What does ecn mean in forex
Forex or foreign exchange trading is now on the apex of the online trading industry. Many people are joining Forex in almost every second. ECN (Electronic Communication Network) account is a choice of professional traders who want the best possible trading conditions. The ECN account allows. Photo from Unsplash Originally Posted On: bookmakerfootball.website FOREX TRADING SIGNALS FORUM
For example, stock market brokers develop their own trading terminals or scripts that allow clients to see counterparties and receive statistics on the volume of transactions in depth of market. Fxall is an example of such a trading platform. Without this special software, such concepts as ECN trading in stocks or options is simply impossible.
Let's start with the main one. Fake ECN brokers When traders realized how significant the advantage of electronic communication networks ECNs is over legacy systems, many dishonest brokers began to present themselves as ECN brokers. There are numerous sites on the Internet with fake ECN brokers ratings. Try to enter a search query "ECN Forex brokers list of the best rating" and select the first company in the list.
As a rule, they are occupied by scammers who have bought a place in this rating. For this reason, the process of choosing a broker is so important, and I decided to devote a whole section to it, which you can read below. Possible high requirements for the starting deposit The trader needs to understand that the broker also wants to make money.
The only adequate income for an ECN broker comes from a commission. Commission fees Of course, this can hardly be called a serious drawback since everyone understands what it is for. The commission in the ECN system depends on the transaction volume, and with large trading volumes, it can reach profound values, at which your ECN transactions will still not be costly.
This means that it will be executed at the price that is currently in the system. While your order is being processed, the price in the system may already change, and your trade will be executed at the closest one. This happens due to too high market volatility. The chances are extremely low, so you should not worry about this.
How to identify an ECN Broker? Having studied the pros and cons, we shall move on to the most important topic for traders. Let us find out how to choose your broker. The conditions a good ECN broker should meet: 1. Order execution type. It must be only Market Execution! So far, it has been the best order execution type. If a broker utilizes any other order execution mode, it could affect the trading procedure, which is not preferable. Order execution speed. If a broker utilizes the ECN model, the order execution speed should not be below ms on the distant servers and not below - ms on the near servers.
Ideally, it should be ms. The above screenshot displays the execution speed of my broker, LiteFinance, where the MetaTrader 4 platform is used for trading. As you see, the speed on the server nearest to my location is Narrow floating spread.
Any ECN broker provides its clients with a floating spread, which is close to the minimum, for trading high-liquid instruments. Commission fees per trade. Any true ECN broker has the only source of income, commission fees. The ability to place pending orders within the spread.
The broker should not restrict the placing of orders, which are only regulated by Bid and Ask prices in the ECN system. The Broker has access to one of the ECN systems. This is an obligatory rule. LiteFinance has such access through overlapping liquidity providers. Depth of Market in the trading terminal. Depth of Market DOM is typically displayed as an electronic list of outstanding buy and sell orders, organized by price level and updated in real-time.
The figure for point 3 displays a Depth of Market, which helps to analyze the current market situation. Requirements for a minimum deposit. If a broker utilizes the ECN, it costs much more than other order execution modes. In this case, the broker will simply go bankrupt. For this reason, ECN brokers set a minimum deposit for an ECN account, which is significantly higher than for other types of accounts. Let me explain in detail what the ECN commission is and how it is calculated.
Simply put, the total ECN commission traders pay to the broker for executing transactions takes into account the interest of the ECN system and the broker that makes money by providing access to the ECN network. Not to confuse you with long calculations, I will try to explain how the commission is charged in simple terms. This is an example of the commission for the transaction of one lot for any major currency pair charged by the LiteFinance broker.
Example 2 Other brokers can charge the commission as a percentage of the transaction volume. In this case, the calculation formula is the following. As you see, the final result is almost the same as in the previous example, but the calculation method is a bit more complex. You need to understand that a commission is always charged for a complete transaction, and therefore for a purchase and for a subsequent sale. In the first case, the broker's side took this into account in a single amount.
In the second case, we simply added up the purchase commission with the sale commission. However, even understanding how the commission is calculated, it is not entirely clear where the broker gets this value from? Why exactly 10 USD or 0. To understand this, you need to realize where the commission comes from. I hope everything is clear with the broker commission; it is a premium for the broker charges for its intermediary services of giving the client direct access to other participants in the electronic communications network.
Let us cover in detail the commission of the ECN system. So, the main advantage of the ECN system over all others is almost inexhaustible liquidity. Liquidity in the world of finance is called a value that characterizes the ability of a product to be quickly sold or bought. In other words, it is liquidity that characterizes the quality of the exchange market. Let me explain how liquidity works.
Let us compare the grocery market with the forex market. If you want to buy a product or a currency right away there should be a seller in the market willing to sell this product or currency to you. When you come to the market to buy some meat, for example, you study the prices offered in the market and understand that nobody sells meat at the price you want.
This means that at the moment, there is no liquidity or very little liquidity for the desired product. And when you want to buy a currency pair in the Forex market, you do it in a split second, because there are a lot of sellers offering at the price you are interested in.
This means that the market liquidity is high. But who provides this liquidity? The liquidity is provided by the electronic communications network, namely institutional investors. The network collects orders from banks, brokers, funds, trusts, and many others.
The electronic communication network provides round-the-clock trading services, and it is fair that these services should also be paid for. Therefore, the ECN charges a commission, which your broker pays for you and charges you with a fixed and transparent amount. Does the ECN always charge a commission?
No, not always. As long as the ECN system monitors the maintenance of liquidity, it encourages everyone who adds this liquidity and charges those who take this liquidity from the market. So, let us see how it works with an example. You want to buy the pair right now, that is, at the market. Of course, you place a trading order, and the broker puts your order in the system, where it is immediately matched by the most profitable sell order in the system.
In this case, to open your trade, a volume of , currency units is taken from the system, that is, this amount of liquidity is removed. Since you have reduced the liquidity in the system, you are charged a commission. In this case, you would use a pending order, most commonly, a limit order. You place an order with your broker, and your trade is put in the list of orders of the system, the Depth of Market.
Summing up all the above, I want to once again stress that it is impossible to trade without any commission. The commission is not a way to deprive you of your money, it is a necessary measure of earnings for a reliable broker. However, many brokers provide their clients with a commission cashback option called rebate.
More and more traders choose ECN trading. Why should you choose an ECN broker? Confidentiality and the guaranteed reliability of the market data. Do you know about quotes manipulations? For those who have been trading for quite a time, it is an essential question. In ECN trading, you have a guarantee that the received quotes are true. ECN has the Depth of Market where you can always see the orders put by all participants of the network.
Floating spread. The spread in the ECN is floating and changes along with market volatility. With low volatility, popular trading instruments could feature a zero spread. Instant order execution. If you enter a trade at the market price, you can be sure that the order will be put right away, without any delays. The best ECN brokers offer an order execution speed of not more than 50 ms.
You can see the counterparty. You can always see who matches your order, buys your currency or product, in the ECN. You can see the trade volume currently present in the market in the Depth of Market. Market Maker vs. Then, they display these prices via their platforms, so that investors can open and close trading positions. Story continues Usually, a Market Maker broker will not hedge its client positions with other liquidity providers like an ECN broker would do. Instead, what Market Markets do is they pay winning client positions out of their own accounts.
It also means that when a client has a winning trading position, a Market Maker broker loses. This type of broker provides its traders with direct access to other market participants via interbank trading prices. This network allows buyers and sellers in the exchange to find a counterparty of their trading positions. By using different liquidity providers, an ECN broker is able to allow prices from these providers to compete in the same auction, which usually means that traders get better prices and cheaper trading conditions.
Moreover, by using an ECN broker, traders usually trade in a more efficient and transparent environment. Usually, the way an ECN broker makes money is with the trading volume of its clients, charging a commission on each position. Why you should trade with an ECN broker? This trading model ensures you that there is no conflict of interest, as an ECN broker gets a commission whether you make or lose money.
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