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The Difference of True and False ECN/STP Brokers
December 14th, 2014 byLuckScout TeaminTrading and Investment
Since online trading is introduced to the public, traders learn more and more every day. Few years ago, most traders would have no answer if you asked what ECN/STP was. Thanks to the Internet and the free information accessible to public through it, now most traders know how to choose a good broker and what a market maker and ECN/STP brokerage system is.
However, scams never stop cheating. Since most traders look for ECN/STP brokers to open an account with, many scam brokerages that were used to be market maker, call themselves ECN/STP now, just based on some small changes they have made in their systems. They are not true ECN/STP brokers. This is what you have to be aware of. So, what is the difference of a true and a false ECN/STP broker?
ECN stands for Electronic Communications Network. An ECN broker is the one that its platform is electronically connected to the network of international banks or liquidity providers. When you trade through such a platform, indeed you are communicating and trading with the real and true international currency market.
STP stands for Straight Through Processing. It means everything from placing the orders to closing them is done automatically and electrically without any manual intervention.
Does it mean that if a brokers electronically and without any human intervention connects the platform you install on your computer to another organization called liquidity provider, it is an ECN/STP broker?
Technically speaking yes. It is an ECN/STP broker, because it routes your orders to a liquidity provider electronically and without any human intervention. But what if that so called liquidity provider is another market maker broker that belongs to the same company but with a different name, or a sister company?
That is still an ECN/STP broker from the electronic and technological point of view. But it is a fake ECN/STP broker, because he routes your orders to another market maker broker that rips you off and shares the profit with him (the broker). Or, it routes your orders to a different system with a different name which indeed belongs to the same company. I mean they take your money from one pocket and put it in another pocket. In both cases, you are not trading with the real currency world. You are dealing with a market maker broker that wants you to lose.
They do it because they want to claim they are ECN/STP, not market maker. They proudly advertise it on their sites. As I mentioned, they are ECN/STP from the electronic point of view, but they are market maker indeed.
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A true ECN/STP broker is the one that its platform is connected to at least one trusted and well-known liquidity providing organization (like Bank of America, Goldman Sachs, JP Morgan, Citi Bank, Nomura, HSBC) that has nothing to do with brokerage firm and there is no relationship between them. The broker just routes your orders to the liquidity provider. The liquidity provider makes money through the spread and swap and the broker makes money through the commission they charge you. You pay the spread and swap to the liquidity provider, and the commission to the broker.
Nowadays, most true ECN/STP brokers are connected to several liquidity providers at the same time. When you want to place an order, the system automatically chooses the liquidity provider that is offering the best price, and your order will be routed to that liquidity provider. Therefore, your orders will be distributed among several liquidity providers and none of them will have any chance to know your account and go against you in case you make money. That provides the best possible service for you as a trader, and because liquidity providers compete with each other, they offer lower spread every day which is good for retail traders.
Some brokers are true ECN/STP brokers, but they increase the spread in addition to the commission they charge you. What they add to the spread is called markup. They are not allowed to do that, unless they let the clients know. However, many of them dont inform the clients about this hidden fee and extra charge and when you ask them why the spread is too high, they answer that it is the markets normal spread, which is a lie. So, even a true ECN/STP broker can cheat you too. Read this:6 Ways Brokers Cheat You
So, when you want to choose a broker, make sure it is a true ECN/STP broker first. Also ask them if they charge markups or not. You have to ask them about this and ask for proofs. In case they refused to give you a good answer, dont open an account with them.
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I dont see any strong trade setup on daily and weekly for the coming week. The closest to strong setup is Usdjpy on the weekly timeframe. However it has a lot of negative points and thus it has to be ignored.
For me Ive decided Ill open a trading account with my local broker whose office Ive been to several times before and its well known.
If you are from Nigeria, Pls kindly notify me of the local broker that you made mention of.
Unfortunately it doesnt seem possible to open an ECN/STP account with less than 6k and so this type of account does not appear to be available if we want to follow your advice to start with a small account and grow it.
1. I dont think so. There are some good ECN/STP brokers that you can open a much smaller account with.
2. Lets say that is true. For now, just keep on demo trading to master your trading system. If you could be consistently profitable for 6 consecutive months at least, then you can think about opening a live account. If you learn how to trade, you will have the money to open your live account when it is the time to.
I asked who are their liquidity providers. They talk me Citi Banks. So how can I contact them and verify. Please explain me. Thank.
You mean Citi is the only liquidity provider they have?
Unfortunately you cannot verify that on your own, because in most cases brokers dont have a direct contract with the liquidity providers and they are connected to them through mediator companies. You have to ask the broker to show more proof.
Can I ask you some question about broker? How can I ask a broker to show proof that broker is true ECN/STP broker? I asked liquidity provider name. This broker answered me all European major banks like Deutsche that they connected. So how can I know that is sure again.
There is no way to verify this. They can hide everything from you. The only way is that you just trust what they say, and then try them for a while if they cheat or not.
I think the broker who offer a PAMM service is a true ECN/STP broker (or at least a good broker) because the more PAMM trader win the more investors come so they cant take your money from one pocket and put it in another pocket.
I just did a search. Some of Liquidity provider from the list you provided actually offer online trading services, so I guess we don`t need broker !
But again of course you need good amount of capital $10-25K to open account with True ECN brokers. `ll get in there someday 🙂
There is a stupid question: Who make (decided) price moving up/down and/or who runs the system provide price at the market?
I know there are some factors (supply/demand, news) makes price up/down but I want to know WHO (in personal) control price!?
It is not just a special person or organization. Bug participants decide to buy or sell and their decision impacts the market. You can see here who these participants are:
I just looked at this news came last month. It mention JPMorgan, Citi and other few banks actually did manipulate their foreign exchange prices to their favor. So liquidity providers are not even clean however still better than MM brokers.
They are there to make money, and do their best to make more if they can. It is good they are supervised. What they did to JP Morgan is a good lesson for the others. Of course, I dont think what JP Morgan did could affect retail traders.
Yes I wish trade was more regulated but I guess since its over the counter market that make is highly liquid and liquidity is good for us.
Sure. I am going to analyze it this weekend. Hopefully today. Thank you for your patience.
Hi because I wanted to demo trade with the broker I intend to trade with I searched the net but couldnt find any. Maybe because they dont do mini and micro lots. Who knows.
Another question answered! But what sort of proof do we ask for when approaching the so called ECN/STP broker?
They have to prove it when they say they are true ECN/STP. Ask them who their liquidity providers are. You contact them and verify.
Ive finished the 5 step track articles and this weekend Ive started looking at the charts and trying to locate my first setup on demo.
Didnt locate anything on the daily charts. Was there anything I didnt see?
What do you think of the trade setup formed on CADJPY weekly?
I would say it is a strong bearish engulfing, BB breakout is not too strong but possibly enough because the bearish candle is too strong.
Im a afraid the bullish trend is not exhausted because previous candlestick were too bullish.
Would I be not disciplined if I try and take it?
Please read my analysis and let me know if you have any questions.
Dear, thank You for adding the CADJPY analysis.
Placing SL and TP is what I still dont have clear. Would You please help me with this?
Just for the sake of exercise, lets consider that CADJPY weekly offered a good setup and I took it.
Now, You teach that I should put SL at the open of the bullish candle of the (supposedly strong) bearish engulfing pattern.
I take position going short at 102.203 and the candle opened at 106.203.
If my account is $5000 and I take 0.1 lots (the minimum allowed by a true ECN/STP broker), then my risk would be $400 per 2 positions (TP1 and TP2), for a total of $800, that is 16% of my $5000 account!
If then I want to risk 2% per 2 positions for a total of 4%, that would be 200$, and divided by 400 pips would be 0.05 lots (which I cannot take with true ECN/STP).
To risk $800 as 4%, my account should be $20000.
If I am not wrong in my calculations, does this mean that I cannot take position on weekly and monthly timeframes if my account is not big enough?
I offer two stop loss levels. In case of a short position, the risky one is at the middle of the bearish candlestick which has formed the setup. And the safer one is around the open or high price of the same candlestick.
When your account is not big enough to handle the risk, then you have to avoid the setup.
Excuse me, but lets say I have an account big enough to have a 400 pips SL.
Since TP1 is 5x SL, then for a 400 pips SL the TP1 would be 5400=2000 pips!? That is way too much! Where am I wrong?
Yes, in case you locate a setup that need a 400 pips stop loss, then your 5xSL target has to be 2000.
Sorry I am saying this because in the case of CADJPY, if I took position going short at 102.203 and the candle opened at 106.203, the distance seems to me 400 pips!
Or am I wrong because the yen doesnt have 4 (or 5) figures after the point?
Assuming CADJPY was a setup to take, what would the correct SL be for You?
Yes, in case of CAD/JPY short setup on the weekly chart, the risky stop loss would be about 195 pips and the safer stop loss 380 pips.
When an account is not big enough to handle such a wide stop loss, then skipping the stop loss is all we could do.
Thank You very much for clarifying this to me!
If You feel like doing it, please consider writing some more articles on position sizing with some real practical examples! Possibly that would be useful for novices who are placing the first trades following Your trading strategy!
Is it can trust if its a STP broker only?
Bellow is the conversation between me and my broker support:
Support: sorry we do not provide such kind on information i can tell you that liquidity providers belong to TIER 2
Support: this is confidential information sir if you wish you can arrange call back from our representative so he will assist you via phone with all details
Ask them to call you and ask your questions on the phone. If they dont answer your questions properly then avoid them.
You mentioned in the case of strong bullish/bearish engulfing setup with long upper or lower shadow, it is not rated as 100% setup and can take the price in the opposite direction for several candles.
I notice that the price consolidate for some time and then follow the original setup. What do you think? And if we take this setup is it rated 100% after the consolidation?
i found it still hard to know the true ecn/stp broker. Because they all claim that they are true ecn/stp broker.
Is it a sufficient proof that a broker is true ECN/STP broker if she advertises on her webpage that she is connected to JP Morgan, Citibank and the rest?
I think you personally dont trade in gold and silver but
Kindly make a detailed analysis about gold and silver (Spot).
I have not replied many of the comments yet. Please be patient.
Sir, many broker give us promotion about no deposit bonus , like 10$ 25$ free bonus , so is this real money ? and how can they manage this bonus promotion ?
Is it possible to give us a list of recognized ECN/STP brokers?!
Unfortunately we dont recommend any brokers on this site. Sorry about that, and thank you for your understanding.
Thanks again for all the hard work and input into your articles. Very insightful and helpful. I have a question about ECN/STP brokers.
Isnt it possible that a broker is a true and genuine ECN/STP broker, and may even offer proofs and be attested to by one of his liquidity providers, and will act in that capacity only when you deposit a lot of money with him (e.g. over 10,000 USD); but, he will at the same time accept deposits less than this (e.g. 2000 USD) and handle those accounts as a Market-maker would?
So, if I deposit my limited funds with such a broker, believing him to be an ECN/STP broker (which he is, rightfully), how can I know that he is taking positions against me and actively trying to make me lose?
You will know it only when you trade and see the brokers reactions. If you can get in and out without any problems, the spread is normal and doesnt hunt your stop loss, then the broker doesnt care about your win and loss which means it is a true ECN/STP.
There is no way to find out, but trading with them or ask from the other traders who actively trade with the broker.
Of course, most traders are used to blame the others for their losses. It means you have to ask the profitable traders, not the losers.
this is the message I have got from my broker today:
Can we draw a conclusion whether they are true ECN or just a market maker only based on this message? Is the situation on USD/RUB quite so exceptional? It is indeed a trend caused by the current political tensions, but is this a reason to cut the leverage 10 times or more? (maybe some clients had a leverage higher than 1:100 on their account). Now most of them have to close their positions.
This broker also reduces the leverage to a third on weekends on all accounts starting with 18:00 GMT Friday. If you ask them why they say in order to protect the accounts of the clients from price fluctuations.
They claim to be a true ECN, however they allow also 0.01 lots positions, but to be honest most of the brokers which claim to be ECN allow microlot positions
It doesnt look like a bad action from your broker. I think they are good because they are thinking about the safety of the traders capitals.
By the way, do you really have to trade USD/RUB while there are too many other pairs with great liquidity?
I will certainly trade USD/RUB if I see a too strong setup which fulfills our checklist 🙂 but for the moment I dont see anything on this pair.
Glad to hear your opinion. I will stick with them for a while. Would definitely love to win back my 90%+ capital which I burned until I found your website.
I have now opened a demo account with another broker which offers also CFDs on some indices, shares and futures. I am curious how I will perform in the next months. I will definitely stick to the candlestick patterns and BB system but I have to become more patient and get rid of my fear/greed. My fear/greed was also the reason why I have closed my long positions on GBP/CAD (taken based on weekly candlestick from 24.11) too early. To all of you who with open positions on this pair I wish you lots of green pips!
I asked my broker to give me a list of their liquidity providers and they did: all the big banks! I also pointedly asked them about their ECN status. Their first response (in cleverly veiled language) was a little evasive. And so I asked them a second time, and more specifically, about their STP protocols: and they were forced to admit that they do not offer STP with their MT4 and only with their so-called ECN accounts.
Can I risk trading on the MT4 platform of this broker? Is this broker hiding something else, and can he be trusted? Are their more accommodative brokers out there whose MT4s are STP?
Can I risk trading on the MT4 platform of this broker?
Of course not. When a broker is ECN/STP he proudly gives the list of his liquidity providers.
Is this broker hiding something else, and can he be trusted?
They are hiding a lot of things and they cannot be trusted.
Are their more accommodative brokers out there whose MT4s are STP?
MT4 is one of the best for ECN/STP systems. Yes, there are so many brokers out there.
They did give me the list of all their liquidity providers (I dont know whether they did it proudly, but it didnt seem that they were hesitating): Their liquidity providers included all the big banks across the world e.g. Citibank, J.P. Morgan, Deutsche Bank, UBS, Barclays, Bank of America, etc.
However, I just dont understand why their MT4 accounts are not STP. And the spreads with their MT4 accounts are much, much wider than with their ECN accounts e.g. minimum spread USDZAR with MT4 is 75 pips; but on their ECN the minimum spread is 5 pips.
Ive just remembered, they also charge a commission on their ECN accounts of $65 for every $1,000,000 traded.
I do not know whether this a normal and standard practice with all ECN/STP brokers?
Commission has to be the only source of income for ECN/STP brokers, of course if they dont add to the spread manually.
So they have both systems. One is market maker or dealing desk and the other one is ECN/STP. They place the small accounts and the losing accounts on the DD system, so that they can earn the losses. But to be at the safe side, the place the profitable account on the ECN/STP system.
Saw a strange thing today for EURCHF. At approx 13:30 GMT the price dropped 19 pips and broke through the 1.20 barrier and then came straight back up again. This was visible on [removed] only. I have other demo accounts and cannot see the same spike from the others. I spoke with them and they claim 8 of their 14 liquidity providers had sent through prices at 1.991.
I asked them if this was an error and they claim they are investigating, but basically if the stop was was hit, then the trade would be closed.
No positions, but I imagine there were a lot of stop losses at just below 1.20 that got hit.
I just found it strange that it happened on [removed]. Stop loss hunting ?
Spikes like that can be seen on all brokers charts sometimes. Many of them are because of the technical issues. I have seen spikes for hundreds of pips long while I do know that it was not done by the broker intentionally.
I mean we cannot accuse the brokers for all the problems that happen on the platform. Many of them are technical issues.
I imagine there will be a lot of people fuming at the moment from their stopped out trades.
Eurchf jumped 90 pips after the central bank announcement.
Ive been watching EURCHF for a while as it appears to be in a monthly squeeze for a long time now. No movements on my demo platform.
whats your view on this and also the possibility of a future short on this squeeze under the BB Squeeze trading strategy shared by one of your buddies?
I dont trade EUR/CHF. It is not a good and reliable pair. Its squeeze can be continued forever.
I had today a phone call with my broker and this is the summary:
the claim to be a pure ECN broker with no Dealing Desk
they are also a bank (deposit protection up to 100.000USD)
the have a considerable list of well known liquidity providers for FOREX which is not even updated on their website. All the big banks are represented
high liquidity and very tight spreads. In the evening the spread increases, but I think its normal.
I am trading with them since 6 months already, every trade was executed automatically with slippage 1 pip in normal times. During news time however I had a slippage once of 15 pips or so.
I didnt had the feeling that they hunt my SLs
they claim that all the orders which go through them reach the liquidity providers anonimised
they charge a fixed amount for each milion traded
they are supervised by a well known supervising authority
they reduce the leverage to a third starting with 18:00 GMT even if you have open positions. They say in order to protect the client accounts from price fluctuations on weekends
they have recently introduced CFDs on oil and some indices. They have 2 liquidity providers for the CFDs. I called at one of them and they admit that they are a market maker. However they say its normal because each liquidity provider is a market maker. Maybe we should name a market maker actually one who has a Dealing Desk?
they offer binary options. Here they admit that they have a dealing desk.
They are not true ECN/STP, otherwise they would not reduce the leverage. It has nothing to do with protecting the clients accounts. It can hurt the clients when market opens with a gap after the weekend.
Each liquidity provider is market maker, but it is different from having a dealing desk. Big liquidity providers offer too many services and have too many investments. They dont bother to make traders lose. I have explained it here:
Daniel also asked the same question earlier on this page, and you replied:
It doesnt look like a bad action from your broker. I think they are good because they are thinking about the safety of the traders capitals.
But now you say that it has nothing to do with protecting the clients accounts?
It was not the same question. Daniels broker had reduced the USD/RUB leverage and Daniels question was about that action. And, as USD/RUB is an exotic currency pair with strange and strong movement it makes sense to reduce the leverage to protect both the broker and client. My answer to Daniel was related to USD/RUB leverage. However, if a broker reduces the leverage on weekends, that is too bad and it causes so many accounts with negative positions reach the stop out level and get wiped out.
Youre right, im sorry. In his first comment he mentioned both issues (USD/RUB and also the lowering of leverage on the weekends). I mistakenly assumed you were replying about the weekend issue when you said it was ok. Now i know you meant the USD/RUB issue.
Can a true ECN broker match the trades itself?
When we choose a broker, we need to ensure that the countrys central or national bank regulates it at least. That gives me the assurance. Thanks for writing.
It is crucial to read the actual contract that a trader signs with the broker. This contract controls the relationship between the trader and the broker. For example, the contract may have a clause in it that says that the trader is only risking the amount of money in their account. Such a clause protects the trader from going negative, and being legally obligated to pay the broker for losses beyond the account balance. This contract document will give information that can help determine whether the broker is a true pass through to liquidity provider(s), or simply a faux market maker.
What should I look for when selecting a ECN Broker ?
I have heard the name, but I dont know them very well.
I noticed many brokers are not True ECN as they claim on their web site. One of them is IC Markets. They claim ECN broker but they have totally different spreads varying from time to time and reduce margin and stop out. Their prices and spreads dose not match with inter bank prices.
Is a true ECN broker if they offer trading with API? Or this is not a proof
I dont think that is the sign of being an ECN/STP broker.
So if I understand correctly all API, DMA atc. behind screen still can be there some magic finger correcting price in there favour
It is only the actual performance that shows how the broker works.
I cant thank you and your friends enough for this site. Theres a broker runs the business from Cypress. They dont accept US base credit cards for live acct activation. They accepts ones from the middle-east or even pre-paid cards. What does that really mean? Is it for tax purposes or you have a different explanation? Thanks again for all of your help.
They are not allowed to accept American clients because they are not registered and regulated in US.
GCI Financial sounded good to me but theres no way find out about their Liquidity Provider. What do you think about this company if you know it and how do I find out about their Liquidity Provider. Can you please name few trusted ones!
An anybody advice is a market maker or a true ECN
Can someone please tell me whether or not I need to be concerned about true ECN/STP brokers if i trade Binary Options as well? Ive experienced these nasty tricks by various brokers with Binary Options trading, and am on a quest to find a better broker. So, if someone can please tell me if the same criteria apply for as with Binary Trading, please give me your opinion.
Two weeks ago I read an article in which you mention that leverage that liquidity providers offer to the ECN brokers is no more than 1:100. Does this mean if a broker offer us bigger leverage than this is a market maker? Thanks.
Have you guys tried Vantage ? ASIC regulated, ECN broker.
Havent had a problem myself. Would recommend.
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