Trading and Investing

What Forex Traders Should Know About ECN And How to Use It

When you start trading in the forex market, you have to gain considerable knowledge in the market’s operations, strategies in the trade, and the brokers you can trust.

One of the crucial aspects of forex trading is identifying a reliable broker with a reputation and vast experience in the field. If you fail to find a reputed and licensed broker, your investment might be at risk.

Forex Traders Should Know About ECN

So, if you are interested in investing in the forex market, you must find more information about forex brokers. Several forex-related websites and financial publications publish the list of reliable brokers. You can find the list of the best forex brokers on Brokersview and then you can take a final call on your broker.

When you are interested in forex trading, you should be aware of the platforms and systems in the sector. This article looks at the several aspects of Electronic Communication Network or ECN and its significance in forex trading.

Table of Contents

What is ECN?

ECN is considered the future of forex markets by brokers, traders, and experts in the industry. The Electronic Communication Network is an Alternative Trading System. It is a computerized system that helps traders connect with brokers to trade currencies.

Besides regulation from relevant bodies, there is supervision from the respective exchanges when trading in stock markets. However, in the case of ECN, there is no regulator as it is the deal between the trader, broker, and another client. In such a scenario, you can trade with investors from all over the world without any restrictions or control.

The buyers and sellers will conduct transactions with the broker’s help via the Electronic Communication Network. You can complete ECN transactions through a broker by paying a commission for each transaction. The broker will help you find a buyer or seller for your currency through the system.

Major Advantages

There are several advantages to using an ECN, and let’s find out which are the significant ones for traders. One major advantage of ECN is the option to remain anonymous. When conducting a deal via ECN, you would not know who the buyer or seller is in the transaction.

The parties won’t interact with each other during the agreement. The broker acts as the intermediary between the parties conducting the trade. On the other hand, the participants will interact when following Market Maker.

Another significant advantage of ECN is the speed of the transaction. It is confirmed when you finalize a deal, and there’s no possibility for re-quotes. With such a facility, you can ensure that there won’t be a change in the price once you finalize the deal.

The brokers get a commission for ECN deals, and they don’t have to manipulate to make money. Here the broker is acting as an intermediary alone, and there’s less scope for manipulation in prices. The broker will also provide you with live information on prices from different sources, thus offering raw market spreads.

You can conduct trading with ECN brokers even after the market’s closing. You will get enough time to analyze various aspects, especially understanding major market-related news, before arriving at a final decision. With traders having access to real-time market prices via ECN, they stand to make gains if they take the right call.

ECN Brokers

When dealing with ECN brokers, you have to understand that they are not functioning under any regulation. It is thus essential for you to depend on a reliable ECN broker for conducting your transactions. You should also check your current broker has a dealing desk. If so, it would be better to look for another ECN broker.

You can find regulated ECN brokers, and many reputed brokers have ensured their entry in the Financial Service Provider Register. Reliable ECN brokers provide variable spreads to clients.

Major Disadvantages

One major disadvantage is that you have to pay a commission to the ECN broker for each transaction. Besides the initial expenses, you have to pay commission.

So, if you are conducting ECN deals regularly, you will have to be ready to pay more commission to the brokers. With the involvement of brokers, there are chances of manipulation. One has to be alert on preventing such occurrences.

Market Knowledge

As a forex trader, you need to know all market aspects thoroughly. You have to conduct fundamental, technical, and weekly analyses regularly. One should also follow a good trading plan and note all major trading decisions on a journal. Once you professionally approach trading, you can learn a lot through experience.

It would help if you followed all vital information regarding forex, including ECN, by reading forex-related websites and financial journals. Such updating is essential for the success of a trader.

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About the author

Blossom Smith

Hi there! I’m Blossom. I enjoy the simple things in life – a walk through the woods, a cozy blanket, a tasty meal or a good book. When I got married 13 years ago, I was truly clueless in the realm of homemaking.