Not All Forex ECN Brokers Are The Same

It appears that the fx world has been flooded with fx brokers claiming that they are ECN providers but are they in actual fact ECN forex brokers or simply market makers in disguise?. In this article I’ll attempt to explain what the distinction between a True ECN and a market maker ECN actually is. People will think that I’m crazy by writing this article but the truth of the matter is I am here to help my fellow forex traders by sharing the truth regarding various forex brokers who state that they are ECN fx brokers but are in actual fact market makers taking on risk against their clients by running what is known as a B Book.

So let’s commence by explaining the difference between a B Book and what is known in the industry as an A Book. Well to keep the definition simple, forex brokers that run a B Book are those who want to benefit from their customers trading losses, basically they selectively categorise their customers so that they can capture the losses incurred by those customers who lose money. A Book clients on the other hand are those who generate profits, so to stop the broker form losing money when the client makes money the fx broker will hedge all A Book client orders.

So how does this all relate to ECN fx brokers? Well a quantity of ECN brokers are not really ECN forex brokers but are instead market makers utilising an ECN fx broker price feed by running a B Book behind the scenes. This has naturally led to heaps of of controversy and made forex traders ask whether there in actual fact are any true ECN fx brokers out there.

So that you do not get fooled by impressive internet websites and marketing material I there are a few checks which you can carry out yourself that can help you identify whether or not your forex provider is actually a real ECN. Here are the checks that it is advisable to conduct.

1. Stop order distance from the current market price – True ECN forex brokers will NOT impose a distance stop orders can be placed from the current market price. As all trades occur in the True ECN environment the fx broker doesn’t care if you scalp for a few pips here or there. Only fake ECN fx brokers will enforce a minimum stop distance.

2. Trade size limits – A True ECN broker will not put any limit on your deal sizes as in a True ECN environment there is always a buyer and a seller. A Fake ECN fx broker will probably limit your deal sizes as they’re taking the other side of your trade, if your order is too large they might not have the ability to manage their position exposure to you if you are making money.

3. Slippage – Slippage can happen inside a True ECN environment and it can work for fx traders and against them, meaning that traders could possibly get improved or inferior fills. A Fake ECN fx broker will just pass on negative slippage NOT positive slippage, they’ll always keep the positive slippage for themselves rather than passing it on to their forex traders.

You must always perform these 3 straightforward checks before dealing with an ECN forex provider to ensure they are actually a True ECN broker not a market maker in disguise. I have conducted allot of testing myself and discovered there are many Fake ECN forex brokers in the market place, most of them operate in unregulated jurisdictions.

There is one forex provider that I’ve found to have one of the best True ECN offering around with exceedingly tight spreads, that forex broker is Australian regulated company IC Markets.