Published on December 18th, 2018
The forex market has been growing rapidly and it has grabbed the attention of many investors who wish to generate good profits. This has led to an influx of forex brokers and they come in different shapes and sizes. Choosing the right broker can determine whether you will get a profit or lose your investment.
Who is an ECN broker?
Basically, an ECN broker is an experienced forex expert who uses the Electronic Communications Networks (ECN) to offer their clients a direct access to other market participants. Normally, they consolidate a wide range of prices as listed by different market participants. This implies that the broker can offer better bid as well as ask spread which is not feasible without price consolidation. To the traders, this can be very helpful when the market is challenging.
Normally an ECN broker will match trades carried out by active participants and they won’t be making direct trades against their clients. But this doesn’t always happen with other forex traders who may occasionally leverage trades by clients to make a profit without the knowledge of their client.
Since the spreads tend to be narrow than what you can get from a normal forex broker. As a result, clients are charged a fixed commission for every trade through the platform.
Selecting the broker
Unlike normal market makers, ECN traders don’t have dealing desks. When a broker has a trading desk, they can easily trade against their clients directly. If you don’t have sufficient experience, this can jeopardize your goals to generate profits.
An honest broker should offer a transparent platform that enables banks, traders, institutions to compete by offering bids. If you find out that the broker doesn’t provide a transparent environment, you should be careful in dealing with them. In addition, a true ECN broker will be quick to reveal their obligation to provide variable spreads and back up the claim with a demonstrated track record.
It is also important to be keen on the liquidity and trade executions. While you stand to benefit from tighter spreads, you are expected to pay a predetermined commission. Make sure you choose a broker who offers seamless and instant execution of orders when the price is favorable. More often than not, normal brokers will automatically be on the opposite side of your trades.
Is this the best choice?
The forex trading industry is teeming with brokers but genuine ones are not many. You can easily find a broker on the internet and most only want to deal with serious traders who have access to sufficient funds.
Ordinary brokers offer varied spreads and there can be a huge difference between different brokers. Basically, that is how profits are generated and this justifies the reason why clients are not charged any commissions. On the contrary, ECNs have tight spreads and trades normally go through interbank so you can be sure that you a trading with legitimate traders. Therefore, this can be a lucrative opportunity for most traders.