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ECN Forex Trading Explained

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Written by TK

business-962316_640Have you heard of ECN Forex Trading yet? Since Forex is an extremely popular market, there are many types of traders with many different styles. ECN Forex trading is one of them.

ECN stands for Electronic Communication Network, and it may well be the future of Forex trading. Regardless of whether you plan on trading this way, it’s important that you understand the basics.

What is ECN Forex trading?

ECN Forex trading is an automated system that matches purchase and sell orders for securities. It connects traders and major brokerages, without requiring a middleman.

Thus, small participants can link with tier-1 liquidity providers. The ECN creates this link with what is called a FIX (a Financial Information Exchange) protocol.

ECN attempts to remove the third party’s role in executing particular orders entered by an exchange market or an over-the-counter market. They also demonstrate the best accessible ask and bid quotes from market participants, then automatically match and consequently execute orders.

ECNs are so useful because they facilitate trading on major exchanges during market hours, and can be used for after-hours trading.

What your ECN broker should provide

From the moment you started trading, you probably found that there are many misleading offers and even scams online. ECNs are no different. Although there are a huge number of brokers who claim to be ECN, some are straight-out lying.

This is what you should look for in an ECN broker, to ensure you’re getting what you’re supposed to.

Anonymity: this is important as it allows Forex traders to deal on neutral prices reflecting authentic market conditions that are not biased.

Immediate trade execution: offered by the majority of ECN brokers. Immediate execution means your trades are instantly executed on live streamed prices and confirmed right away.

Automated Forex trading and access to market data: some brokers permit clients using their API to connect their own trading models and risk management systems. Others claim they have included best bid and best ask prices in their live data. Be wary of such claims and check out the demo account first.

Spreads: ECN trades go out into the overall market. They’re traded through interbank, as well as large financial institutions. The spread between pairs is trivial. It is reasonable for an ECN broker to charge commission on trades for this reason. They are not making money from taking the other side of the trades, and through dealing with these establishments, the margin is high and the trading allotment is greater.

ECN Forex trading using MetaTrader 4

We’ve often mentioned that MetaTrader 4 (MT4) is the most popular Forex trading software. However, until recently many thought that MT4 ECN could not exist.

However, users of MT4 have provided evidence that it is possible, and produces excellent results.

Do some research into whether ECN Forex trading is best for you. But be careful about what’s out there. One of the main benefits of using MT4 is that you know it can be trusted!

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TK

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