CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 51% and 89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Advantages of ECN Brokers
The ECN system ensures the full transparency of pricing and trade executions since everything is fed from the liquidity providers to the trader (pricing and trade execution) and from the trader back to the liquidity providers (trade orders), without any interference from the broker.
In addition, the direct market access (DMA) technology which provides access to pricing from several liquidity providers ensures that there are no re-quotes and execution as the order price is virtually guaranteed.
Some of the further advantages of ECN Brokers are:
- Traders have a choice of what bid and ask prices to use for their orders, since the pricing is being provided by not just one, but several liquidity providers.
- All trading strategies including scalping are accepted on ECN platforms because ECN brokers make more money the bigger the deal flow and not from winning or losing the trades of customers.
- ECN brokers are able to fill larger orders as trades are routed to several liquidity providers and not just a single buyer/seller.
- By having access to the Order Book, it is possible for traders on the ECN platform to visualize the bids and ask prices at which other market participants are trading. This will provide some idea as to where the order flows are going and provide some insight into the future direction of the market for a currency pair.
Challenges of Using an ECN Brokers
One factor that traders have to contend with is the cost of ECN trading. ECN brokers will generally charge a commission on every trade placed and it is only economical for larger trades and higher frequency traders as compared to the market maker model of only charging a spread markup.
Liquidity requirements are also high with ECN trading since the trader is dealing directly with the liquidity providers. Unlike the market maker model where the market makers provide liquidity intervention on behalf of traders, the responsibility of meeting the liquidity requirements in the ECN model rests solely on the trader. As such, the account opening capital requirement for an ECN account can be much higher.
Some of the other challenges facing ECB Brokers include:
- Traders have to contend with variable spreads (spreads can widen in an instant when volatility is high) and also have to pay commissions for trade entry and trade exit.
- Minimum trade sizes tend to be much larger and due to the commission charge when entering and exiting a position, it is not as viable for smaller trades.
- To get the best prices, clients will have to meet minimum trade requirements. This is generally not a problem for traders who meet certain conditions and benefit from the lower prices.
ECN Brokers Conclusion
There are several brokers that provide both market making and ECN trading models. There are brokers that are exclusively ECN brokers, and others which work exclusively as dealing desk market makers.
As a general rule, ECN brokers are suitable for traders who can meet the capital requirements and want a trading platform with generally superior trading conditions.
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At BrokerNotes.co, our data-driven online broker reviews are based on our extensive testing of brokers, platforms, products, technologies, and third-party trading tools. Our product testing extends to the quality and availability of educational content, market research resources, and the accessibility and capabilities of mobile platforms and trading apps. We also dive into each broker’s trading costs, such as VIP rebates, inactivity fees, custody fees, bid/ask spreads, and other fee-based data points.
Steven Hatzakis, an industry veteran with decades of experience in the forex market, leads the BrokerNotes research team. All BrokerNotes content is researched, fact-checked, and edited by the research team.
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Note: The online brokers on our site provide the ability to trade forex in one or more ways, such as non-deliverable spot forex (i.e., rolling spot contracts), contracts for difference (CFD), or other derivatives such as futures. The availability of specific markets or features will depend on your country of residence and the broker's applicable brand or entity that services your account(s).
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There is a very high degree of risk involved in trading securities. With respect to margin-based foreign exchange trading, off-exchange derivatives, and cryptocurrencies, there is considerable exposure to risk, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or related instrument. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable, or that they will not result in losses. Learn more about foreign exchange risk.
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Founded in 2014 and acquired in 2021, BrokerNotes.co provides unbiased forex broker reviews and ratings to help traders and investors find the best broker for their needs. With over 60 brokers reviewed, our editorial team has published thousands of words of research to help our readers make informed choices.
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