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10 Tips for trading on ECN accounts


The main idea of bulding an ECN system is to create a technology that allows transactions to be made without the involvement of intermediaries as much as possible, and ECN accounts provide an opportunity to connect market participants among themselves directly, bypassing intermediary services, such as Forex brokerages.

ECN stands for Electronic Communication Network, a network through which customers are directly connected with liquidity providers, without involving a broker in the trading process itself.

On the forex exchange markets, this system gained fame in 1999, when the first Currenex network announced itself. Its principle of operation minimized the role of any intermediaries in the trading process. Forex brokers, also constantly engaged in attracting new customers and searching for innovative ideas, began to provide access to ECN-accounts. It should be noted that not every brokerage company can afford an ECN platform, since such developments are expensive. Some brokers create a combined version of Metatrader 4/ECN, declaring it a full-fledged ECN trade, which is actually not true in principle. Such a product, similar to the modified MetaTrader4, is very unstable. And only a true ECN broker is good for scalping.

The indisputable advantages of these systems include:

What an ECN account gives to a trader?

The modern brokers have the task to make sure that they are not forgotten by customers, and, in addition, introduce themselves to new customers in the most favorable light, and an ECN account provides an excellent opportunity for this:

When using an ECN account, there are no Limit / Stop Levels, that is, there is no limit to the Minimum distance between the current price value and pending orders, which makes it possible to trade inside the spread.

Traders' usage of their trading methods and strategies is not limited; scalping-trading (pipsing) is possible. The order placement goes directly to liquidity providers.

What is an ECN account?


As mentioned above, in the foreign exchange market, sellers and buyers place their applications, from which the ECN system is formed. The prices offered by the participants differ by the amount of spread, which, in turn, may vary when prices change.

The advantages of ECN are such moments:

Forex ECN Account


Trading with MetaTrader essentially departs from the reality that takes place in the financial market. The trader tries to catch the moment of strong quotes movement and quickly manage to get some profit with scalping. He receives profit from the broker, and he transfers the loss to him.

As for real Forex, it is more consistent with the principle of auction on the exchange. Similar to the exchange, there is a “glass of applications”, which is a single base where all applications are accumulated. All data on the price and volume of orders in an accessible form are transmitted to the trader who can see the plans and desires of other trading participants and he forms his application. A “glass of applications” is an important tool for analyzing the market situation. When the glass contains an excess of the volume of applications for sale over applications for the purchase, it’s pretty confident to talk about the impending drop in quotations and make the right decision and position on Forex. If buyers prevail in the market, then joining them, you can earn money on the growth of quotations.

It can be argued that using an ECN account on Forex is work in the real market, therefore, more and more traders prefer ECN, leaving aside the honesty of brokerage companies.

Undoubtedly, the process of working with an ECN account is more complicated compared to MetaTrader, but its obvious advantages outweigh these problems.

For organized trading, there are a number of ECN sites that are interconnected by the synchronous movement of quotes. Only serious brokers are allowed into this serious system of international level, and the broker’s ability to create and open an ECN account already speaks of its reliability. The broker shows customers the real market quotes, it cannot influence what will be transferred to customers.

Using an ECN account eliminates haste and makes the course of trading focused and thoughtful. After the trader places an order, it enters the queue, waiting for execution. When the market reaches the price level that has been declared by the trader, it will certainly be executed at the price declared by the trader without slippage.

Trading on ECN accounts makes trading cheaper. Traditionally, the Forex broker has earnings on spreads, maintaining the difference between the prices of buying and selling currency. When trading, such a system significantly adds a headache to the trader, since the correction for the spread value must be either constantly kept in memory or the terminal settings should be adjusted. Spread is a variable value, changing endlessly. The spread causes the biggest problem for earning when scalping, absorbing that small profit, which is the basis of pipsing. It turns out that before making a profit, the transaction must first pay off the spread. Therefore, for a trader, such a broker fee in the form of a spread becomes an expensive pleasure. For an ECN account, the broker's fee is presented by a brokerage commission, which is standardized and, as a fact, predictable, and ultimately the costs will be lower than the costs of the spread. Naturally, the fees for different companies differ, but, as practice shows, the fee is still cheaper than trading with a spread.


Signs and differences of an ECN-Broker:

Undoubtedly, such a modern tool for Forex trading as an ECN account attracts the attention of an increasing number of participants in the foreign exchange market.

Using the ECN model, the trader gets access to the interbank market, where not only other traders, but also banks and various funds will become their counterparties. Moreover, all participants have equal rights. All operations are based on the principle of full transparency.

ECN broker's earning is commission from transactions, which eliminates the opposition of the interests of the client and the broker, so the profitability of trading is beneficial for both parties. The choice of contractors in the system occurs automatically according to a number of criteria and does not depend on the relationship between the parties.

Among the disadvantages of ECN, one can single out a rather high trading deposit and the complexity of the system that requires experience.

In general, an ECN account is a choice of professionals who have worked and earned on Forex for years, and a beginner who is just starting to trade can study this interesting and useful system and start applying it to his trading using all the available educational information and theoretical materials.

Author: Kate Solano for Forex-Ratings.com

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