ECN brokers Electronic Communication Network brokers are among the fastest emerging brokerages in the Forex world, and there's no question that new ECN brokers are opening their doors regularly. In short, ECN Forex brokers provide a marketplace where traders and market makers can place competing bids against each other. Minimum deposits for ECN accounts are often higher than they are with standard Forex accounts, but there are several significant advantages offered by the best ECN brokers, such as the ability for scalping and lower spreads.
With so many attractive options to choose from, choosing between different ECN trading options can be surprisingly difficult. Compounding the decision is the fact that many traditional brokers offer ECN accounts in addition to their standard trading accounts, which widens your pool of options.
To make your decision easier, we've compared critical aspects of some of the top ECN brokers to give you a starting point in your search for the best ECN Forex broker. Recent years have seen many new Forex brokers open their doors as ECN brokers. All these terms mean approximately the same thing: Non-ECN brokers, in contrast, take the other side of the trade themselves, creating a large and obvious conflict of interest with their clients.
ECN brokers typically charge lower spreads than market makers, which they compensate for at least partially by charging additional commissions on trade entries and exits which is calculated as a fixed percentage of the total value of the trade. Despite these fees, the combination of spread and commission is usually at least a little lower than the spread charged on a similar trade by non-ECN brokers.
It is this combination of lack of conflict of interest plus the typically low cost of trading that makes ECN brokers so attractive to traders, but there are some other factors worth considering before you decide that an ECN broker, or an ECN account some brokers offer both ECN and dealing desk type accounts is for you.
Account size — ECN brokers usually require higher minimum deposits. A few insist on minimum trade sizes as high as 1 minilot instead of the 1 microlot one tenth of a minilot that has become more standard within the Forex industry. Execution — ECN brokers typically offer excellent execution speed and sometimes spreads are even non-existent or inverted for a second or two. Note that during periods of very low liquidity execution may be seriously delayed as there is no market maker to take the trade if no client wants it.
This can lead to seriously negative slippage events or being stuck in a bad trade a little longer than you would be if trading with a market making broker. Spreads — these are usually an attractive feature, even when commission is considered. However, spreads can widen dramatically and can sometimes be beyond what market maker brokers will be offering at the same time. Spreads will of course vary a lot as they are based more precisely upon market supply and demand.
Fixed spreads are only available through market making brokers. They are rarely worth it economically, as it happens, but that is another story. Additionally, ECN brokers tend to require higher minimum trade sizes in these kinds of non-Forex instruments. This means that if you want to be very diversified, you might have another reason to consider using a market making broker in addition to or as an alternative to an ECN broker. Maximum Trade Size — ECN brokers usually offer much higher maximum trade sizes, as they at least theoretically do not have to worry about processing any order through a dealing desk.
ECN brokers, if they specify maximums, tend to place them at much higher levels. Although an increasing number of ECB brokers do now allow trading in microlot sizes, a few still do not, so it could be an issue if you prefer to trade in microlots. A true ECN broker is simply defined as a broker that plugs your orders into a network where it is automatically matched to a matching order from another client or liquidity provider.
This is the textbook definition to work from. Most brokers claiming to be ECN brokers are probably telling the truth about this at least, although if you see large spreads, spreads that never seem to really vary, or continuously slow execution, they are almost certainly not.
The network is only as good as its source. To be regarded as a real ECN broker, the liquidity provider should really be a tier 1 bank. We must wonder how often this is really the case, and why many brokers that advertise themselves as ECN brokers are so tight-lipped about which liquidity providers they use! When the first ECN brokers started appearing, bank traders started to ask how orders for minilots let alone microlots could possibly be sent straight through to tier 1 banks for processing.
Bank traders will tell you that at this level, trade sizes are usually in minimums of ten or so full lots. The final question is, does it really matter? If a broker is at least trying to match orders directly, there is not much of a conflict of interest, potential or otherwise.
If you benefit from a low cost of trading and relatively fast execution, then why not be happy with what you have got. Choosing an ECN broker is not very different from choosing any broker. There are not many special factors to watch out for at ECN brokers that differ from what should be the usual considerations.
When choosing any Forex broker, you should start from how much money you want to deposit, what kind of instruments you want to trade, how often you want to trade, and where you are located. Beginning with these three factors, you should be able to eliminate several brokers from your list of candidates. Starting with location, you might feel more comfortable with a broker located in your own country or a nearby country , or is in a country that speaks the same language as your or which has a similar legal system.
If you are a U. If you live in the United Kingdom, you might want a U. This is probably the easiest place to start and helps you narrow down the list considerably right away when choosing a Forex broker. The next step to consider is regulation and the safety of your deposit. This might not matter so much to you if you only intend to deposit a relatively small amount of money that is not very important to you. If not, though, this is a very big issue. Some countries have a well-developed culture of financial regulation enforcement, which is always reassuring, and are just not places where the big fraudsters can thrive.
Another big issue to consider is whether any protection is offered on your deposit. This means that if you deposit that amount or less with a broker regulated by and based in the United Kingdom, if they steal from you or cheat you or even just go bankrupt, you should eventually receive your deposit back from the government there.
This is a significant advantage, and provides a lot of reassurance. If your deposit is a significant sum, you should seriously question whether it is wise to deposit it anywhere that does not offer government-backed deposit protection. You also should be biased towards reputable financial centers and away from tiny islands you never heard of before!
The third factor to think about is the cost of trading. One way to compare spreads is to open demo accounts at each of your candidate brokers to see what their spreads really are. One potential problem with this strategy, however, is that brokers have been known to make conditions in their demo accounts, including spreads, significantly better than those which prevail in their real money accounts. Fortunately, there are a few websites which compare the spreads of real money accounts in real time across a range of different brokers, so looking here is going to be a good idea.
Another serious factor to consider in choosing a broker is your style or intended style of trading i. Are you or are you going to be a scalper, day trader, swing trader or position trader?
If you are making few trades but leaving your positions open for several days or even over weeks and months, you should consider how competitive are brokers are in terms of their overnight financing rates which are generally charged each day against positions left open at 5pm New York time.
For position traders, these rates can make more difference to overall profit and loss than the spreads charged, at least up to a point. However, if you are going to be leaving trades open for only minutes or hours but making many more trades, the spreads become a more influential factor, and overnight financing may not be an issue at all.
This means that of two Forex brokers, one might be the most economical choice for you as an intraday trader, but not as a longer-term trader holding positions overnight. Does it work smoothly, or does it have problems freezing up? It is easy, intuitive and pleasant to use, or not?
Does the execution work in a manner that suggests the Forex broker is a true ECN broker or something close to it? Bonuses and other beneficial promotions could be interesting, but check the small print: One good think about choosing ECN brokers is that they tend to aim at a more sophisticated market than market-making brokers, meaning that you probably will not have to worry about misleading terms or hard sells.
The most professional brokers of all sometimes have poor advertising and customer service, but they may be offering you the best ECN brokerage deal possible. Thinking of switching from a traditional broker to an ECN Forex broker? Discover the differences between market makers aka standard Forex brokers and ECN brokers, and determine which one can meet your current trading needs.
ECN brokers require higher trade volumes than most other Forex brokers, but they do allow scalping and excellent spreads. Read on to learn if an ECN Forex broker is right for you. Report Broker Scams Forex Widgets. Who's the king of the hill? Enter your email address here: With tight spreads and a lower minimum deposit than most other ECN brokers, Pepperstone brings the ECN trading experience to traders at with all skill levels and budgets.
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