About ECN Brokers
The Electronic Communications Networks brokers, or known to many as ECN brokers, are brokers that offer the transparency that investors desire especially in trading. ECN brokers provide their clients with the DOM (Depth of the Market) in order for the clients to know what is really happening with their transactions. With a live DOM, investors are able to see everything including the bid and ask fares that are available in banks, market makers, hedge funds and even individual investors. These bids and ask fares are those that are presently available at that point in time. In line with that, ECN brokers are able to let their clients see the status of their orders — where their orders are placed or who hit their orders. With that being said, other traders are actually allowed to hit on those orders. This is what is meant by the transparency that ECN brokers provide. Needless to say, traders can take a look at the liquidity, and they can also execute some trades.
Among all other forex brokers, ECN brokers are considered to be the purest breed because of the full transparency of the transaction processes. Because of the transparent trading that is happening with the ECN brokers, investors are able to fully participate in the trades. ECN brokers display the important data using a drop down list. In the drop down menu, the best ask prices and bids are placed on top, then the next 4/5 bids and ask prices are shown below that. Moreover, ECN brokers provide their investors with the corresponding contract or volume size along with the bids and ask prices.
As ECN brokers are not actually market makers, it means then that they do not gain profits from the spreads. With that, ECN brokers ask a little amount from the investors. This little amount is called as the trading fee or the commission. This amount is charged to every transaction that is made by the traders. In that manner, ECN brokers earn a little of something out from the transactions that are being executed. It also follows that the ECN brokers’ interests revolve around the success of the traders. If traders earn more profits from the trades that are made through the ECN brokers, it means that more trades will be performed in the future. As such, more trades mean more transaction. And again, each transaction is charged. Although ECN brokers do not earn anything from the spreads, they still earn out from the large volume of traders that join in their market.
Some analysts say that STP brokers are just like ECN brokers. Although they may share the same characteristics, ECN brokers shine more because of their ability to display the real depth of the market. This is one thing that STP brokers don’t have. Another thing is that unlike ECN brokers, STP brokers provide fixed spreads to their clients.
With ECN brokers, no dealing desks are utilized. This means that the trades are being executed at a faster rate and that the traders remain anonymous. Due to the fact that there is transparency and anonymity, more competitive offers are expected on the bids and ask prices; as a result, lower spreads are created for the traders.
Advantages when trading with ECN brokers
- ECN brokers provide a fully transparent foreign exchange market for their investors (bids and ask prices of other traders are shown)
- There are no fixed spreads (although, there are some investors who see this is a disadvantage).
- ECN brokers make sure that their clients do not lose. Their clients’ success will always be prioritized in order to have a larger volume of traders in the future.
- When you invest with ECN brokers, no intermediaries are involved in the process. It means that from the brokers themselves, the orders go directly to the liquidity providers.
- ECN brokers ensure anonymity to their traders
- The orders will never be executed at a lower or worse price, rather, ECN brokers execute the orders at a higher price.
Disadvantages when trading with ECN brokers
- ECN brokers charge a trading fee on every transaction.
- When the liquidity is low, ECN brokers have higher spreads compared with brokers with fixed spreads.