Brokers are essentially important in the execution of trades. By definition, they are the mediators in exchanges who execute the orders between a buyer and a seller. They act as the middlemen to negotiate and get the best deal for their clients. There are different kinds of brokers, however, in this article; we will be focusing more about ECN brokers.
What is an ECN broker?
ECN generally means “Electronic Communications Network”. This is the system that ECN brokers use to interact with their clients. These brokers offer only true spreads to their clients. That is, tighter bid and ask spreads. Although in exchange for this, they charge a fixed commission on every transaction, earning bigger profits depending on the volume of the trade. ECN brokers also offer lower leverage and higher minimum capital to keep up with the requirements of interbank trades.
What makes ECN Brokers different?
ECN brokers work by matching market participants, thus they do not trade against their clients as opposed to retail brokers. They go straight to the interbank. ECN brokers promote market transparency by providing everyone equal access to market information. They also offer real time prices in the marketplace, resulting in the best bid and ask prices. And since there is no dealing desk to intervene, execution is fast and immediately done as soon as the trader places the order. For traders who usually deal with huge amounts of capital, ECN brokers also offer a level of anonymity.
Electronic Communications Network
ECN or Electronic Communications Network is an electronic system for buyers and sellers to come together to make trades. It does this by giving access to information and facilitating the execution of orders. An ECN platform is designed to match buy and sell orders that are currently present in the exchange. It also works to provide the highest bid and lowest ask when a specific order information is not available.
Some of the advantages brought about by ECN brokers are:
✓ Allow trades outside the usual trading hours
✓ No manipulation of market prices
✓ Provides a level of anonymity
✓ Avoids wider spreads
✓ Transparency of market information available for everyone
✓ Immediate and fast execution of orders
✓ Lower commissions and fees.
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