Electronic Communication Network ECN: Definition and Examples

GO Markets, Exness, and XM are some of the most popular platforms. ECNs connect major brokerages and individual traders so they can trade directly between themselves without going through a middleman. They also make it possible for investors in different geographic locations to quickly and easily trade with each other. The U.S. Securities and Exchange Commission (SEC) requires ECNs to register as broker-dealers.

• Another benefit that traders like the most about an ECN account is that the spreads are quite low and accessible to everyone.
• So, market makers often charge higher spreads for a given stock or currency pair than you can find at ECNs, although trading with an ECN is not necessarily cheaper overall.
• The ECN system encourages you and doesn’t charge a commission until your order is executed.
• This network allows buyers and sellers in the exchange to find a counterparty of their trading positions.
• Prices reflect real, live market conditions at that time with the ECN providing a level of privacy to those who need it, such as those executing large orders.

The international financial market is constantly developing, and more advanced systems such as STP and ECN are replacing the standard interaction systems between clients and brokers. Since the transactions are carried out at the most favorable price for a trader, there is practically no spread, which makes ECN trading the most profitable at the moment. The basic principle of the ECN system is that the client’s order (trade) goes directly to the market, and its volume may even have some influence on the exchange price. This feature is something that Forex dealers usually can’t afford to make compromises on. ECN brokers guarantee that efficient trade performance is very much certain at every go.

Regulation ATS: Regulation of Alternative Trading Systems, Release No. 34-40760

I have already written how to distinguish between ECN and other Forex brokers. Traders choose brokers according to their trading style and purposes. I chose the LiteFinance broker eight years ago and have been working with it since then.

For example, most brokers in the US use the Payment for Order Flow (PFOF) model where orders are filled by a small group of market-makers. Going back to the choice of the trading mode, it becomes clear that there is no alternative to ECN or STP at ecn broker present. I have already mentioned many times such a concept as the commission charged by the broker. Let me explain in detail what the ECN commission is and how it is calculated. Any true ECN broker has the only source of income, commission fees.

Benefits of Electronic Communications Networks

In summary, a forex ECN broker uses the MT4 or MT5 trading platforms, and manages ECN trading as a ‘hub’, where all the major market players act as a liquidity source. The broker uses this network to provide its clients with direct access to other participants in the market. ECNs are computer-based systems that display the best available bid and ask quotes from multiple market participants, and then automatically match and execute orders. They not only facilitate trading on major exchanges during market hours, but they are also used for after-hours trading and foreign currency trading. ECNs allow for automated trading, passive order matching, and speedy execution.

This usually happens when your trading order is rejected because of the change in the price of the asset you want to invest in. Then, the broker offers you a “re-quote” of the given asset (which rarely works out in your favor). Usually, the way an ECN broker makes money is with the trading volume of its clients, charging a commission on each position. When buying or selling financial assets, there is always a spread differential between the best available buy and sell prices.

Electronic Communication Network (ECN): Definition and Examples

If you want to buy a product or a currency right away there should be a seller in the market willing to sell this product or currency to you. The FXCC ECN model offers clients the opportunity to trade in a global liquidity pool of regulated, qualified and competitive financial institutions. One of the major benefits of https://www.xcritical.com/ an ECN broker and a connected Forex trading account is trading consistency. Given the nature of Forex trading, a break is not essential, nor does it ever occur between trades. When you take advantage of an ECN broker, you can amenably trade during events and news, with it being likely to create a real flow of activity.

In order to summarize what I said, I once again focus on the benefits that traders can get when working with such a broker. This processing method implies a direct transfer of your order to different liquidity providers that are partners of your broker. Such a partner can be the largest bank or several banks at once. The more direct partners your broker has, the better the final execution price of your order will be. FXCC differs from a dealer or market maker as FXCC does not control the bid/offer spread and therefore we cannot provide the same bid/offer spread at all times. Envision it as a marketplace for broker’s clients to trade with each other, so traders like you can get the best possible offer at that moment in time.