Electronic Communication Network (ECN) Forex Brokers

Richard Montana | October 26, 2022

An ECN forex broker is a financial intermediary that uses electronic communications networks (ECNs) to give clients direct access to other participants in the currency market. ECN forex brokers display the best available bid and ask quotes from multiple market participants, and then automatically match and execute orders.

ECN trading provides you with tighter spreads and greater depth in market pricing. This is because the ECN broker consolidates quotes from several participants in order to offer you the tightest bid/ask spreads available. This highly automated trading process results in real-time market quotes and speedy execution.

It’s not just individuals who can take advantage of an ECN broker, but financial institutions such as banks. The broker provides a marketplace where these clients can trade against each other, sending bids and offers into the system.

An ECN account offers a true matching order execution system where the brokerage charges a fee on each trade. It’s different from conventional trading, where the raw spreads are often increased artificially.

What is a true ECN forex broker?

True ECN brokers are the one that offers raw bid/ask market spreads to traders. They do not inflate the spreads and charges commission on the transactions of every lot. It builds a direct bridge between brokers and liquidity providers on behalf of retail traders. Some forex brokers take this one step further through true ECN. Some ECN brokers take your trades to different banks and hedge funds rather than to the entire network.

How do you identify an ECN forex broker?

There are many things to look out for in identifying a true ECN broker. Any regulated brokerage firm should provide information regarding its regulated status on its website. ECN forex brokers usually offer zero spreads and generally charge lower trading costs as they can pass savings onto clients.

Another way to ensure that you’re dealing with a genuine ECN broker is that ECN brokers do not present traders with the problem of slippage and requotes. Requotes occur due to the slower execution of dealing desk forex brokers. You should see minimal slippage with ECN brokers which makes them a popular choice for traders who are using scalping strategies that need the tightest spreads possible at all time.

In order to be a true ECN broker, a broker must provide real time Depth of Market (DOM) information in a window on their trading platform showing every single order to allow traders to see exactly where the liquidity lies. True ECN brokers do not have a dealing desk so should not interfere with your trades. This is known as an NDD forex broker.

How do ECN brokers make money?

In return for executing buy or sell orders with extremely tight spreads, the forex broker will charge a commission per trade or a spread. That is primarily how ECN forex brokers make their money. It is therefore in their interest that your trading is successful as it means that you are more likely to trade more and they will gain more in commission fees.

What are the advantages of an ECN forex broker?

  • There is no dealing desk or other third-party interfering with your trades
  • It offers some privacy to traders
  • You can get your trades executed at the best prices on the market at all times
  • ECN forex brokers can offer tighter spreads and lower commission fees
  • It allows trading outside the usual trading hours and is available around the clock
  • It eliminates the possibility of price manipulation

What are the disadvantages of an ECN forex broker?

  • Some brokers claim to use ECN execution when they really don’t
  • Usually charge a commission fee on top of the spread (can still work out cheaper)
  • Strict regulation can limit the trading products and account features they provide
  • Can have higher minimum deposit requirements
  • Do not always provide mini/micro lot accounts

ECN vs STP forex broker

An STP forex broker is a broker that offers Straight Through Processing of trade orders. These are brokers that send the trader’s orders straight to the liquidity providers (major banks) for trade order processing and fulfilment.

ECN accounts can offer tighter spreads and a cheaper overall cost of trading in liquid market conditions, but STP brokerages can offer a similar ease and cost of execution without the disadvantage of the increased cost from a dealing desk.

ECN brokers always charge a commission on trades, whereas STP brokers can charge commissions and gain from the spreads. ECN forex brokers only route orders to the interbank market, whereas STP forex brokers can route orders to any of their liquidity providers such as banks or interbank exchanges.

ECN vs market maker brokers

A market maker in forex is a company that provides liquidity to the market by buying and selling currencies at their own price. This allows them to make a profit on the spread between the bid and ask price of a currency pair.

Unlike the ECN broker, who feeds orders directly through to a liquidity provider offering the best price, a market maker may be more incentivized not to offer you the best price available due to the conflict of interest.

Market Makers make money from the bid/ask spread. The more actively a currency pair is traded the more money a Market Maker makes. It is often believed that Market Makers manipulate the prices which is why an ECN broker is preferred.

Who are the best ECN forex brokers?

There are many ECN brokers available and the best ECN forex broker is the one that has all of the features that you are looking for. Things to consider include currency pairs offered, other financial instruments, trading platforms, trading apps, funding options, leverage, customer support and more.

Broker
Rating
Regulated
Min. Deposit
Founded
Max. Leverage
1.
IC Markets Review

ASIC, CySEC, FSA, SCB

$200

2007

1:500

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
2.
Pepperstone Review

ASIC, BaFin, CMA, CySEC, DFSA, FCA, SCB

$200

2010

1:400

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
3.
XM Group Review

ASIC, CySEC, DFSA, IFSC

$5

2009

1:888

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
4.
FP Markets Review

ASIC, CySEC, SVGFSA

$100

2005

1:500

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
5.
BlackBull Markets Review

FMA, FSPR

$200

2014

1:500

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
6.
Eightcap Review

ASIC, VFSC

$100

2009

1:500

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
7.
Markets.com Review

ASIC, BVIFSC, CySEC, FCA, FSCA

$/£/€100

2008

1:300

79.90% of retail investor accounts lose money when trading CFDs with this provider.
8.
IronFX Review

ASIC, CySEC, FCA

$50

2010

1:1000

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
9.
FXGiants Review

ASIC, FCA

$100

2015

1:1000

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
10.
GO Markets Review

ASIC, CySEC, FSC, FSA

$200

2006

1:30

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.

Conclusion: should I trade with an ECN forex broker?

In my opinion yes, I would always opt for an ECN forex broker over and STP or market maker. They have some of the tightest spreads, lowest commission fees and superior execution speeds. This can help you to save on trading costs in the long run, especially if you are day trading.

About the Author

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Richard Montana
Richard has many years of experience in broker research, testing, analysis and reviews. He knows what to look for through years of trading himself with different brokers and listening to the feedback of others.

Review Methodology

For all of our broker reviews, we research, validate, analyse and compare what we deem to be the most important factors to consider when choosing a broker. This includes pros, cons and an overall rating based on our findings. We aim to help you find the best broker according to your own needs. You can read more about our review process.


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