ECN is an acronym for Electronic Communications Network. A Forex ECN broker does not require a dealing desk but instead provides a marketplace where multiple market makers, financial institutions and traders are able to enter in competing bids and offers and have their orders filled by many liquidity providers in an anonymous trading environment. The trades are excecuted the name of the ECN broker, offering you with absolute anonymity. A trader may have their buy order filled by liquidity provider "A", and shut exactly the same order against liquidity provider "B", or have their order matched internally from the bid or offer of another trader. The very best bid and offer is presented the trader along with the market depth that is the collective amount available at each price level. A large quantity of market participants providing pricing to the ECN broker leads to tighter spreads. ECN brokers generally charge a commission for matching trades between their customers and the liquidity providers.
Utilising an ECN broker to trade forex presents a number of major advantages, one of the most obvious being narrow spreads and deep liquidity. Narrow spreads means that day traders and scalpers can take advantage of small price changes on an intraday basis. Deep liquidity ensures that significant volumes can easily be traded without having any effect on price this is very important in unstable market conditions and provides considerable rewards for traders utilising automatic forex currency trading systems. These two components combined mean that it is possible to benefit from more buying and selling possibilities, more opportunity equals more profit potential.
There are numerous of ECN brokers available in the marketplace nowadays with by far the most common ECN used being Currenex. Currenex is usually used by institutions and investment banks and out of reach for most retail investors, however in recent times as the interest in narrow spreads and transparency has improved significantly many commonly known retail trading platforms such as Metatrader have been adapted to suit ECN firms. Nowadays a lot more than ever the gap between retail trader’s and investment banks is lessening.
Obviously utilising an ECN provider will not be of any benefit if you don’t employ a trading strategy. Building a forex strategy that takes into consideration your risk profile, way of life and capital outlay is crucial before you start trading. After formulating your trading plan it is best to then try one or two forex platform demos to determine which trading platform most accurately fits your trading plan. Obviously it is important that you choose a forex trading platform offered by an ECN broker. It can often be tricky to verify if a forex company is in fact an ECN provider, however as a rule ECN providers will charge a fee on your transaction rather quoting you a widened spread.
Author Resource:
Brian Hays is a professional forex trader, Brian has been forex trading online for many years and is regared as on the the best traders in Australia. Brian has written a number of ebook's and guide on trading forex from home many of which have been published on his forex trading blog.
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