In forex market, two types of brokers mainly exist; one of them is called the market makers and the second one is ECN broker. ECN is the abbreviation of Electronic Communication Network. Simply we can say that an ECN forex broker is a financial expert who provides its client’s direct access to other participants in the market. ECN is a type of computer software that facilitates the trading outside the market so ECN broker only acts as a middle man between your trades, not as market maker.
Following are the some positive and negative points of using an ECN broker. These points will help you in taking right decision in choosing a forex broker.
Positive points of using an ECN broker:
A number of benefits that you can get by using an ECN broker are:
Secrecy of trades:
The role of an ECN broker in trades is only as a middleman. So when you make a trade on ECN network, you are completely secured and you account cannot be distinguished and not traced. You can protect your trade strategy by using an ECN broker because you are using the name of broker for your trades.
You are your own market maker:
Using an ECN broker you have a liberty to set your spread so you can set your limits himself. It also ensures you to get some extra profit because it compares your bids with the other participants. There are no restrictions and limitations about placing and canceling an order. So you can act as your own market maker.
Trade continuously:
ECN allows you to trade during news and Events. Continuous trading increase the price volatility and at ECN, trading always remain continuous, so you can get the benefit of price volatility. See swing trading strategies to make use of price volatility to your benefit.
Enhance the execution of orders:
It is important to know that you are not trading with ECN, but you are placing your order by using ECN. ECN is only responsible for matching your orders with the other market participant as soon as possible. With the help of ECN, you can easily compare your orders and also check the best price level of a currency pair offered in the market. Through this you can improve the execution of your orders.
Increase Price volatility:
Prices are not fixed on ECN and a large swing can also occur in prices. Quick changes increase the price volatility. In this situation the scalpers and the short term traders can quickly claims large profits. ECN brokers are fit for scalpers. Find out more about winning scalping strategy at forex scalping strategy.
Greater liquidity:
ECN make it easier to allow different parties to trade with one another, without any restriction of geographical boundaries. This leads to greater liquidity (i.e. there are more buyers and sellers) which increases the efficiency of the markets.
Disadvantages:
Few negative point of using an ECN brokers are:
High commission:
ECN charged commission on every trade. Sometimes due to low spread the traders have to bear loss because their earning is less than the commission they paid.
High initial investment:
You are acting as your own market maker in ECN. High capital is needed to influence the market parameters. ECN is not ideal for small investors.
Dishonest market makers:
Every person is acting as his market maker on ECN. So there are chances that some dishonest persons can easily influence the market by introducing a great volume of trade. Some people are also giving deceive to others by showing them the ECN broker but in fact they are not.
Conclusion:
An ECN forex broker is a financial expert who acts as middle man between buyer and seller in their trade. The advantages of using ECN forex brokers are low spread, greater volatility and high privacy. But the disadvantages attach with it are high capital and commission. Check out your trading strategy and financial standing, then decide properly. Should you consider that you require an ECN account, check out the details of a great ECN broker on FX Open review.
