Choosing An ECN Forex Trading Broker
ECN is an acronym for Electronic Communications Network. A Forex ECN broker does not require a dealing desk but in its place offers a marketplace where multiple market makers, banking institutions and traders are able to enter in competing bids and offers and have their orders filled by several liquidity providers in an anonymous trading environment. The orders are excecuted the name of the ECN broker, offering you with absolute anonymity. A trader might have their buy order filled by liquidity provider “A”, and shut exactly the same order against liquidity provider “B”, or have their trade matched internally with the bid or offer of another trader. The best bid and offer is presented the trader together with the market depth that is the collective volume offered at each price level. A large 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 customers and the liquidity providers.
Using an ECN broker to trade forex presents a number of great advantages, probably the most apparent being narrow spreads and deep liquidity. Narrow spreads means that day traders and scalpers can make the most of minor price changes on an intraday basis. Deep liquidity means that significant volumes can easily be traded without having any effect on price this is particularly important in volatile market circumstances and provides significant rewards for traders utilising automatic forex currency trading systems. These two components combined mean that it is also possible to take advantage of more trading opportunities, added opportunity equals more profit potential.
There are actually numerous of ECN firms available in the market nowadays with by far the most common ECN used being Currenex. Currenex is commonly employed by institutions and investment banks and out of reach for most retail investors, though in recent times as the interest in tight spreads and transparency has improved considerably a lot of commonly accepted retail forex trading platforms including Metatrader have been adapted to suit ECN providers. Now a lot more than ever the gap between retail trader’s and investment banks is narrowing.
Not surprisingly using an ECN provider will not be of any advantage if you don’t use a trading strategy. Developing a Forex trading strategy that takes into consideration your risk profile, way of life and capital outlay is important before you start trading. After formulating your trading stategy you ought to then try several forex trading platform demos to determine which platform best suits your trading approach. Not surprisingly it’s imperative that you select a forex platform offered by an ECN broker. It can often be hard to find out if a forex company is in fact an ECN provider, however as a rule of thumb ECN brokers will charge commission on your transaction rather quoting you a widened spread.