The best way to describe an ECN broker is to say what they are not, and what they are not is a market maker. Market makers also referred to as dealing desks “mirror” the actual market and provide the other side for their clients’ trades, but this poses an ethical problem because the broker frequently profits from the losses of their clients. With an ECN broker, there are no such problems. They offer better trading conditions, with better spreads and execution.
Not so long back, forex trading accounts had wide spreads. Most currency pairs had spreads that might be up to 10 times bigger than the ones we see now. For example, just eight years ago, EUR/USD had a spread of three pips, quotes were usually four digits only, and brokers were market-makers. But ECN has changed all that.
So how do you make the most of these no-dealing desk brokers, who bridge the gap between retail traders and liquidity providers? The first thing to realize is that you’re already winning when you use an ECN broker. Because they link retail traders and liquidity providers, they will charge you a fee, of course, usually adding their percentage to spreads, or taking commissions on each traded position, but this setup is to your advantage because the platform automatically routes your order broker’s liquidity providers for a smooth and seamless process.
An ECN account gives you the best possible market conditions because the ECN broker puts your interests as a trader first, because if you’re an active trader then you will bring in commissions and earn them their representation fee. The ECN broker wants you to succeed so that they can.
Take advantage of trading conditions by using an ECN broker. It’s normal for them to offer better execution and tight spreads and those fast executions on trades mean you’ll experience less fallout from slippage.
With the popularity of ECN trading having grown there are plenty of less-than-honest operators out there, so be sure to choose only established forex currency trading brokers who can demonstrate that they are ethical. Can you verify their business dealings? Do they have a genuine office and a string of happy customers? How many years have they been in business, or did they just appear last week? It’s well worth looking at unbiased review websites to find out what people are saying about them, and avoid any broker who you can see has ripped people off before.
Another thing to keep in mind is regulation. Any broker worth their salt needs to be visibly and tangibly working under the rules and regulations of the industry. Are they registered with the financial conduct authority that’s responsible for their territory? Don’t take their word for it, check with the authority to see
if they are registered.
These charges affect traders who move their positions to the next trading day. Scalpers and day traders needn’t worry about them, but swing traders and long-term traders will need to take them into account. It’s only a small figure, but it’s one that can quickly build if you take your eye off it for too long. So be aware of the minimum margin requirements for over-night positions. 0.5% you can live with, 2.0% you probably can’t.