ECNs are computer-based systems that display the best available bid and ask quotes from multiple market participants, and then automatically match and execute orders. They not only facilitate trading on major exchanges during market hours, but they are also used for after-hours trading and foreign currency trading. ECNs allow for automated trading, passive order matching, and speedy execution. The ECN provides an electronic system for buyers and sellers to come together for the purpose of executing trades. It does this by providing access to information regarding orders being entered, and by facilitating the execution of these orders. The network is designed to match buy and sell orders currently present in the exchange.

Similarly, the best ECN brokers in Kenya, Dubai, Malaysia, Cyprus or the Philippines might differ from the top providers in Nigeria, South Africa, India, Australia and Singapore. “ECN brokers are experts at using ECN systems that aren’t particularly user-friendly,” he says. “They also make it easier for smaller, lower-volume investors to take advantage of ECNs without paying access fees or commissions.” But ECNs don’t come without cost. Another potential benefit of ECNs is that they’re open when stock exchanges are closed, giving investors additional trading hours. “This provides a chance to react to new information that arrives outside of hours when exchanges are open,” Fink says.

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The only way to make sure that a forex broker is a true ECN broker is to make sure that you are trading with a regulated broker. Any regulated brokerage firm will provide information regarding its regulated status on its website. Instead of making money off the bid-ask spread, ECN brokers usually charge a flat commission rate on each trade. When buying or selling financial assets, there is always a spread differential between the best available buy and sell prices. A buyer needs to pay the best available sell price offered (the “ask”), while a seller must take the best available buy price (the “bid”). Another disadvantage of using ECNs is that the platform is less user-friendly than those provided by traditional brokers.

ECNs are also faster and more private than third-party transactions, Martucci says. Live prices are constantly moving and especially when trading sessions overlap, a true ECN broker may offer floating spreads. Prices reflect real, live market conditions at that time with the ECN providing a level of privacy to those who need it, such as those executing large orders. It motivates them to deliver the lowest possible rates in a bid to beat the competition and attract traders. ECNs allow for clients or investors to be able to participate and facilitate trades in market exchanges, outside the normal trading hours.

Top 5 ECN Brokers

On the negative side, the selection of stocks is limited vs alternatives and direct share dealing isn’t provided. Trade 7 major, 21 minor and 29 exotic forex pairs with high leverage and a choice between STP or ECN accounts. Support is available around the clock and the TradeLocker forex software is provided. Traders can also test out their strategies in the free MT5 demo account, though the conditions are more limited vs other brokers. ECNs do take commissions, so they may not be suitable for higher-volume investors seeking the absolute lowest cost, Martucci says. “In a world where free stock trading across international lines is increasingly common, ECNs may not be cost-effective.”

This information helps clients know they have quick trade execution even with the additional step of using liquidity providers to fill trades. Both ECN and STP models offer fast executions and tight spreads which lend them to a range of strategies, including scalping trading. In fact, many ECN, STP or hybrid brokers offer zero-pip forex spreads, though they may charge a fixed commission per lot. Whereas the STP broker provides access to different providers in their liquidity pool, the ECN plays the role of a hub. The hub essentially acts as the primary liquidity source, formed of the different hedge funds, banks and market players. This is a result of few liquidity providers being able to cater to smaller position sizes, which can prove challenging for beginners.

What is an ECN Broker?

ECN brokers are very similar to Straight Through Processing (STP) providers. Listed trades are routed to the broker’s group of liquidity providers, such as hedge funds, big banks and investors. These providers act as counter-parties for each trade and compete for the best bid/ask spreads. The broker effectively acts as a silent facilitator, connecting the trader with its internal liquidity pool and taking its fee from a mark-up in the spread. ECNs allow traders to bypass third parties, such as brokers, and trade directly with each other, says Jason Fink, professor of finance at James Madison University.

With an ECN account, you 100% tapped into the real market 24 hours a day 5 days a week. Another disadvantage that comes with the larger financial requirements is the fact that you can’t open micro-lot trades with an ECN broker meaning you’re locked to either mini or standard lot, which is a much larger sum. As you may remember, micro-lot is worth 1,000 currency units and is considered the smallest position size in trading. And since Forex ECN accounts are expensive, micro-lots aren’t offered under this service. An FX broker who only makes money on commissions from orders is motivated to make sure that clients are trading and generating ever-increasing volume.

FAQ on ECN Forex brokers

Overall, the role of an ECN broker is like an intermediary between the seller and the buyer. They have no intention of manipulating prices, but they can use the market to benefit you. ECN brokers profit from charging a commission per trade and have fewer potential conflicts of interest with their clients than a “market maker” broker. When you trade forex using ECN, you buy and sell directly from the connected network of banks and financial institutions, and they provide you the liquidity.

Market makers help ensure there’s enough liquidity so trades can be executed seamlessly. In contrast, ECN brokers connect buyers and sellers, drawing on various liquidity providers. ECN brokers usually offer tighter spreads, faster order execution and increased transparency. ECN Brokers use advanced technology to create a seamless trading environment for professional traders and institutions. Market prices fluctuate reflecting the supply, demand, volatility and other market conditions. The FXCC-ECN model enables clients to trade on tight bid/offer spreads, which can be lower than one pip on some majors in certain market conditions.

What Is an ECN Broker?

It is pertinent to note that all transactions were done manually prior to the 1970s, with a restricted amount of e-trading existing in the 80s. At that time, almost all electronic trading was done through an advanced communication system developed by Reuters, called Reuters Dealing. A trader may enter an order to buy or sell at the current market price, but instead of having his or her order instantly filled, they are presented with a requote at a new market price. Soft-FX’s turnkey solution for establishing a Forex broker includes the aforementioned features of advanced liquidity aggregation and risks hedging. Save yourself hours of research and use our unique broker finder tool to get a personalized list of brokers tailored to your preferences. Alternatively, check out the Best ECN brokers toplist compiled by our team of financial experts.