Not too long ago, it was thought that robots were the future of Forex trading. Now, it’s a completely different story. Experts say that ECN is the only way to trade in the foreign exchange market. What you need to understand is that the FX market has advanced at a great rate in the past few years, so everything from the participation in the industry to the number of Forex brokers has changed. Getting back to ECN, ECN trading is becoming increasingly popular and it’s not hard to understand why. If you’d like to know more about Forex trading through ECN, please continue reading.
Understanding ECN trading and its standalone advantages
ECN is an acronym and it stands for Electronic Communications Network. The best way to describe ECN trading is to say that it’s like a bridge that links smaller market participants with its liquidity. Put simply, it eliminates intermediaries. You obtain access to various prices from many market participants directly on the trading platform. The electronic system disseminates the orders entered by market makers to third parties and, therefore, small orders can be executed. Even though Electronic Communications Network systems ensure transparency and deep liquidity, they tend to be more expensive.
The financial expert who deploys a system of this kind to ensure clients direct access to other participants within the market is called an ECN broker. Attention should be paid to the fact that ECN brokers don’t pass on orders to market makers. They simply match orders with traders via a liquidity provider for execution. To realize this connection, financial experts utilize cutting-edge technology. The setup has the name of FIX Protocol. It’s precisely this technology that allows small market participants to access interbank rates.
If you’re planning to invest in Forex, these are the two main advantages of Forex trading through an Electronic Communications Network:
Trading completely anonymously
To start trading with a Forex broker, you have to provide sensitive information. If you don’t meet this tiny requirement, you won’t be able to deposit or withdraw money. Brokerages are becoming stricter and stricter, asking for so much information. If you’d like to trade anonymously in the foreign exchange market, it’s recommended to trade with an ECN broker. The system provides anonymity to those who desire it. Actually, anonymous execution is the norm. You can hide behind the broker, so it doesn’t matter if you trade with little or huge amounts of money.
Enhancing Forex trading profitability
Price manipulation is one of the many factors that limit profitability when it comes to buying and selling currency. Frequently, the foreign exchange market is manipulated by banks and hedge funds. A broker may quote a different price. So, the price of each exchange is different. 99 percent of brokers don’t manipulate prices to make clients lose. Nevertheless, there is that 1 percent that you’re probably worried about. When you trade Forex through ECN, there is no such thing as price manipulation because the broker doesn’t make the market – in other words, they use prices from various liquidity providers, so they can’t manipulate prices even if they want to.
Placing instant trades
No Forex trader is super smart, devoid of emotion, logical, or ever-vigilant. Getting into a trade is difficult as you need to think everything through. Wouldn’t it be great if you could seize opportunity as it arises and make a profit? It’s not impossible just so you know. In Electronic Communications Network trading, trades are placed right away, by means of live streaming. The point is that you can close trades instantly. Confirmation is sent right after closing in on a position. Re-quotes aren’t an issue. This is because there is no dealing desk that can intervene.
How to choose the best ECN broker?
If you’re willing to pay the fees and commissions associated with ECN trading, don’t waste any more time and get into Forex trading. As you now know, the best liquidity is granted by ECN-type brokers. According to Fx-List.com, ECN brokers aren’t scammers. However, there are certain things you must pay attention to when choosing who to collaborate with.
Learn more about the payment system
As a rule, those who choose to trade Forex through ECN deposit a lot of money into their accounts. For this reason only, it’s important to find out what kind of payment system the brokerage deploys before making a deposit. While some brokerages only accept money transfers, others are open to payment systems such as PayPal and credit cards. Equally important is to get information about the minimum deposit for opening a trading account. Maybe you can trade with small amounts of money. This way, you get used to managing stress and the data of trading, not to mention that you can increase your ability to manage current positions.
Carefully read the client agreement
Needless to say, you should always read a business contract. After you’ve crafted a list of brokers offering Electronic Communications Network trading accounts, it’s a good idea to ask them for a client agreement. Read the document carefully, understand and agree with the terms and conditions before you enter a contractual relationship with the financial expert. Go over the broker’s website. If you see the words “dealing desk”, then you’re not dealing with ECN broker. The point is that small details can help you understand who you’re dealing with.
Financial trading has evolved considerably since it came into being back in 2000. Every year brings new changes, not to mention challenges. Electronic Communications Network is viewed as a major development in Forex, giving access to high liquidity providers and matching buy and sell orders. Right now, it’s the preferred trading method. Individuals, as well as small businesses, can trade Forex through ECN. More and more brokers are opening their doors. They work with big financial institutions, but that’s not what’s most important.
What matters is that the fact that they provide the best currency rates, effectively delivering orders from their clients for the execution of liquidity providers. There is no such thing as bias because the brokers aren’t market makers. What’s more, they don’t earn their keep from the spread, but charge an insignificant commission. It’s not hard to understand why Electronic Communications Network trading is considered the future of the foreign exchange market.