What are ECN brokers?
Minimum deposits for ECN accounts are often higher than they are with standard Forex accounts, but there are several significant advantages offered by the best ECN brokers, such as the ability for scalping and lower spreads.
With so many attractive options to choose from, choosing between different ECN trading options can be surprisingly difficult. Compounding the decision is the fact that many traditional brokers offer ECN accounts in addition to their standard trading accounts, which widens your pool of options.
To make your decision easier, we've compared critical aspects of some of the top ECN brokers to give you a starting point in your search for the best ECN Forex broker.
Recent years have seen many new Forex brokers open their doors as ECN brokers. All these terms mean approximately the same thing: Non-ECN brokers, in contrast, take the other side of the trade themselves, creating a large and obvious conflict of interest with their clients.
ECN brokers typically charge lower spreads than market makers, which they compensate for at least partially by charging additional commissions on trade entries and exits which is calculated as a fixed percentage of the total value of the trade. Despite these fees, the combination of spread and commission is usually at least a little lower than the spread charged on a similar trade by non-ECN brokers. It is this combination of lack of conflict of interest plus the typically low cost of trading that makes ECN brokers so attractive to traders, but there are some other factors worth considering before you decide that an ECN broker, or an ECN account some brokers offer both ECN and dealing desk type accounts is for you.
Account size — ECN brokers usually require higher minimum deposits. A few insist on minimum trade sizes as high as 1 minilot instead of the 1 microlot one tenth of a minilot that has become more standard within the Forex industry. Execution — ECN brokers typically offer excellent execution speed and sometimes spreads are even non-existent or inverted for a second or two. Note that during periods of very low liquidity execution may be seriously delayed as there is no market maker to take the trade if no client wants it.
This can lead to seriously negative slippage events or being stuck in a bad trade a little longer than you would be if trading with a market making broker. Spreads — these are usually an attractive feature, even when commission is considered. However, spreads can widen dramatically and can sometimes be beyond what market maker brokers will be offering at the same time. Spreads will of course vary a lot as they are based more precisely upon market supply and demand.
Fixed spreads are only available through market making brokers. They are rarely worth it economically, as it happens, but that is another story. Additionally, ECN brokers tend to require higher minimum trade sizes in these kinds of non-Forex instruments. This means that if you want to be very diversified, you might have another reason to consider using a market making broker in addition to or as an alternative to an ECN broker.
Maximum Trade Size — ECN brokers usually offer much higher maximum trade sizes, as they at least theoretically do not have to worry about processing any order through a dealing desk. ECN brokers, if they specify maximums, tend to place them at much higher levels.
Although an increasing number of ECB brokers do now allow trading in microlot sizes, a few still do not, so it could be an issue if you prefer to trade in microlots. A true ECN broker is simply defined as a broker that plugs your orders into a network where it is automatically matched to a matching order from another client or liquidity provider.
This is the textbook definition to work from. I traded with a well known retail broker that is known for its variable but tight spreads. Several months of learning FX, MetaTrader and MQL, and several months more of testing a complex automated system on a test account, until I opened a Live account and fired the stuff. From there, things started to change, with constant losses. Far less market data received, far less trades accepted right away, higher spreads than usual. After analyzing the whole story in particular comparing with the entire same system run in parallel on a test account, opening a live account with other brokers , I can only say that the vast majority of these brokers do marketing and not FX trading.
They are more interested in finding new customers and making them use their whole margin in as many trades as possible, rather than helping them to stay and develop their trading skills. I am now switching to ECN ones, that's for sure! Yes, ECN brokers can offer 0.
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