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Forex trading market is drenched with tons of brokerage firms with different platform layouts and trading offerings. And it’s pretty difficult to determine what feature stands for what exactly. For instance, what is the difference between STP and ECN brokers? How can you tell which one’s more beneficial for your needs?
Well, it’s a good thing you stumbled upon our ECN broker guide, right? We’ll help you discover all of the amazing features of this trading platform, as well as some of its most acute dangers and shortcomings. So, make sure to read it till the end not to miss anything important.
Not everyone is an ECN broker!
Nowadays, the number of companies claiming to be ECN Forex Brokers is increasing day by day. The provision of services through Electronic Communication Network is often referred to as the Agency Model or A-Book, and often ECN is emphasized and is referred to as the True ECN.
So what exactly is ECN and who are ECN Forex Brokers? As mentioned above, ECN stands for Electronic Communication Network. What this means is that when your place an order, this order goes directly to the market without passing on to the broker, neither in terms of intervention, as is the case with Dealing Desk, nor as processing (STP). In many cases, the ECN engine also allows Exchange Execution, which means that you can directly buy and sell within the network of your broker.
Such a method of trading is appreciated for expecting a trader to gain profits and be transparent. ECN is quite resourceful for the broker, which is why there are many STP Brokers presenting them as ECN FX brokers. But we at TopForexBrokers make sure to only list real and true ECN FX Brokers.
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List of legit ECN brokers
The number of ECN Forex Brokers is quite small, as it requires a substantial investment into a proprietary pricing engine. Surprisingly, some brokers go as far as to develop their own trading platform connected to the pricing engine. Meanwhile, others simply offer better support and payment systems, while providing a white label of a platform developed by another broker.
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Best ECN Forex brokers – How do we select them?
When we are reviewing the best ECN FX Brokers, we look at a number of key components, so that you can easily see which broker suits you best. Generally, when it comes to selecting an ECN forex broker, you are choosing between platforms, licenses, and supported languages. Pricing comes in handy too, but as it is constantly changing, we have decided to disregard it in the comparison chart of the best ECN FX brokers.
The primary aspect of a truly ECN broker we’re looking at is its regulation. Since the Electronic Communication Network is this elite and complex, you need to find a broker that has specific guidelines and restrictions from a legit regulator. Otherwise, it’s very easy to get scammed by this broker, especially since they demand such high deposits and commission rates.
So, which ECN brokers can be considered safe to trade with? Well, in this sense, STP and ECN brokers are somewhat similar inasmuch as they share the list of trustworthy regulators, namely:
- Financial Conduct Authority (FCA) of the UK
- Cyprus Securities and Exchange Commission (CySEC)
- Australian Securities and Investments Commission (ASIC)
And other Tier-1 regulators. In short, a broker that abides by higher standards is someone you can never go wrong with.
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Is it better or worse to trade with legit ECN brokers?
Now, even if you do manage to find a legitimate ECN broker with the most trustworthy license and great trading terms and conditions, is it worth actually trading with such a broker? Are you actually getting significant benefits from this type of trading platform?
Well, this is a tough question to answer directly. It all depends on what you are looking to find with your perfect Forex brokerage. You should also consider your trading strategy when selecting a type of execution. If you are a scalper, you should not aim for anything less than STP or ECN. For positional trading, you should mainly take into account the swaps and commissions, spreads don’t matter as much. But as you are here for the ECN FX brokers, we shall be focusing on just that here, so let’s check the truth behind ECN in detail.
Is ECN cheap?
ECN forex brokers usually charge low spreads, frequently below a pip on majors. However, you will be charged a commission between $5 and $15 per one yard ($100,000) of transferred funds. So in total, you are paying less than 3 pips to complete a trade, which is not always the best offer when compared to STP.
But that’s not the entire picture here. ECN brokers almost always have much higher minimum deposit requirements. If your regular brokerage demands a 100 USD deposit to create a live account for you, the ECN broker will demand at least a micro lot’s worth of deposit from you, which is 1,000 USD/EUR in real number.
Moreover, even the minimum trading size will differ significantly. ECN brokers don’t go below one lot (100,000 currency units) at any given time, which means that a beginner trader won’t exactly be thrilled to start trading with this broker.
Are ECN FX brokers transparent?
Yes, they really are. ECN Forex brokers send out your orders directly to the market and only benefit from a part of the commission that you pay. These brokers expect traders to gain when trading Forex and there is no conflict of interest at play here.
On an ECN platform, you can find tons of liquidity providers that quote their own prices and try to find as many customers as possible. And in that competition, you’re allowed to select the most beneficial prices for your trading strategy.
Is an ECN FX broker a more secure one?
Judging from the nature of ECN brokers, we would say, yes. ECN brokers don’t “gamble” with your deposits, hence the chances that they will lose on clients’ trades and be short of money are significantly lower. Still, you have to consider some of the occurrences in the past, such as January 16th, 2015, a day known as a black Thursday for ECN brokers. Due to exposure to CHF, FXCM lost over 220 million USD, while the entire retail industry suffered significant losses amounting to over a billion USD.
Simply put, the entire structure behind the Agency Model needs support, which you can actually provide by opening an account with a true ECN forex broker. If you are looking for a good trading experience, and yet you want to enjoy some Forex trading bonuses – then ECN is likely not for you.
Pseudo ECN vs true ECN Forex brokers
Differentiating a true ECN Forex Broker from the one that is pretending to offer its services via ECN connection is quite challenging. As a rule, investments into ECN are quite substantial, which is why there are only a limited number of brokers offering real ECN Accounts. Unfortunately, the number of brokers that pretend to be ECN is quite high, simply supplying you with STP connections while claiming otherwise. Even though STP Brokers are by no means bad, they are definitely not ECN, and claiming that they are True ECN brokers put them in a rather questionable position.
What is an attribute of a True ECN FX Broker?
ECN accounts are the ones that provide you with market and exchange types of execution. In other words, with ECN, a broker sends your order directly to the market, not only allowing market players that are connected to the same liquidity provider to be a counter-party in your trade, but it also lets traders of the same brokerage to easily exchange their orders. In other words, if I am a client of FxPro and I currently have $100,000 of EUR/USD long, and I would like to get rid of this position, I can simply get rid of it by selling it to someone who is currently looking to acquire a EUR/USD worth $100,000 short.
In general, a broker needs to connect a number of prime brokers and other liquidity providers to its ECN pricing engine, invest heavily in the servers, and constantly optimize the system in order to supply the Best True ECN executions.
What are the features of Pseudo ECN?
Unlike True ECN, Pseudo ECN is simply an imitation of the former. Usually, brokers supply you with a regular STP account that has no dealing desk attached to it, and as a marketing gig, they name their connection as ECN or True ECN. It is also common to see ECN in the names of the account. In other words, Pseudo ECN basically an STP.
Moreover, you can also spot a fake ECN broker by looking at their trading specifications. If they have suspiciously low deposit requirements, low commissions, and the ability to open trades at micro lots, then you can be pretty much sure that you’re not seeing an ECN broker. That’s because, as noted earlier, ECN brokers have very high-tier trading terms and conditions and not everyone can trade with them.
How to understand if my broker is not a True ECN?
The simplest way is to judge by the size of the broker. As we have already mentioned, true ECN execution requires a substantial investment beforehand, hence if your broker is a small/medium player on the retail FX market – it is most likely, not ECN.
Next to the broker’s size, you can also take a look at the spreads. There is no way an ECN broker would supply you with spreads that do not start from 0 pips. In other words, if the spreads tend to be 0.5 pips on average, and you have never seen a spread of 0 pips – your broker is definitely not offering true ECN.
How do ECN Brokers make money?
The answer to this is rather simple, they do so through commissions. Whenever you trade on a real ECN, there will always be a commission attached to your trading. Depending on the broker, this commission will usually be from $5 to $12 per $100,000 of the volume per side.
If there are no commissions attached to your ECN account – then rest assured that is not a real ECN you are dealing with. A broker may, of course, place a certain mark upon its ECN spreads, but this a rather practice. The majority of the True ECN FX brokers simply add a commission per each side of the trade and make money this way.
The best ECN brokers – Key takeaways
So, after all this discussion about ECN Forex brokers and how to differentiate them from other broker types, what can we say about them: are they safe or beneficial to trade with?
Well, as noted earlier, it depends on what you need from a broker, as well as from your trading strategy. If you’re someone who’s just starting out on their Forex trading career, then getting an ECN broker is definitely not a good idea. They have very high demands and conditions that are not cut-out for beginners or even intermediate traders.
On the other hand, if you’re planning to expand your trading account to hundreds of thousands in volume and are looking into interacting with liquidity providers yourself, then the ECN broker is the best option for you. You’ll be able to find all sorts of liquidity providers with competitive price listings, which helps you find the best prices and reduce spreads as much as possible.
In short, you only need to look for the ECN broker if you really need one, and you’ll be able to tell when that time arrives. And once that happens, you can always come back to our in-depth guide to the best ECN brokers to find a firm of your liking.
