Tagged: forex trading
September 30, 2017 at 6:41 pm #29326francesburnsParticipant
ECN means “Electronic Communications Network”, a system used to allow traders to be able to make transactions directly linking their accounts with the prices of large specialized institutional intermediaries. In this way, the dream of every trader to be present on the market with the same bargaining power of an institutional investor is realized.
Thanks to this operation on the forex, in fact, all the intermediaries that make the cost of the order more expensive are eliminated, allowing the trusted IB broker to get the best Bid / Ask quote on the market. You just have to enter a market order and then expect an offsetting transaction by the market itself. It’s different respect to what a market maker would do, as it could act directly on the order without going through the market.
Thanks to the ECN, the risk of manipulation by the market maker is cancelled, thus resulting in a very high level of transparency in prices.
Usually, ECN trading accounts are available in different currencies with minimum entry cuts, making them quite attractive deals for any type of investor.
The currency pairs that can be exchanged within these platforms are numerous and some brokers also offer the opportunity to work on some precious metals like gold and silver.
As already mentioned, the orders entered by traders have immediate execution with very competitive prices, as it is a direct derivation of the intersection of the quotes offered by several institutional banks that operate in the forex. The re-quotes are not done, there are no dealing desks to mediate the transaction and orders are executed at real market prices.
So what are the main advantages of ECN accounts?
We can certainly quote the very compressed spreads, a strength element of these accounts, practically those of the interbank market. To act as a counterpart to this advantage, however, there is the payment of a fixed trading fee that a classic market maker does not require.
Another advantage is the official access to a market that is very liquid and therefore lacking of the discretion of the market maker.
Usually the ECN broker provides a free book that displays all the orders on the electronic circuit. Quotes are obviously more timely and accurate and the execution is immediate and without time delays.
Another important element is the anonymity as the order reaches the market without knowing its origin so that the bank executes it as if it was coming from another institutional client.
Obviously, all that glitters is not gold, but we believe that the advantages surmount the disadvantages.
Among the criticisms leveled at ECN accounts, in addition to the payment of a representative commission of the actual gain of forex broker, there is also the remote possibility that after a burst of volatility the market does not sign prices, in fact making the stop losses as unexecuted.
The fees that are usually paid to the ECN broker must of course be added to the slightest bid-ask spread charged by the market, but usually this amount is always lower than the classic bid-ask spread offered by the market makers.
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