ECN Forex Trading Guide

ECN trading is the future of Forex Trading as it provides enormous liquidity, speed, and very tight transaction cost.

What means ECN and ECN Forex Trading

ECN means Electronic Communication Network and refers to the Electronic Network of Banks. This network is designed to match automatically bid and ask orders and to execute transactions without intervention. Via the use of the ECN network participants in different geographic locations can easily trade with each other without the need of a middleman.

Connecting Retail Traders with ECN Liquidity Providers

ECN Forex trading is an electronic bridge connecting Tier-1 liquidity providers (banks) and smaller market participants such as retail traders. This connection is realized via an ECN Forex Broker and the use of a Trading Platform such is MetaTrader4.

Read more on ECN Forex Trading FAQ

How ECN Trading Actually Works?

The ECN Forex Brokers connect with the ECN Network via the FIX Protocol (Financial Information Exchange Protocol). This liquidity bridge is taking advantage of the vast market depth of the International Banking Industry. The ECN Forex Broker drives liquidity from tier-1 and delivers it to its clients without interference.

Variable Trading Spreads
Unlike Dealing-Desk brokers, ECN Forex brokers offer variable spreads to their clients. This is happening as ECN Forex Brokers do not control the bid/offer prices, and thus, they can offer only variable spreads and not fixed spreads. Any broker model offering fixed spreads is by rule the front end of a Dealing Desk system.

Types of ECN Forex Brokers

As in the case of other brokerage types, there are two main ECN Broker types: retail ECN brokers and institutional ECN brokers.

 

FXCC Forex Trading

ECN Forex Trading Pros and Cons

The ECN Forex trading provides several advantages to Forex traders, and therefore, it is considered a ‘must’ for all professional and large-volume traders. Here are some of the advantages and disadvantages of ECN Forex Trading.

ECN Forex Advantages:

  • Narrower spreads between bid/ask prices and thus lower transaction cost
  • Enormous liquidity that can be transformed into filling trading orders almost under any circumstances
  • No re-quotes and no price manipulation
  • The ECN brokers do not trade against their clients as in the case of Dealing-Desk brokers and that makes trading more reliable
  • Fast speed of trading, essential for scalping Forex
  • No execution delays even when important News is released, essential feature for News-Traders
  • ECN Forex brokers allow Automated Trading, Scalping, Hedging and the use of Expert Advisors
  • API trading is usually available by ECN Forex Brokers. API is a technology allowing traders to perform sophisticated risk management models and complicated automated trading strategies
  • Anonymity, as ECN trading activity is by nature anonymous. This feature enables trading on neutral prices and real market conditions

ECN Forex Disadvantages:

  • Many ECN Brokers do not offer news feeds
  • The minimum deposit for opening an ECN Account is usually 1,000USD
  • It may prove difficult to calculate the correct stop-loss orders as the spreads of ECN brokers are variable and not fixed

Transaction Cost when Trading with ECN Forex Brokers

ECN Forex brokers may charge spreads between ask and bid and / or trading commissions per transaction. The transaction cost when trading with an ECN Forex Broker is generally lower than trading with other brokerage types (for example Dealing-Desk brokers). Real ECN brokers do not charge re-quotes and do not manipulate prices in any way. Furthermore, they provide anonymity of trading. Here is a table with the trading spreads and other information of three popular ECN Forex Brokers.

ECN BROKER

EURUSD Spread

Minimum Account

Visit Broker

DUKASCOPY EUROPE

0.35 pip plus $3/lot commissions

$100

» Dukascopy Accounts

FXCC

1.0 pip

$100

» FXCC Trading Accounts

HOTFOREX

1.6 pip

$500 (CurreneX)

» HotForex Web-Site

Read more on Choosing ECN Forex Brokers

ECN Forex Trading Conclusions

ECN Forex trading includes strong features and important advantages for institutional and retail Forex traders. The main advantages of ECN trading are tight spreads, no-re-quotes, fast execution and anonymity. ECN Forex trading can be considered essential for day-trading strategies including Forex Scalping and News-Trading.

  

ECN Forex Trading

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