Broker Execution Types ECN

As you may know, there are a few different types of brokers in the retail foreign exchange market including Market Maker, ECN, STP and etc. The criteria we talked about here is the order execution type, basically, how a order will be executed after you placed one through your Electronic Trading Platform, Telephone or other methods. Each execution type has its own advantages as well as disadvantages comparing with other types. In this article, we are only focusing on ECN brokers. Please check other articles if you would like to know the feature of other type brokers.

The ECN stands for Electronic Communications Network. Unlike a Market Maker broker, an ECN broker does not have no-dealing desk (also known as NDD), but they provide an electronic trading platform in which professional market-makers at banks, as well as traders and other forex market participants can enter bids and offers through their system.  ECNs pass on prices from multiple market participants, such as banks and market makers, as well as other traders connected to the ECN, and display the best bid/ask quotes on their trading platforms based on these prices. ECN-type brokers also serve as counterparties to forex transactions, but they operate on a settlement, rather than pricing basis. Unlike fixed spreads, which are offered by some market makers, spreads of currency pairs vary on ECNs, depending on the pair's trading activities. During very active trading periods, you can sometimes get no ECN spread at all, particularly in very liquid currency pairs such as the majors (EUR/USD, USD/JPY, GBP/USD and USD/CHF) and some currency crosses. To be a true ECN, a broker must display the Depth of the Market (DOM) in a data window, let clients show their own order size in the system and allow other clients to hit those orders. With ECN broker traders can see where the liquidity is and execute trades.

Electronic networks make money by charging customers a fixed commission for each transaction. Authentic ECNs do not play any role in making or setting prices, therefore, the risks of price manipulation are reduced for retail traders.

Advantages:


  • Traders can usually get better bid/ask prices

  • The spread is very tight or no spread at certain times

  • ECN brokers will not trade against you

  • Prices may be more volatile compared with the price from a Market Maker broker, which will be better for scalping purposes.

  • Since you are able to offer a price between the bid and ask, you can take on the role as a Market Maker to other traders on the ECN


Disadvantages:

  • Traders have to pay a commission for each order they placed

  • The initial deposit is quite high for opening a ECN account

  • It may be more difficult to calculate stop-loss and breakeven points in pips in advance because of variable spreads between the bid and the ask prices.


Please find out all the Market Marker ECN brokers by clicking Here

Article Source: www.findyourfx.com

The Response to above acticle

2012-04-21 14:06:22
Review by:
Nilesh
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