What’s an ECN Broker and how to Choose One?

According to the Bank for International Settlements, the forex market sees an estimated $5.3 trillion traded every single day (or an average amount of $220 billion per hour).

There are numerous ways to trade currency in the current market, however, with investment vehicles such as spread betting enabling individuals to profit even as values depreciate.

Investors can also use ECN brokers such as ATC Brokers to trade currency, and this offers number of unique advantages. In this post, we’ll determine the role of ECN brokers while asking how you can choose one.

What’s an ECN Broker?

In simple terms, an ECN broker is a forex financial expert that leverages electronic communications networks (ECNs) to provide clients with direct access to other participants in the market.

When dealing with an ECN broker, this entity will consolidate price quotations from a range of different market participants. This enables the broker to offer clients a tighter bid and ask spread than would otherwise have been available, providing a competitive advantage in a tough and challenging marketplace.

As ECN brokers only match trades between active market participants, they do not trade directly against the client. This is not the case with other types of forex broker, who may occasionally operate unscrupulously and leverage client trades to generate a profit for themselves.

On a final note, it’s interesting to note that as ECN spreads are much narrower than those used by everyday brokers, providers tend to charge clients a fixed commission price per transaction. This creates far greater transparency and fairness in the marketplace, while enabling traders to make more accurate estimations regarding profit and loss.

How to Select an ECN Broker

With this understanding in mind, the next step is to select a reputable ECN broker that can help you to achieve your investment goals.

One of the first things that you should confirm is the absence of a dealing desk, as this is what separates ECNs from so-called market makers. The latter brokers usually feature a trading desk that enables them to trade directly against you, which can undermine your attempts to make a profit (especially as an inexperienced investor).

A true ECN broker should also offer a fully transparent platform, from which traders, banks and institutions can compete against one another with varying offers and bids. If such a platform does not exist, the chances are that you’re not dealing with a verified ECN broker.

All ECN brokers will also state that it’s obligatory for them to offer variable spreads to client, and this promise must be adhered to at all times. If you encounter a broker that is offering established spreads, it’s unlikely to be a true ECN operator.