To start trading on Forex, a trader needs to open a trading account, which is now not a problem at all, as numerous forex brokers offer various accounts: such as demo accounts, standard, STO, NDD, and ECN. All of them are more or less similar, and differ from each other only in the size of the spread, commissions, pledge for the transaction, and methods of execution. Recently, ECN accounts have been gaining special popularity. And now we’ll try to figure out what attracts traders in these accounts, how they work and what their advantage is.
ECN under the microscope
So let's go. ECN accounts appeared almost 20 years ago, but then they did not take root in the market. The reasons for the failure were a small number of small speculators in the market who could not afford to enter this system, the actual absence of brokers who would do this, and the lack of trading platforms.
What is the essence of trading on such accounts? The main and undeniable advantage is the trade bypassing intermediaries, including brokers. Market participants themselves choose the liquidity providers with the best prices. Of course, the broker is not completely set aside, but now the broker acts only as the owner of the trading platform. A Forex brokerage company receives a small percentage for providing access, and this is where the payment to the broker ends.
ECN account
Here is an example ECN account operation scheme. The trader sends a trading request, which immediately falls into the “glass of prices”. In other words, the system directly connects trading participants. For example, you need the British pound. You set the purchase price and fill out an application. Suppose that four agents in the market sell the lot for this asset. Each of them has its own price, and the system connects you to the seller whose price is closest to your specified level.
Benefits of an ECN Account
Why ECN systems attract forex traders? Firstly, instant providing the trader with all the necessary data. Secondly, we highlight trading transparency, as transactions go directly to the market, so that no third parties, such as forex brokers, can manipulate quotes. Thirdly, all trading orders that enter the system are immediately displayed in it and become known to the participating subscribers. There are no limits on the choice of counterparty. Traders have the right to choose them for themselves, regardless of the level of quotes. In addition, the system has high volatility. Thanks to the floating spread, the price can jump tens of points in minutes. Classic accounts cannot boast of such volatility.
We also single out the almost instantaneous order execution speed. And finally, it's reliability. The fact that the largest world banks and corporations are in the system makes it a reliable way to trade.
Such types of accounts are suitable primarily for scalpers, pipers, and those traders who trade on the news for accuracy of execution and the minimum commission. Nevertheless, not only “pips” traders will be interested in these accounts. Anyone can trade ECN without restrictions. Agree, the technology of complete non-interference by the broker is an indisputable advantage. True, one of the serious disadvantages of an ECN account is a rather high minimum deposit. But this is not a problem now, as more and more forex brokers lower the threshold for access to such accounts.
For example, take a conventional broker, which relatively recently lowered the minimum deposit for opening an ECN account to $200. In addition, the broker increased his leverage to 1:200, which greatly expanded the trading opportunities of its clients.
By the way, if you are not confident enough in your knowledge and trading experience, you can always try your skills on an ECN demo account. This account is absolutely no different from the standard demo, except that there is an ECN system.
So, let's summarize what are the advantages of ECN accounts over standard ones. The first is security. Since there is no intermediary in the transaction, you are 100% sure that no one will juggle quotes. In addition, you can enter the market at a better price, since the system itself will look for a counterparty. Each trader knows that with any transaction, the spread “eats” part of the profit. In this system, these losses are minimal. It is worth noting the high speed of order execution, which is noted by scalpers and pips traders, for whom every second of trading is worth its weight in gold.
Sooner or later, every trader comes to the ECN account. This is a different level of trading, and it requires great knowledge and experience. Nevertheless, it may also be interesting for a beginner to try something new, and to understand whether such a system is suitable for him in the future.
Advantages of ECN Accounts
- The transparency of the transactions. All transactions are put on public display in a “glass” of applications, which allows a trader not only to trade independently, but also to analyze the strategies of his colleagues.
- No restrictions on the choice of counterparty. A trader working with an ECN account can choose counterparties, regardless of the level of quotes.
- Floating spread. A trader can enter a trade at any time by setting his order. For example, for the eur/usd pair, the ratio is 1.1969-1.19971, a trader can enter the transaction by placing an order in the range 1.1970-1.1971. As a result, the new spread will be equal to 1.1970-1.1919.
- High volatility. A floating spread will contribute to a sharp jump in quotes. Such fluctuations are not inherent in standard accounts, so an experienced trader can make good profits from transactions in volatile ECN accounts.
- Reliability. The leading world banks and corporations work with the ECN system, which makes ECN accounts a reliable way to trade Forex.
- Working with ECN accounts is profitable and comfortable, but traders need to know that these accounts also have some disadvantages.
Disadvantages of ECN Accounts
- Large initial financial threshold. Brokers who provide traders with access to ECN trading most often set a large deposit amount. Therefore, it happens that in order to make transactions on this type of account you need to have more than 1 thousand dollars on the deposit.
- Complexity. Trading on ECN accounts requires certain skills in the forex trading. Therefore, it will not be easy for beginners to make profitable transactions when working with ECN accounts. In this case, it is recommended to open a demo ECN account and practice on it so as not to risk real money.
- There is no way to enter into CFDs for shares and commodities.
A trader who decides to work with this type of account should pay particular attention to the question of choosing a broker, since not all companies that position themselves as ECN brokers are actually such. How to identify a real ECN broker? Experienced traders are advised to pay attention to the following:
- ECN broker offers access to key ECNs, including 360T, Currenex, IntegralFx;
- the “glass" is offered to the trader - a window with a list of all participants; orders, including large banks and small traders;
- trader can change the spread;
- The ECN broker allows the trader to see who the counterparty to the order is presented before it is executed or after.
Forex trading today offers traders a lot of opportunities for comfortable and profitable trading. Each member of the financial market can independently choose a trading method depending on their preferences and goals. ECN accounts are accounts for traders who have already reached a high level of financial development.
