What Is An ECN Forex Broker – An Expert’s Complete Guide 2024

By Wilbert S

January 10, 2024   •   Fact checked by Dumb Little Man

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ECN Forex trading has recently gained popularity among investors and traders alike. ECN is the abbreviation for Electronic communication network, which refers to social networking among traders and brokers across the globe. Earlier Forex trading was limited to central banks and limited institutions and investors but with the advent of socialization, forex trading has shrunk into an investment opportunity for any average individual.

To explain the importance of ECN Forex trading we’ve got Ezekiel Chew, who is a proven Forex trader and expert Forex trainer. He is known for his expertise in Forex trading and has trained uncountable traders, investors, and institutions to earn remarkable returns per trade.

According to Chew, ECN Forex traders have changed the entire domain of Forex trading. Through communication networks across the globe with banks, institutions, and, even individual traders, the ECN brokers have enabled Forex trading to reach the average person. Now thanks to ECN Forex brokers anyone with limited liquidity or experience can test the waters of Forex Trading.

To understand the role, importance, advantages, and impact of ECN Forex brokers this review provide a comprehensive guide for traders and investors. The article will also help individuals to recognize and verify the most appropriate and competent ECN brokers from other types of brokers. So that it is easier for anyone to approach these brokers being well-informed.

What is an ECN Forex Broker

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ECN Forex Brokers are the ones who eliminated the domination of Central banks, institutions, and wealthy investors in forex trading. Earlier Forex Trading was not considered everyone’s cup of tea. It was a complicated task for an average trader with limited capital to invest in currency exchange and earn profits.

However, with the help of communication technology, expanding social networks for forex trading became possible. Consequently, ECN Forex trading emerged and became an important aspect of Forex trading.

An ECN (Electronic communication network) Forex Broker is completely devoted to facilitating the traders to reach direct clients without a mediator, across the globe. These brokers, with the help of the automated social network, connect two parties with similar trading needs, enabling them to trade with each other and prosper in the trading process.

The most beneficial aspect of ECN Forex brokers is that now even individuals with a limited account size can step into the realm of Forex trading as they help traders search for investment opportunities beyond any institutional or geographical limitations.

ECN Trading Explained

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ECN trading is a term for a trading platform where the buyers and sellers can approach the global forex market directly without any interference from third-party market brokers. The electronic communication network is facilitated by the ECN brokers. These brokers are not directly involved in the trading process however, they facilitate the traders to connect with the forex market through their brokerage platform.

ECN Forex trading is now widely used and is a popular platform among traders because the communication network made it easier for traders to find buyers and sellers with similar terms. Moreover, through an ECN trading platform, the ECN brokers would prepare the spreads for traders including their commission. As a result, through an automated network traders can select the most appropriate spread and can invest accordingly.

The best part about ECN forex brokers is that they are regulated by the Securities and Exchange Commission (SEC) and National Security Association. This makes ECN brokers more secure and trustworthy for investors and traders.

ECN trading has made Forex trading simple and straightforward. Additionally, the ECN brokers further facilitate the forex trading process making it faster and within the reach of every individual. Therefore, a wide range of traders and investors make hassle-free ECN accounts and can start Forex trading conveniently.

What is an ECN Trading Account

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It is a common understanding that traders who wish to make investments in the forex market need to open an account with their chosen forex broker. However, conventionally through these accounts, the traders were trading not with the buyers or sellers. In fact, other market brokers would mediate between the buyer and seller to earn their commission, from the transactions.

These traditional accounts had the drawback of intervention in the trading process. So traders could not take the decisions themselves effortlessly and would have to deal with the deal party first. The free-flow of trading exercise is supported to a great extent by the ECN trading account.

The negative side of ECN accounts is that they do have a minimum opening balance requirement from the investors. This makes ECN accounts a selective choice for big investors however, new retail traders might not be able to open an ECN account due to low initial capital.

The ECN trading accounts can be opened through any ECN trading platform. With ECN accounts, traders can directly link up with the buyer/seller without any meddling from the market brokers. Furthermore, the ECN forex brokers facilitate the traders in opening an ECN account and at the same time enable traders to connect with diverse tradesmen across the globe through their automated ECN network.

How to Verify an ECN Broker  

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New traders, as well as experienced investors now, prefer to deal with ECN brokers than traditional ones. The reason for this preference is that through ECN brokerage platforms traders are not dependent on the brokers. Moreover, traders make decisions themselves and can choose their strategies to trade according to their financial needs and preferences. Hence, there is no pressure when it comes to ECN brokers.

However, due to the rising demand for ECN brokers, many traditional brokers are also offering ECN identical accounts. Regardless of this, it has been often observed that these brokers have a conflict of interest and are not genuinely ECN forex brokers. It is even possible that these unregulated brokers would trade against their customers to gain more profit.

For this reason, it is important to verify the legitimate ECN brokers however there is no legal checklist to confirm the bona fide ECN brokers. Still, there are several ways through which traders can identify licensed and authentic ECN forex brokers. Such as their trading restriction strategies, the types of spreads they offer, and also sometimes spillage.

ECN Brokers vs Dealing Desk Brokers

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Dealing Desk brokers are conventional forex brokers who are also known as market makers. These brokers function as liquidity providers in the forex market. Moreover, dealing desk brokers works as a mediator between two trading parties. For this reason, there are many pros and cons of dealing desk brokers compared to ECN forex brokers.

The biggest advantage of a dealing desk broker is that mostly they do not have limitations or restrictions on the minimum deposit for opening a forex trading account. So trades are encouraged to approach them even if they have limited trading capacity. Secondly, the trading costs are also minimal as dealing desk brokers do not charge their fees on each trade. Thirdly, dealing desk brokers are also favorable for providing stable spreads to the traders.

ECN Forex brokers, on the other hand, are appreciated more for their lack of interference in the trading transactions. The role of an ECN broker is limited to just providing a platform for the traders to trade forex. Additionally, as there is no involvement of ECN brokers in the transactions, it ensures transparency and liberty in the trading process. The traders can directly coordinate with the buyers and sellers without any doubts regarding re-quoting or manipulation.

Hence, it has been observed that new retail traders who are looking for small trading transactions initially prefer dealing desk traders. As these inexperienced traders need the support of brokers to carry out their trading transactions at a minimal deposit. Whereas experienced investors go for ECN brokers to have the freedom of choosing their trading strategies without any interruptions from the brokers.

ECN Brokers vs STP Brokers

Another category of Dealing desk brokers is STP brokers. The reason that traditional brokers came up with this option is because of the strong preferences of traders toward the ECN broker. Therefore, the STP brokerage model is similar to the ECN trading platforms.

Straight Through Processing (STP) is very much like the ECN broker where brokers do not participate in the trading activity but only provide an effective trading platform. Even when on the surface the STP brokers seem to be providing the same services as the ECN brokers, there are minor differences between them that may inflict adverse trading effects for the traders.

The first difference is that STP brokers are not liable to not trade against their clients. For this reason, there is a probability of conflict of interest where brokers may trade in opposition to gain maximum profits. Secondly, the aspect of transparency is not present with STP brokers as they may re-quote or manipulate traders for their own benefits.

Thirdly, STP brokers do not restrain traders who have a low trading balance as they earn through the profit they gain profit in multiple ways other than the per transaction fee which is the case with ECN brokers. Lastly, STP broker mostly offers fixed spreads where there are minimal chances of variation. On the other hand, there are no fixed spreads but only variable spreads when it comes to ECN brokers.

ECN Broker Advantages

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There are many advantages of ECN brokers due to which it has been in the limelight for traders and investors recently. The biggest advantage is the absence of conflict of interest. As ECN brokers allow traders to trade with the interbank market participants without any mediation, it makes the trading process free from manipulation or tempering.

Secondly, to gain maximum profits and greater returns, it is a requisite of forex trading to make speedy transactions. Traders who take time to make decisions might end up facing market volatility. This eventually may lead to delayed trading transactions. In contrast, ECN trading platforms provide prompt processing to match market participants through their automated network so that the traders can swiftly make trades.

Thirdly, there are almost negative chances of spillage or requoting by an ECN broker. As they are not market makers and not involved in the trading process. Moreover, through the presence of automated trading platforms, no broker intervention makes an ECN broker more trustworthy and reliable.

ECN Broker Disadvantages

There are also some downsides to even the best ECN broker. For one, they charge a fixed commission fee on each trade. This may not be an issue for those who gain reasonable profits through their trading transactions. However, traders who are not trading with a considerable amount and those who may be facing losses in their trade, would not be able to afford an ECN broker and would opt for other brokerage services.

Additionally, ECN brokers only earn through the commission fee from traders. As a result, ECN brokers also demand a substantial amount for opening an ECN account as the greater the investment the higher will be their profits. Consequently, traders who have limited capital may not be able to approach the ECN broker and would look for other options that accept low initial deposits.

Moreover, new traders may not be enough to do trading on their own through the automated network and would require technical support from an expert or experienced mediator to guide them through. In such a scenario, an ECN broker would not be a good choice for the trader as they do not offer any such expertise.

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Ezekiel Chew's Biography
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Conclusion: ECN Forex Broker

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Any individual who takes interest in the forex market and wants to invest in this money market would have to deal with forex brokers in one way or another. However, choosing the appropriate broker who would cater to the financial needs of their clients, is crucial. Since traders and investors put their trust in the Forex brokers and their brokerage platforms, it is of utmost importance that the brokers are regulated and legitimate in their work.

There are multiple types of Forex brokers all of them function differently in the trading process. Most sought-after among these are the ECN forex brokers who facilitate the traders by providing them with an automated ECN platform. The reason ECN brokers are preferred over traditional brokers is that the ECN system has more transparency, reliability, and minimal intrusion in the transactions per trade.

Experienced traders and investors with weighty investment objectives go for ECN brokers because of the automated network. This network connects traders directly with the interbank market participants without any meddling from the brokers. Therefore, there are no chances of conflict of interest or manipulation from the brokers as they are not the benefactor of the trading transactions.

Since ECN forex brokers only charge their commission per trade, this makes traders less dubious about any re-quoting or exploitation. As a result, with the help of a trustworthy and verified ECN broker, all traders and investors can trade with satisfaction and peace of mind.

ECN Forex Broker FAQs

How do ECN Brokers make money?

Unlike conventional brokers, the best ECN forex brokers do not rely on maximizing their profits through ruthless trading against their clients. Such brokers earn money by participating in trade transactions and can mislead their clients by calculating strategies. Moreover, some shrew brokers also earn by providing fixed spreads to make a profit for themselves.

In contrast, ECN brokers make money by getting their commission from traders per trade. As there is no other source of income for ECN brokers, they also have conditions of a minimal ECN account balance and do not deal in very low trading investments. Hence, ECN brokers make money when traders make money and invest in more trades through their commissions.

Is an ECN Platform similar to an Exchange?

There are major differences between an ECN forex platform and a financial exchange. The best ECN forex brokers are legalized and regulated by the governing body. Therefore, ECN brokers are more reliable and there is almost zero chance of any deceit or dishonesty.

Exchanges, on the other hand, are not controlled by any regulating body therefore they have their own rules and regulations. For this reason, financial exchanges widen their perspective and often make their own cannon which most of the time resembles the regulating bodies.




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Wilbert S

Wilbert is an avid researcher and is deeply passionate about finance and health. When he's not working, he writes research and review articles by doing a thorough analysis on the products based on personal experience, user reviews and feedbacks from forums, quora, reddit, trustpilot amongst others.

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