Ordinarily, traders understand the need to have forex brokers before they can access the forex market. However, many do not know that there are different types of forex brokers. Generally, forex brokers are classified under the following categories
1. Dealing desk – DD
2. No dealing desk – NDD
3. Straight through processing – STP
4. Multilateral trading facilities – MTF
5. Electronic communication network – ECN
In this post, we will talk about the ECN brokers and what traders stand the gain by signing up to trade the forex market under an ECN forex broker.
WHO ARE THE ECN FOREX BROKERS?
An ECN broker is a financial expert that makes use of electronic communication network in carrying out the duties of a forex broker. These networks provide clients with access to other participants in the market. Seeing as this is the case, it is possible for clients of an ECN forex broker to display real time orders from other traders, and in real time too. Here, the trader does not have to see just what the broker’s price is, but also what the other trader’s price for a commodity is. This can improve transparency among traders, and foster good trading relationship with the broker.
Still on the issue of transparency, a lot of brokers have been accused of trading against their clients as a result of lack of transparency. This has caused distrust and also contributed in the misfortune of many. This is not the case with the ECN forex brokers. The ECN brokers match trades between market participants in a way that is obvious to both parties involved.
Also, many traders seem to favor the ECN brokers because their spreads are unusually small. This is because the consolidate price quotation from several market participants who are all competing with each other. This makes it possible for ECN brokers to be able to offer tighter spreads that will not usually be available to them.
ECN brokers make their money by charging commission on every transaction performed. This is in addition to the spread. All of their transactions are generally processes in the interbank market under the no dealing desk category. The no dealing desk system helps them to work directly with market liquidity providers. Like has been mentioned earlier, traders are allowed to numerous liquidity providers as opposed to trading with just one of them.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.