ECN ACCOUNT

ECN, the acronym for Electronic Communication Network, represents an electronic system that is able to directly cross-reference purchase orders and sales orders, with the sole purpose of executing them according to the user’s request.

As a result, brokers offering ECN Accounts only act as intermediaries, without interfering with prices. Those who use an ECN broker, therefore, can have the pure price of the asset on which they intend to trade available.

To fully understand what an ECN Account is, it is necessary to understand the distinction between the two main classes of brokers: Dealing Desk brokers and No Dealing Desk.

Dealing Desks brokers are brokers who act as the user’s counterpart, through an active attitude. They usually buy and sell the titles and provide their prices to the users.

No Dealing Desk brokers, on the other hand, perform the sole function of access channel for the user to a specific market. They are, in effect, a bridge that connects the trader to the financial market.

There are some important differences between the two types of brokers: Market Makers act in the market themselves, acting as a counterparty and opening up to the possibility of re-quoting prices.

Moreover, the Market Maker brokers open counter position. If a trader opens a buy position, the Market Maker broker automatically generates an antithetical one. The same procedure, on the other hand, does not occur with ECN brokers who instead act exclusively as a bridge between the trader and the reference market in which he wants to invest.

From these considerations, it is clear what could be the main advantages and disadvantages of an ECN account. Let’s see them in detail.

Advantages:

Completely Anonymous: All ECN trading activity is totally anonymous which enable traders to deal on neutral prices that reflect the real market conditions only and are not biased against the client’s positions and strategies.

Instantaneous Trade Execution: Clients trade forex instantly on live streaming, best executable prices with immediate confirmations. No dealing desk can intervene, so there are no re-quotes.

Client-to-Bank Trading: The ECN model allows clients to trade on the global liquidity of world-class banks and qualified financial institutions.

Automated Forex Trading: Traders can connect their trading models and risk management systems to our market data feed and matching engine.

Variable Spreads: FXORO does not control the bid/offer spread and therefore cannot provide the same bid/offer spread at all times. FXORO offers variable spreads.

Incomparable spreads: On an ECN, clients have direct access to market prices. Market prices fluctuate reflecting supply and demand, volatility and other conditions. The FXORO ECN enables clients to trade on tight bid/offer spreads, which are as low as 1 pip on all majors in normal market conditions.

Disadvantages:

• Absence of DEMO and/or simulation accounts;
• Fixed commissions to be passed on to brokers;
• Interface and usability of the most complicated platforms;
• Leverage (financial leverage) lower than Market Makers;
• Request for a higher initial deposit;

It is impossible to define with certainty the category of traders who might be affected by the ECN account. As always, it is crucial to consider the objectives to be achieved and crucial elements such as one’s attitude, knowledge of financial matters, and the amount of money available for investing.

In principle, ECN accounts are aimed at those who already have strong investment and financial market experience and, at the same time, have more financial resources to dedicate.