What Is An ECN Forex Broker?
The goal of forex trading is to maximize profit and minimize risk. There are two types of forex brokers. STP brokers are for straight-through processing.
This is the intermediary between liquidity providers (the trader) and you (the trader).ECN brokers are second, which allow traders to communicate directly with liquidity providers and providers of trading assets. An ECN broker stands out from a traditional broker because it uses an ECN system.
The term ECN Forex Brokers stands for “Electronic Communications Network” Forex Brokers, and they are considered to be the only “true brokers”. By definition, a broker is supposed to connect buyers and sellers, without participating in the transaction itself. Brokers are supposed to be only pocketing a commission.
The term ECN was first used by the SEC to define, “an electronic system that widely disseminates to third parties orders entered therein by an exchange market maker or OTC market maker and permits such orders to be executed against in whole or in part.(more on Wikipedia)
A good example to emphasize the relationship between brokers and traders would be a real estate broker, where the real estate broker has no interest in the property that is purchased or sold, however they play an active role in connecting a willing buyer and seller.
This also applies in the Forex market among true ECN Forex Brokers. Their only job is to join buyers and sellers of currency, without actively managing any of the funds themselves.
ECN or Electronic Communications Network Forex Brokers is financial software that establishes a link between traders and financial institutions that provide liquidity. They allow both parties to have a direct connection, by automatically matching requests for purchasing and selling at the most suitable available price from various participants.
Simply put, ECN Forex Brokers offers instant results with optimal performance and high internal liquidity, as they bridge willing buyers and sellers with the most affordable prices in the market. You can read more about it on Investopedia.
The Electronic Communication Network(ECM)
Electronic Communication Network or ECN Forex Broker is a financial institution that provides streams of market depth with the best available bid and asks prices. ECN Forex Brokers usually earn their revenue from charging a commission, per trade volume. They do not make any revenue through the ask spread and they do not profit from any of its clients’ losses.
True ECN Forex Brokers supply a professional trading platform where the best bid price is retrieved from its tier-1 liquidity providers. ECN Forex Brokers provide an interbank spread from 0.0 pips and charge a fixed commission per lot. Furthermore, this particular implementation of interactions does not cause any misunderstanding between the broker and the trader, which emphasizes the transparent relationship and the trading conditions.
Aside from the competitive trading costs, ECN Forex Brokers allows extended trading time, along with high efficiency for automated trading and various trading strategies.
ECN Forex Brokers are among the fastest emerging brokerage firms in the Forex market, and there is no question that new ones are constantly opening their doors. Simply put, ECN Forex Brokers provide a marketplace where traders and market participants can place competing bids against one another.
The Best ECN Forex Brokers offer traders the best trading conditions that provide an edge without any risk of broker or dealer intervention and the various advantages include that they do not pose any conflict of interest, they are cheaper due to the spreads, and they have high liquidity in all categories of traders.
Best ECN Brokers in 2022
Through our thorough review process we chose the following brokers:
- OctaFX – Best for Education, Copy Trading, and Local Support
- Pepperstone – Best Overall and Most Trusted Forex Broker
- BlackBull Markets – Best Web Trading Platform and Instrument Collection
- Vantage – Great for Professional and New Traders
- Avatrade – Best for Beginner Traders, Great Mobile App
OctaFX
Pepperstone
BlackBull Markets
Vantage
Avatrade
Learn2Trade
CryptoSignals
1000pipbuilder
DDMarkets
Etoro
1.
OctaFX
- Best for Education, Copy Trading, and Local Support
Regulated By:
SVGFSA(octafx.com), CySec(octafx.eu)
Leverage:
1:500
Min. Deposit:
$25
Trading Instruments:
250+
2.
Pepperstone
- Best Overall and Most Trusted Forex Broker
Regulated By:
FCA , ASIC, CYSEC, BAFIN, CMA, DFSA, SCB
Leverage:
1:30
Min. Deposit:
$200
Trading Instruments:
1000+
3.
BlackBull Markets
- Best Web Trading Platform and Instrument Collection
4.
Vantage
- Great for Professional and New Traders
Regulated By:
ASIC, CIMA, VFSC
Leverage:
1:500
Min. Deposit:
$200
Trading Instruments:
1000+
5.
Avatrade
- Best for Beginner Traders, Great Mobile App
Regulated By:
ASIC, JFSA, FSCA
Leverage:
1:400
Min. Deposit:
$250
Trading Instruments:
250+
ECN Forex Brokers Comparison
| Broker Name | Trust Score | Regulation | Minimum Deposit |
Visit Broker |
|---|---|---|---|---|
| OctaFX | 99 | SVGFSA(OctaFX.Com) Cysec (OctaFX.Eu) |
$25 | Visit Site |
| Pepperstone | 98 | FCA , ASIC,CYSEC, CMA,DFSA,SCB | $200 | Visit Site |
| BlackBull Markets | 98 | FMA, FSA | $200 | Visit Site |
| Vantage | 97 | ASIC, CIMA, VFSC | $200 | Visit Site |
| Avatrade | 97 | ASIC, JFSA, FSCA | $100 | Visit Site |
| XM | 95 | CySEC, IFSC, ASIC | $5 | Visit Site |
| IC Markets | 94 | ASIC, CySEC | $200 | Visit Site |
| XTB | 92 | FCA, CySEC | $5 | Visit Site |
| ActivTrades | 91 | FCA | $200 | Visit Site |
| FP Markets | 90 | CySEC, ASIC | $200 | Visit Site |
What is ECN trading?
ECN refers to an automated component of trading that connects individual traders to liquidity providers including banks, brokerages, and even other traders.
This process provides access to the financial markets to individuals with any type of trading account regardless of their balance size.
An ECN broker is usually a No Dealing Desk (NDD) broker, which means that the clients’ orders do not pass through a Dealing Desk, the broker’s own dealing desk, which enables execution in a direct connection between the client and the liquidity provider.
An ECN is an automated system that publishes orders entered by market participants directly to third parties and individual traders. Those orders are then automatically executed by matching buy and sell orders at the best price available.
ECN trading is an extremely efficient process using very advanced and sophisticated technology. Linking all traders, large and small, directly with liquidity providers eliminates the need for a ‘middleman’ in your transactions. One might say, brokers, can be considered obsolete in this scenario.
ECN trading provides you with tighter spreads and greater depth in market pricing. This is because an ECN broker consolidates quotes from several participants, using AI technology, 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!
Just consider it as a marketplace for broker’s clients to trade with each other, so traders like you can get the best possible offer at that moment in time.
The Benefits of ECN Brokers
You will need to first find a broker to allow you to trade forex through its platform. Forex trading is not the same as other assets or shares, and it is not done on the same regulated exchanges. You can gain access to a variety of trading positions and exchange rates depending on the broker you choose. If you want to be a successful forex trader, it is important that you choose the right platform. This is where ECN brokers can help.
Start by ensuring that the ECN broker you are considering or choosing is licensed and regulated. Many brokers register with multiple regulators, sometimes even several. This adds an additional layer of security to your funds. You should ensure that your ECN broker has the proper regulatory status. Also, make sure it offers the correct type of trading accounts and platforms. This is your personal choice and will depend on how you trade.
Other things to consider include the availability of technical indicators, trading terms, minimum deposit required, and permitted payment methods. You can also choose your preferred currency pairs. Low Spreads are another thing.
Read More: How To Invest Safely and Profitably
ECN disadvantages
In reality, there are always negatives to good things. We are going to tell you about some of the drawbacks associated with opening an ECN broker account.
Fixed Commission
Spreads are not considered a service payment by ECN brokers. Instead, they charge fixed fees and commissions for every transaction. It all depends on the size of those commissions and your trading budget. ECN brokers may not be suitable for small trading stakes as they will take away your potential profits through a flat commission fee.
High Deposit Requirements
You will find that ECN brokers often charge a higher deposit fee to open an account. This is due to high service costs and the ability to directly communicate with liquidity providers.
There are no Micro-Lots
Market participants may not be allowed to open positions for less than 10,000 currency units, as liquidity providers have high service costs and requirements.
Methodology
All brokers listed on our website are regulated by at least one financial regulator and have never been reported as a scam. We analyze more than 3000 data points across 8 key focus areas.
Our reviews are a combination of data research and working alongside the brokers. All information provided by the brokers are double-checked to guarantee 100% accuracy and that we remain unbiased.
2023 Review Methodology
For our 2022 Forex Broker Review, we assessed, rated, and ranked 45 international forex brokers over a three-month time period. Each broker was graded on 108 different variables and, in total, over 100,000 words of research were produced.
While encouraged, broker participation was optional. Each broker had the opportunity to complete an in-depth data profile and provide executive time (live in person or over the web) for an annual update meeting.
All data submitted by brokers is hand-checked for accuracy. Ultimately, our rigorous data validation process yields an error rate of less than 0.1% each year, providing site visitors with quality data they can trust. Learn more about how we test.
Forex Risk Disclaimer
There is a very high degree of risk involved in trading securities. With respect to margin-based foreign exchange trading, off-exchange derivatives, and cryptocurrencies, there is considerable exposure to risk, including but not limited to, leverage, creditworthiness, limited regulatory protection, and market volatility that may substantially affect the price or liquidity of a currency or related instrument. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable, or that they will not result in losses. Learn more at Wikipedia.
Chad Smith
Director of Research & Analysis
Chad Smith is the Director of Research & Analysis here at ForexBrokerListing.com.
Chad previously served as an Editor for a number of websites related to finance and trading, where he authored a significant number of published articles about trading and the impact of technology in transforming investing as we know it.
Overall, Chad is an active fintech and crypto industry researcher with more than 15 years of trading experience, and you can find him teaching his dog how to trade in his free time.