Learn all about ECN Trading

Table of Contents

Introduction

Due to its clarity, execution speed, and competitive pricing, ECN trading has become extremely common among forex traders.

It has become the most common form of trading account for majority of traders worldwide due to direct access to liquidity providers, automated matching, and execution of orders.

 

In this guide, we are going to discuss what an ECN trading account is, and how you can benefit from it.

What is ECN?

The Electronic Communications Network, or ECN, is an electronic infrastructure that brings buyers and sellers together to execute trades. This is achieved by enabling access to knowledge about instructions that are being entered as well as facilitating the execution of these orders.

The network is built to balance existing buy and sell orders on the exchange. When precise order information is unavailable, it displays rates based on the open market’s highest bid and lowest ask.

An ECN, like most of today’s over-the-counter forex industry, is a highly sophisticated part of trading since it links traders to major liquidity suppliers around the world, such as banks, brokerages, and other traders, regardless of the size of the trades.

 

This removes the traditional ‘middleman’ position, and as order convergence improves, so does the overall flow of orders in the network, which is great for ECN traders looking for the best pricing.

How Does the ECN Trading Account Work?

Traders have direct access to a variety of prices from a variety of market participants through their trading platforms. This means they’ll see the best bid and ask rates in the industry, giving ECN account holders a better understanding of market-pricing. This automated process then uses the network to allow buyers and sellers to find a counterparty instantly.

Orders are immediately matched and executed, so traders can rest assured that the broker they are using will never trade against them.

For their customers, an ECN Forex Broker should not use a dealing desk. They never give their order flow to market makers and just match traders.

There is no benefit gained on the spread difference on each transaction. Instead, the ECN broker charges a small fee to traders.

Non-dealing desk brokers, or ECN brokers, do not transfer order flow to market makers. Instead, they electronically match exchange participants and pass orders to liquidity providers.

 

An ECN broker manages trades around the ECN for interested traders. Because of how the ECN works, working with brokers of this kind also results in lower fees and more trading time availability.

Pros of an ECN Trading Account

Because of how the information is distributed, many people consider price feed transparency to be an advantage.

A fraction of price history is also readily accessible, allowing for a more in-depth study of industry patterns. This helps to limit price manipulation because everybody has access to current and historical data, making it more difficult to behave unethically.

 

Furthermore, no trader has an inherent advantage over the other since they all have fair access to the same knowledge.

Bottom Line

For those concerned about privacy, the ECN trading account can provide a level of anonymity to those who desire it. This can be particularly attractive to traders interested in making larger transactions.

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