Brokerage services were mostly represented by dealing centres until recently. Those extended their "sphere of influence" by offering unreasonably high leverages and minimum deposits, and by promising fabulous profits. In the past 10 years, dealing centres have discredited themselves through dishonest or even fraudulent actions regarding their clients. The key drawbacks of working via dealing centres are:
• slippage and requotes;
• technical failures during high volatility;
• problems related to money withdrawals;
• floating spreads, and so on.
Why ECN brokers are different
ECN brokers embody a new evolutional stage in forex trading that has been already appreciated by traders worldwide. The first Electronic communication network appreared in 1999 as an e-trading network, which soon evolved into a fully-fledged Forex trading platform.
The ECN is based on the stock exchange model of trading that allows market participants to work under equal conditions when sending their orders to the currency market. Any trader can access current quotes and choose the best bid or ask prices of any currency pair. An investor can either choose an available market price and execute a trade instantly or offer his/her own price. In the latter case, the order may remain unexecuted if no buyer or seller agrees to the price offered. Some professional traders consider this fact as the only disadvantage of ECN trading: it may take long to find the counterparty in your trade, while a brokerage company itself can act as counterparty and perform clients' orders when working via dealing centres.
What's more, with ECN brokers, limit “buy” or “sell” orders may be placed regardless of the current price and within spread.
The stock exchange principle of trading reduces a broker's participation in a trade as much as possible. An ECN broker just serves as an intermediary between an investor and a platform and does not have enough authority to participate in currency trading as an individual. This approach implies that an ECN broker simply doesn't have any opportunity to generate slippages and requotes and cause clients' losses. On the other hand, the spreads provided by ECN brokers are normally lower than those in dealing centres. Because a broker does not increase spreads to charge a service fee and a trader trades with other market participants directly, not with the help of the broker. Liquidity providers may be banks, investment funds and other financial institutions. They compete for traders by offering lower ask/bid quotes, therefore traders may enjoy better prices.
Why ECN brokers are interested in their clients' profits
By providing their clients with transparent trading, 24-hour access to up to date trading information and the opportunity to trade daily at any time and in any place, ECN brokers ensure the best trading conditions nowadays:
• the minimum deposit amount starting from $500;
• 1 to 400 leverage;
• access to the market via popular and reliable MT4.
To conclude, I'd like to mention that an ECN broker is one of the few brokerage platforms where clients are encouraged to make profits. The thing is ECN brokers' revenue is made of percentages of their clients' trading volumes. So, the more traders trade, the more profits a broker will have.
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.