This post is also available in: deDeutsch

Forex BrokerMax LeverageMin. DepositSpreadFull ReviewsTrade Now
500:1$200From 0.0 PipsRead the full review
400:1$0From 0.0 PipsRead the full review
500:1$200From 0.0 PipsRead the full review
3000:1$1From 0.0 PipsRead the full review
500:1$200From 0.0 PipsRead the full review
1000:1$0From 0.0 PipsRead the full review
1000:1$5From 0.1 PipsRead the full review

What is ECN?


ECN stands for Electronic Communication Network and describes a bridge that links market participants with liquidity providers through a Forex ECN broker. The link is achieved through the use of sophisticated technology called “FIX Protocol” (Financial Information Exchange Protocol). At one end, the broker obtains liquidity from its liquidity providers and makes it available for trading to its clients. On the other side, the broker delivers clients' orders to liquidity providers for execution. The ECN automatically matches and executes the requested orders, which are filled at the best available prices.


What is the difference between ECN, STP and dealing desk brokers?


ECN (Electronic Communications Network) and STP (straight-through-processing) brokers are the opposite of so-called “market makers” as they do not operate a dealing desk (NDD). Instead, they fill clients’ orders without intervention and allow for direct access to the markets. This means that it is not the broker who sets the price but the market itself. ECN brokers provide traders with direct market access (DMA).

Market maker brokers, on the other hand, determine the price themselves. Some of these market maker brokers have been found to trade against their clients. The ECN trading model ensures that brokers never trade against their clients since ECN trading allows the trader to get access to the actual pricing of financial instruments as set by the banks and liquidity providers, rather than the broker.

Certain ECNs are configured to serve institutional investors; others are designed to serve retail investors, others are compiled to cross over between both options, enabling retail traders to experience similar levels of quotes and spreads to those of institutional investors.

What are the benefits of ECN trading brokers?


Apart from offering the best available market price, tight spreads and fast trade execution speeds, ECN brokers commonly charge transparent, fixed commissions instead of using spread mark-ups to earn commissions. ECNs can further be accessed and are often more efficient during “after hours” trading, which is a particularly relevant benefit in Forex trading.

The direct market access (DMA) technology which provides access to pricing from several liquidity providers ensures that there are no re-quotes and execution at the order price is virtually guaranteed. All trading strategies including scalping are accepted on ECN platforms since ECN brokers make money from the size of the deal flow and not from winning or losing trades of customers.

ECNs are also highly efficient for traders operating EAs (expert advisors) for automated trading because execution speeds are accelerated. EAs are very popular with the world’s favourite MT4 trading platform, for example.

What are the disadvantages of ECN brokers?


ECN trading is typically more expensive than trading with a classic market maker broker that charges fees through spread mark-ups. The best ECN brokers generally charge a commission on every trade placed, which is economically beneficial for larger trades and higher frequency traders, but not so much for retail traders with low volume. Commissions are often $2.50 to $5.00 per traded lot. As an example, the popular true ECN broker IC Markets, which is based in Sydney, Australia, charges a commission fee of $3.50 for every lot traded on their true ECN MetaTrader 4 and 5 account types and only $3.00 on their true ECN cTrader account option. They also offer a standard account option for MT4 and MT5 that doesn’t make use of the ECN and applies spread mark-ups instead of fixed commissions per traded lot.

Variable spreads are another factor that traders need to consider because spreads can widen in an instant when volatility in the market is high. This counts for CFD and Forex trading as well as other available markets.

Since traders are dealing directly with the liquidity providers, liquidity requirements are high with ECN trading. In the market maker model, the market makers provide liquidity intervention on the trader’s behalf. With the ECN model, on the other hand, the responsibility of meeting liquidity requirements rests on the trader. As such, the account opening capital requirement for a true ECN account is commonly higher than that of standard trading accounts.

Examples of True ECN Brokers



More and more new ECN brokers opening their doors these days and there is no doubt that this trend will continue. Forex brokers offering ECN or STP trading models are the most popular among traders at the moment despite the fixed commissions.

All trading strategies are accepted on ECN platforms, which makes them ideal for day traders, scalpers and EAs alike.

A typical, and one of the largest and most popular, true ECN brokers is IC Markets. Its True ECN account offers some of the lowest possible spreads available. For example, the average EURUSD currency pair spread is 0.1 pips, and only a small commission of $3.50 per traded lot is applied. With liquidity from over 50 different banks and dark pool liquidity sources, the IC Markets True ECN account was specifically built for day traders, scalpers and expert advisors (EAs). Their MetaTrader 4 and 5 True ECN servers are located in the Equinix NY4 data center in New York, and their cTrader True ECN server is located in the LD5 IBX Equinix Data Centre in London. Both locations serve to ensure ultra-low latency and the fast execution of all trades.

AxiTrader, another Australia-based and ASIC-regulated Forex broker, also offers an ECN account with their MetaTrader 4 Pro account option. It shows the raw interbank spread received from liquidity providers and applies a commission fee of $7.00 per standard lot round-turn.

How to choose the best True ECN broker?


true ECN broker is simply defined as a broker that plugs a trader’s order into a network through which it is automatically added to a matching order from another client, bank or liquidity provider. Even though many ECN brokers may not be considered “true” ECN brokers, it doesn’t really matter to a trader as long as the broker is, at least, trying to match orders directly and one’s orders are filled rapidly and transparently.

As always, we recommend that you choose a broker that is licensed and regulated. ASIC-, FCA- and CySEC-regulated brokers are usually a good choice as they commonly guarantee the safety of deposits and put client funds in segregated trust accounts with top tier banks.

You should also consider minimum deposit requirements, trading costs, spreads and which deposit and withdrawal methods are being offered. We have compiled a selection of the best ECN Forex brokers for you to choose from that all offer excellent trading conditions and low-commission charges.

 

Conclusion


We choose IC Markets as our top True ECN Forex broker as they offer very tight spreads, low commissions, fast trade execution and an overall stable and reliable trading environment. Fees and charges are completely transparent and, as an ASIC-regulated broker, they can be considered trustworthy and professional.