connecting the relatively smaller firms with top rate (tier 1) liquidity providers. Since these brokers only match trades between market participants, it is not possible for them to trade against the client- which is an allegation often leveled against retail traders. Additionally, the spreads included in the ECN are much narrower than the spreads used by daily traders. As clients you will only be charged only a fixed commission. However, it is essential to understand that you are not trading directly with an ECN broker but only a network provided by the broker.
Trading with an ECN account has definitely a wide array of advantages. Some are listed below
- Now, the support of the refined technology called Financial Information Exchange Protocol or the FIX Protocol helps the ECN system to work as an effective link between the tier 1 liquidity providers and the small firms. The commission is charged per transaction— if the traders are able to generate higher trading volume, the higher will be his broker’s profitability.
- Each and every ECN trading activity is completely anonymous. This ensures that traders to transact with neutral prices that only mirror the real market conditions and not biased against the client’s forex strategy-based directions.
- As these brokers are in direct contact with several participants in the market, functioning within an inclusive interbank network, they are capable of offering the most ideal prices.
- The ECN framework allows clients to work with global liquidity from world-class (read qualified) financial institutions
- An ECN broker helps you to determine the depth of a market. The orders that had already been made and traded — can be viewed. You will find all the transactions executed in the market and the corresponding amount against them though the person who had executed those trades would remain anonymous
- Traders can start trading instantly on live streaming and secure the best executable prices with quick confirmations.
- The Electronic Communications Network brokers do not usually have fixed spreads. These spreads generally vary according to the buying and the selling rates. With fixed spreads you will not be able to cash in on the higher selling rates in the market. But if you are dealing with spreads from the ECN brokers, you are guaranteed a greater percentage of success if the selling rates are really good.
If you’re yet to explore the various advantages of ECN, then it’s time to do it now!