what is ecn trading and what are its advantages
What is ECN Trading and What are its Advantages?
Thanks to recent technological advancements, small retail investors are able to trade the financial markets, ably competing with larger financial institutions. One of the most popular markets for these smaller traders is the Forex market, where you can take advantage of price fluctuations on currency pairs. The reason why its so popular is that its the largest and most liquid market in the world.
Forex trading doesnt take place on a regulated exchange (like shares or other assets do), as it occurs between buyers and sellers from anywhere in the world, through an over-the-counter (OTC) market. To be able to access this market, you need to use a broker.
As this market is not centralized, youll quickly realize that you can access different exchange rates and trading conditions, depending on the broker you use.
For this reason, choosing the right broker for your trading style is essential in becoming a successful Forex trader.
Its important to note that even if there are many brokers out there offering similar products and services, there are a few things you should check before deciding which one to use, to be sure youll be giving yourself the best chance to succeed.
Of course, the first thing you need to be sure of is that youre trading with a regulated broker.
For instance, the brokerMultiBank Groupis registered with 7 different regulators, including Spain, Germany (BaFin), Austria, Australia (ASIC) and the UAE. In addition to being heavily regulated, MultiBank follows strict rules and obligations regarding client funds and security. For instance, MultiBank uses fully segregated client accounts and offers negative balance protection to its clients.
Besides checking out the regulatory status of your broker, you also need to be sure it offers the right kinds of trading platforms and trading accounts for your trading style not to mention other details such as trading conditions, spreads, minimum deposit, payment methods, main currency of the account, and the availability of the technical support.
Another very important thing to consider when choosing a broker is what type of broker that they are, as they are different kinds predominately, Market Makers and ECNs.
Understanding the definition of a Market Maker is pretty straightforward its a broker that makes the markets by setting the bid and the ask prices via its own systems. Then, they display these prices via their platforms, so that investors can open and close trading positions.
Usually, a Market Maker broker will not hedge its client positions with other liquidity providers like an ECN broker would do. Instead, what Market Markets do is they pay winning client positions out of their own accounts. It also means that when a client has a winning trading position, a Market Maker broker loses.
An ECN broker stands for Electronic Communication Network (ECN). This type of broker provides its traders with direct access to other market participants via interbank trading prices. This network allows buyers and sellers in the exchange to find a counterparty of their trading positions.
By using different liquidity providers, an ECN broker is able to allow prices from these providers to compete in the same auction, which usually means that traders get better prices and cheaper trading conditions. Moreover, by using an ECN broker, traders usually trade in a more efficient and transparent environment.
Usually, the way an ECN broker makes money is with the trading volume of its clients, charging a commission on each position.
An ECN broker doesnt trade against its clients
An ECN broker is only the intermediary between your buying and selling orders, matching you up with different market participants.
Hence, an ECN broker doesnt bet against you, which means that it never takes the other side of your trading positions.
This trading model ensures you that there is no conflict of interest, as an ECN broker gets a commission whether you make or lose money.
Using an ECN broker limits price manipulation, increases transparency and provides better trading conditions
As an ECN broker doesnt make the market by creating its own quotes, it is harder for it to manipulate prices, simply because it uses prices from different liquidity providers.
With an ECN broker, you have access to real-live, current information, as well as more accurate prices history, hence why it is more difficult for this type of broker to manipulate prices.
Displaying prices from official sources transparently in the ECN brokers trading platforms makes it easier for you to trade instantly, with tighter spreads than other types of brokers. Moreover, you usually get lower fees and commissions, as well as immediate confirmations.
Another benefit of accessing real quotes is that you avoid re-quotes, which can have a negative impact on your overall trading performance. This usually happens when your trading order is rejected because of the change in the price of the asset you want to invest in. Then, the broker offers you a re-quote of the given asset (which rarely works out in your favor).
As you can see, using an ECN broker allows you to trade more efficiently and profitably, thanks to better trading conditions and better trading execution. With increased transparency and no conflict of interest, ECN brokers like MultiBank are the most reliable and safe way to trade.
Discover whats moving the markets. Sign up for a daily update delivered to your inbox
The Crypto and Blockchain World Trading and Investing in Todays World
Japans Nikkei Index Lower, Demand for Safe-Haven Yen Rises as Coronavirus Fears Increase
Next Major Move in Financial Markets Will Be Dictated by WHO Decision
Beating The Crunch: Can We Invest Wisely in an Economic Downturn?
GBP/USD Daily Forecast Sterling Recovers After Test of Support
Crude Oil Slides to 14-Week Low as China Virus Spreads
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.
Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.
The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third partys services, and does not assume responsibility for your use of any such third partys website or services.
FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.
FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.