Compare Leading ECN Brokers
Are you keen to start trading with an ECN broker but a bit uncertain about where to start? Well then, WeCompareOnlineBrokers.com is here to help you.
ECN brokers are popular for a number of reasons. Most notably, that they allow traders direct access to the market, whilst they can also reduce trading costs through tighter spreads & commissions. More on that below!
We have put this quick guide together to help explain what ECN trading is, the benefits & risks of ECN trading and we have also listed a number of leading, regulated ECN brokers.
We hope this guide helps assist you in your search!
What is ECN Trading?
Firstly, ECN stands for Electronic Communication Network. Confused? Let us explain..
ECN trading is a type of trading that allows small retail investors, professional traders and large banks/ financial firms the ability to trade direct with other market participants, with no dealing desk intervention. The ECN grants buyers and sellers access to an exchange so they can find a counterparty to their trading positions.
ECN trading is only accessible by signing up with and using an ECN broker. An ECN broker acts as an intermediary between you and the financial markets – they use electronic communication networks to give traders direct market access to other participants, cutting out the middle man (market making brokers).
What is an ECN Broker?
ECN brokers act as an intermediary between you, the trader, and the global financial markets. This type of broker connects traders direct to a network of liquidity providers, rather than offering you a bid & offer price on their own “books”, like a Market Maker broker.
Again, ECN stands for Electronic Communication Network and an ECN broker sits at the very centre of this communication network. On the other side of the network, are the liquidity providers (banks, hedge funds, other brokers). Each time a customer makes a trade with an ECN broker, the broker will collect a range of prices from it’s liquidity pool (network) and present the best prices to the trader. It is then their decision to accept this price or not. As the liquidity providers within the network are competing for your trading activity, ECN brokers have very tight spreads which typically start at 0.1 pips.
Finding a great ECN broker can be a complicated and confusing task but it needed be. Below, we have listed some key factors to consider when looking for an ECN broker. We have also listed our top 3 ECN brokers in the table above – please note, all are fully regulated.
How Do You Identify The Best ECN Brokers?
There are a number of top-quality ECN brokers out there for you to choose from – and we have listed three in the table above. If none of them are to your liking, please consider these pointers when comparing ECN brokers:
The very best ECN brokers are regulated by reputable and trustworthy financial agencies, such as the FCA (UK), ASIC (Australia), CySEC (Europe), MAS (Singapore), Bafin (Germany) and the FMA (New Zealand).
Regulators monitor and govern the activities of each ECN broker and that should provide traders with some level of comfort. Unregulated brokers are incredibly dangerous to trade with as there is no way to know if they are an ECN broker without opening an account with them and trading.
Whilst ECN brokers can typically offer lower trading costs than other types of brokers, it is still prudent to check and compare trading costs between brokers as they will vary. Most ECN brokers will charge a combination of spread and commission, although some will offer accounts where only one is charged, i.e. a “spread only” ECN account.
The quality of execution is a critical element to any online trading, although most traders would expect the very best execution to come from an ECN broker. Execution quality is a combination of speed, rejection rate and slippage, and describes the connection between an ECN broker, the market and the level of control a trader has over their positions.
The very best ECN brokers have fast execution speeds, which results in less slippage and a better trading experience.
Most ECN brokers will offer a large number of FX pairs and a few other CFDs to trade as a bare minimum. Some offer 100 or so tradeable assets, some offer several thousand. Your job is decide what you want to trade and find an ECN broker that offers these markets.
Every ECN broker will provide its traders with a trading platform to trade on. Typically this will be the world-renowned MT4 platform but sometimes brokers offer their own in-house built platform or another variation of MT4, like cTrader.
Our recommendation is to find an ECN broker that offers a simple and easy platform to trade on, with low trading costs.
Some Benefits of Using an ECN Broker
- Speed: execution speed is lightening fast with ECN brokers as you are connected direct to liquidity providers, ensuring faster fills.
- Leverage: most ECN brokers will offer generous leverage on their trading platform.
- Transparency: ECN brokers reduce price manipulation as everyone uses the same price feed, i.e. no one can gain an unfair advantage over other traders.
- Scalping: fast order execution, with tight spreads means ECN brokers are perfect for those looking to scalp the market.
- Regulation: most ECN providers are more than adequately regulated. Never trade with an unregulated broker!
Some Negatives of ECN Brokers
- High commission charges: ECN brokers charge commission on your trades and typically range from USD $2.50 to $5.00 per lot (per round turn). Some brokers will offer “commission-free” ECN trading, however you will need to watch out for their spreads..
- Variable spreads: ECN brokers offer variable spreads, which can and will widen during times of market volatility.
- Larger deposit requirements: running an ECN operation is not cheap and so some of these brokers will require higher minimum deposit sizes to get your account activated.
The Difference Between A Market Maker And ECN Broker
Market Maker (MM) brokers will typically take the opposite side of your trade, whereas an ECN broker will not.
What does this mean?
Well, essentially, it means that MM brokers are taking your trade and not hedging it in the underlying market. They do this much like a sports bookie, who take bets and usually do not hedge these as they know it’s likely that the punter will bet incorrectly. An MM is similar to a sports bookie – if you lose your trade, they win, and if you have a winning trade, it is likely that the MM broker loses money as they have to pay you. When you place a trade with an MM broker, the broker is the counter-party to your trade. Market Makers create an artificial market and hence the name.
In contrast, ECN brokers connect buyers and sellers directly to one and other and the counter-party to your trades will always be a liquidity provider from the broker’s network. An ECN broker never profits from your losing trades; they only make money through the commission they charge you to trade.
Although the above may have put you off MM brokers, it is fair to say that most market maker brokers today are very well-regulated and, despite the obvious conflict of interest, they do not (and cannot) rip you off.