Why Forex Trading With An ECN Broker Is Better

ECN is an acronym for Electronic Communications Network. A Forex ECN broker does not have a dealing desk but as a substitute offers a marketplace where multiple market makers, banking institutions and investors are able to enter in competing bids and offers and have their trades filled by numerous liquidity providers in an anonymous trading environment. The deals are done in the name of the ECN broker, offering you with total anonymity. A trader may have their buy order filled by liquidity provider "A", and close an equivalent trade against liquidity provider "B", or have their trade matched internally with the bid or offer of another trader. The best bid and offer is displayed to the trader along with the market depth that is the collective quantity available at each price level. A sizable number of market participants offering pricing to the ECN broker leads to tighter spreads. Forex ECN brokers usually charge a commission for matching trades between their clients and the liquidity providers.

Using an ECN broker to trade forex provides a number of significant advantages, probably the most obvious being narrow spreads and deep liquidity. Narrow spreads means that day traders and scalpers can take advantage of minor price changes on an intraday basis. Deep liquidity means that large volumes can be traded without having any effect on price this is especially important in volatile market conditions and provides significant advantages for traders using automatic forex trading systems. These two factors combined mean that it is possible to benefit from more trading opportunities, added opportunity equals more profit potential.

There are actually a number of ECN providers available in the marketplace today with by far the most common ECN used being Currenex. Currenex is typically employed by institutions and investment banks and out of reach for most retail investors, however in recent times as the interest in narrow spreads and transparency has improved significantly several commonly recognized retail forex trading platforms including Metatrader have been tailored to suit ECN brokers. Nowadays more than ever the gap between retail trader’s and investment banks is lessening.

Naturally using an ECN broker will not be of any benefit if you do not employ a trading strategy. Developing a forex trading strategy that takes into consideration your risk profile, life-style and investment is vital before you start trading. Once formulating your trading plan you might want to then try several forex trading platform demos to determine which platform best suits your trading plan. Obviously it’s important that you select a forex trading platform offered by an ECN broker. It can often be difficult to determine if a forex provider is in fact an ECN company, however as a rule ECN providers will charge a fee on your transaction rather quoting you a widened spread.