HFM information and reviews
HFM
96%
Octa information and reviews
Octa
94%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%

What is ECN?


ECN is a computerized stock exchange, and the abbreviation itself means “Electronic Communication Network”. ECN brokers provide their clients with direct access to other participants of the forex markets, including first-rate liquidity providers (Major Banks). The essence of ECN functioning is consolidation of price quotations from a number of market agents, therefore ECN clients in most cases are offered tight bid/ask spreads. The best bid and ask quotes from various market participants are brought together automatically and this is how the orders are executed. In most cases the orders placed via ECN are limit orders.

ECN concept embraces not only trading on major exchanges during their operational time, but also trading after working hours and trading forex. Some ECNs are specifically adjusted for institutional investors, whereas also there exist ECN types matching the demands of the retail clients. Generally, ECNs mean speedy execution, passive order matching and automated trading.

The benefits of trading with one of the top ECN forex brokers are clear for a stock trader. On a ECN account a transaction takes place directly between market participants, without any third parties involved.

Moreover, all ECN trading activity is completely anonymous. This enables traders to deal on neutral prices, which reflect the real market conditions. These prices are not artificially formed against the client's trading strategies or tactics.

Among ECNs’ advantages is also significant reduction of trading transaction costs: on an electronic exchange there’s no need for a trader to be on an exchange floor. With an ECN forex account a trader needs just a computer and an Internet connection to be able to execute ECN trading operations.

To be able to place orders directly with an ECN a trader must be subscribed to ECN. Then he is able to transact over the network and to see the shares available to buy and sell on the ECN’s order books.

On an ECN, clients have direct access to market prices. Market prices fluctuate reflecting supply and demand, volatility and other conditions.

An execution takes place when the price of a buy order and the price of a sell order intersect on the ECN.

Who can be a ECN subscriber? Most commonly these are institutional traders and broker-dealers, whereas private traders need to have an account with a broker-dealer to be able to trade on a ECN.

In case a trader chooses to subscribe to the full suite of popular ECNs, it becomes possible to transact over the one that best suits the trader’s liquidity needs and balances its potential with the transaction costs. In other words, this is how the trader can most likely have the order closed at the best price and at the lowest cost.

As for the fee structure for transactions, each ECN has it specifically tailored. In some cases rebates are paid to the traders for adding liquidity to their books; in other cases rebates are paid for the opposite, whilst the fees are correspondingly charged the opposite way too. Rebates offered can be as high as about $.003 per share. Costs as well can be as high as $.003, but not any higher than this. Additionally, there are some ECNs that pay higher rebates to their clients (or charge lower fees) for trading higher volumes over the network once the trader’s operations match certain volume criteria.

From a trader’s point of view, it is advantageous to trade with a broker offering direct market access with reasonable rebates and fees. In any case, in ECN trading the fees depend on the transaction volume and are not flat: if an order is small, the trader will be charged a correspondingly small fee.

The electronic communication networks as a whole are classified as the LIT or Light pool markets.  These are the markets available for all of the public to see.  This is where about 50 percent of all volume transacts in the stock market.  The opposite of LIT markets are dark pool markets.

As for ECNs, they do not function first off as dark pools, but some are now offering subscribers access to deeper pools of liquidity by offering some of their own dark pools.

Objectively speaking, currently not too many retail traders are aware of the ECN trading advantages and keep on sticking with the familiar retail brokerages which guarantee stable performance due to years of operation in the financial markets.

Share: Tweet this or Share on Facebook


Related

How does interest rate affect currency rates? How to make money on interest rate changes?
How does interest rate affect currency rates? How to make money on interest rate changes?

How do you predict the currency exchange rate when interest rates change? Can an ordinary trader make money off it? Octa analysts explain in the article.

Is it Easy to Learn Forex? A Comprehensive Guide to Mastering Forex Trading
Is it Easy to Learn Forex? A Comprehensive Guide to Mastering Forex Trading

Forex trading is a popular and potentially lucrative way to earn both active and passive income. However, it's essential to understand that learning forex is an ongoing process that doesn't depend on whether...

Exploring the Trustworthiness of Forex Trading: What You Need to Know
Exploring the Trustworthiness of Forex Trading: What You Need to Know

Forex trading is indeed a legitimate and trustworthy way to engage in financial markets and potentially reap profits. However, it exists within a complex industry where both rewards and risks can be exceedingly high...

Beginner's Guide to Forex Trading with FXTM
Beginner's Guide to Forex Trading with FXTM

If you're new to the world of forex trading and looking to embark on your trading journey, you've come to the right place. Forex trading can seem complex at first, but with the right guidance...

Common Mistakes Made by Novice Traders and How to Steer Clear of Them
Common Mistakes Made by Novice Traders and How to Steer Clear of Them

Trading in the financial markets is a realm that beckons many, but it is fraught with challenges that often go underestimated by novice traders. A lack of profound understanding of market intricacies...

Demystifying Stock Exchanges: The Heart of Financial Markets
Demystifying Stock Exchanges: The Heart of Financial Markets

Understanding the inner workings of stock exchanges is crucial for traders and investors. These financial powerhouses are more than just platforms for trading...

MultiBank Group information and reviews
MultiBank Group
84%
XM information and reviews
XM
82%
FP Markets information and reviews
FP Markets
81%
FXTM information and reviews
FXTM
80%
AMarkets information and reviews
AMarkets
79%
BlackBull information and reviews
BlackBull
78%

© 2006-2024 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.