Broker to Trading

These are well established brokers offering ECN trading accounts. But what is ECN trading ?

What does ECN stand for ?

ECN stands for Electronic Communication Network.

What does Electronic Communication Network mean ?

Strictly speaking every online broker is on the Electronic Communication Network. Forex is a decentralised market and the ECN provides a backbone linking those involved in this market (which includes brokers). The trader can simply trade with their broker, in a dealing desk model, but ECN trading lets the trader access liquidity in the Forex market but through the broker utilising the capacity to match a buy order with a sell and a sell order with a buy. The specific set of liquidity providers that a broker uses defines the ECN of a particular broker.

A ECN broker will typically use STP order processing algorithms to match orders via their ECN. 'True ECN' can be defined partly as a broker which uses a range of liquidity providers but other definitions include that the broker solely utilises electronic algorithms (i.e. is a white label). For this reason the term 'ECN' may be less used than it was.

ECN brokers may have an STP account which does not charge commissions. A difference between this and the broker's ECN account is that the ECN account can have raw ECN prices to which the broker adds the commission charge, while the STP account will have the charge included as a mark-up. Some traders may prefer to trade this way, though at online brokers the commission charge is typically automatically deducted. For the most liquid Forex pairs, spreads on these prices can be very low, even zero, but these are variable spreads and can range higher.

ECN is associated with fast order execution, as ECN brokers use infrastructure to help ensure that orders can be made very quickly (down to milliseconds). This can include co-locating the broker's servers with banks, brokers and liquidity providers and using fiber optical interconnects and other technology, for example in an Equinix data center or some form leveraging physical centralisation with market decentralisation. It should be noted that all these brokers offer CFD trading, where the trader does not own the market being traded, but is rather speculating on its price movement, expanding the range of markets offered beyond Forex. This also means that the range of markets offered by ECN brokers has expanded beyond Forex.

What is a commission charge ?

For liquid markets, in particular major Forex pairs, spreads can be very low at ECN brokers, both in terms of a minimum and average. Although it is decentralised, Forex has a primary Interbank market. There large volumes are traded and very low costs can be seen. ECN trading seeks to reflect those raw spreads, but with a caveat.

This caveat is that a commission charge is typically added to the spreads offered on the online trading platform, at least on the broker's ECN accounts. So the total cost is the commission charge plus the spread. This can mean that the cost of a trade is not necessarily lower than the cost of a dealing desk broker which charges only the spread, though it should be competitive with the lower spreads available, at least for Forex. If the broker also has an account which offers ECN spreads with no commission charge, then this spread is typically higher (for example 1.2 vs 0.2 pips).

A trader who executes many trades will be repeatedly charged a commission. However traders may want to use an ECN broker precisely because they are executing rapid trades. This is because an ECN broker typically has no dealing desk intervention and provides the high speed order execution (and trading platforms) to support automated trading. Some brokers may offer a tiered commission structure, where the commission charge reduces depending on volume traded. More detailed information about each broker can be found in the ECN broker reviews or the ECN Forex broker comparisons.

What trading platform are available ?

As can be seen from the table these are all MT4 ECN brokers which may additionally offer MT5, cTrader and JForex. These platforms are all associated with both Forex trading and ECN trading. MT5 is a successor to MT4, and can include an expanded range of markets to trade and other enhanced inbuilt features. MT4 though is widely available and brokers can offer it with more features than those that are inbuilt. All these platform are available to be downloaded as a desktop platform, though some brokers may offer web traders. Additionally apps versions are available for tablet and mobile trading.

Do these brokers allow styles such as scalping ?

All the brokers in the table say they allow scalping. In general, ECN brokers do not tend to restrict trading styles. The idea is that orders are bypassing the dealing desk, thus how the trader trades, is up to them.

Can an ECN broker offer markets such as cryptocurrencies ?

Yes they can, though not all do, however all the brokers in the table offer Cryptocurrency CFDs. When trading a CFD, the trader does not own a cryptocurrency, but can speculate on the price movement of the market with no wallet required. Some brokers, including those in the table, offer Bitcoin CFDs and online trading platforms which can support Bitcoin algorithmic trading.

What then are the characteristics of ECN brokers, including those in the table ?

ECN brokers can provide infrastructure which enables orders to be filled with, to all intents and purposes, almost no delay (known as low latency). There will still be a delay as it is not feasible to transmit electronic signals in zero time, but it can be on the order of milliseconds. This makes possible a wide range of trading styles, particularly automated strategies which may require rapid order transmission.

The ECN broker uses technology to find the best price to display on the trading platform. These spreads can be low, depending on liquidity (which is also a reason why it can be a plus for the broker to have multiple providers). However the ECN broker will typically add an extra charge, the commission, to this spread on their ECN accounts.

As orders are being filled by algorithms, the broker's dealing desk will not intervene in the order process, which is known as 'no dealing desk', or more generally 'no dealing desk intervention', even though their still acting as a broker. Some ECN brokers may offer levels of direct market access, where the trader can directly sell to and buy from other market participants within a liquidity pool or pools or access Interbank price feeds.

ECN brokers have a focus on Forex (as it is an always on decentralised liquid market, from market open on Sunday to close on Friday), but can also offer CFDs for a range of other markets. A commission charge is typically added in addition to the spread, though brokers tend to provide accounts which have have this charge included in the spread and not all markets will necessarily have a commission charge even on ECN accounts, depending on the broker. Finally an ECN broker will provide a platform which supports both discretionary and automated trading. Which means that both types of traders can use an ECN broker.