ECN Forex Broker Comparison

ECN Forex Broker Comparison
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Features of ECN Brokers and Trading

The brokers in the table provide accounts which can have very low but variable Forex spreads with a commission charge added and no dealing desk intervention, on trading platforms such as MT4, MT5, cTrader and JForex.

Some brokers have stopped calling themelves ECN, so ECN brokers here means a type of trading offered by the broker characterised by low spreads, STP with or without commission charges, no dealing desk intervention and certain online trading platforms.

These brokers can be compared quicker broker vs broker by generating a comparison table or in more detail broker versus broker, by features such as minimum deposit, commission charges, markets and platform, using the tool above.

These brokers support both discretionary and automated trading.

Minimum deposit

The minimum deposit given in the table is for the broker as a whole. The broker may have higher minimum deposits for ECN accounts.

ECN trading

The potential advantages of ECN trading include speed of execution and the capacity to use a wide range of trading styles.

ECN FX

The brokers in the table all provide accounts which can have very low Forex spreads, depending on such factors as market conditions and liquidity, with a commission charge added.

Metatrader 5, cTrader and JForex

These platforms provide Level II pricing and other features which can be applicable to ECN trading.

ECN news trading

ECN brokers typically allow news trading (trading at or around the release of news, such as economic data), but it should be noted that spreads can widen around news releases.

ECN for scalping

ECN brokers typically allow scalping.

Automated trading

All of these brokers provide at least one platform which allows the trader to use automated trading strategies. These can be written by other traders or programmers or programmed by the trader themselves. It should be noted that because a strategy worked in the past does not mean it will work in the future. If the trader wants a strategy to run 24/7, when they are disconnected from the broker, they can use a Virtual Private Server (VPS).

ECN, STP, what does it mean for the trader ?

STP refers to the electronic algorithm used to route orders. A broker can be STP and use one liquidity provider. An ECN broker typically will have more than one liquidity provider (because the point of an ECN is to connect with liquidity, rather than simply routing orders). These can include banks (known as Tier 1 providers), other brokers, specialised liqduity providers, institutions, hedge funds and even dark pools (anonymous pools of capital). These providers, especially the banks, trade huge volumes with each other in the decentralised Forex market, filling large currency exchange orders (Forex has vast daily volumes, dwarfing other markets). This drives prices down, so liquid instruments can be offered at very low prices (the spread), even at the point where they reach the trader.

The retail trader does not trade on this market, but trades through a broker. Some brokers, especially STP brokers will include the cost of the trade as a spread, to be paid at the beginning and end of the trade, without a commission charge. Other brokers will quote ECN caliber prices, that is the kinds of spreads which can be seen in the Interbank market, aggregated by the broker from liquidity providers. So for very liquid Forex pairs (price being a factor of liquidity), prices as low as 0.1 pips could be seen. Sometimes lower prices can be seen, a Forex spread of 0 or less.

However the trader is typically (but not always) charged also an additional commission charge, by the broker. So for example, a broker may charge a commission of $3 per lot per side. This means that in addition to the spread cost, $3 is charged at the beginning and end of the trade, per lot. Thus if the spread is 0, then the actual cost of a trade is 0.3 + 0.3 = 0.6 pips. This cost is charged irrespective of the length of the trade. So scalpers need to calculate that they will incur a commission charge each time they open and close a trade, as they can make short term trades frequently.

It can be seen that ECN costs can be very competitive. But these are typically variable spreads, and the actual cost can be higher than the quoted minimum, depending on various factors. Costs of this magnitude can be seen at market maker brokers. These brokers may allow news trading and support automated trading, for example by providing MetaTrader4, which has robots called Expert Advisors. But, since these are by definition dealing desk brokers, they may reject orders or disallow some trading styles (for example scalping), though this in practice may be an infrequent occurrence. A reason then to use STP and ECN brokers is that they can be a) supportive of some styles and b) suited to some trading styles, assuming that the trader actually uses these styles of trading. Some trading styles may need very short execution times.

ECN brokers will tend to have an infrastructure to help speed up the order execution process. Some do this by co-locating their trading servers with liquidity providers (many use Equinix New York or London data centres which provides infrastructure such as fibre optical connections). These efforts can reduce trade time delay down to a matter of milliseconds. This kind of speed improvement can help automated strategies, which depend on very quick market movements, made in rapid succession, by robots (automated trading strategies running typically on Virtual Private Servers). However no dealing desk, reliable, high speed order execution can also be useful to traders who trade at their own discretion.

ECN refers to Electronic Communication Network. One way of differentiating ECN brokers is that they focus on this part of their operation, versus using a dealing desk. So ECN is about technology to rapidly process orders without dealing desk intervention potentially suiting the kinds of trading used by a range of traders.

Briefly, what does ECN mean for the trader ?

It means technologies which can be responsive to the needs of a Forex trader, in particular. The more ECN a broker is, the less markets it tends to offer, and the bulk may be Forex (though this is changing with the addition of CFD markets such as Stocks CFDs). Forex is traded (unlike other markets) by banks and institutions on the 'front line', using both automated and discretionary trading (for example technical indicators). ECN brings that 'way' to the trader to an extent, and lets them do what they will with it, but the broker is still acting as a 'broker'. This can mean though using styles which may be problematic at other brokers.

But for many traders, there may not be much difference, in effect between using an ECN broker or a dealing desk broker, especially if the dealing desk broker offers fast order execution and the capacity to use automated trading. An ECN broker though may still offer the markets a trader wants to trade (and even a significant number of markets) as well as providing assurances about order intervention and lack thereof and speed of order execution.

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