Best 5 ECN Brokers Forex 2023: Regulation, Fees, Spreads, Trading Instruments & More

Summary

If you’ve just heard about Electronic Communication Networks, and are dying to learn more about the differences between the various ECN brokers with MT4 & MT5 platforms, then this article will give you greater insight into their trading operations, fees, and platforms – both desktop-based and mobile apps. Moreover, you’ll also acquaint yourself with the differences between ECN platforms and other conventional ones like market-maker brokers.

ECN brokers act as middlemen and use electronic communication networks to match buy and sell orders in the trading markets. The use of ECNs allows clients to gain access to the tightest spreads in the industry, the fastest order execution speeds, and the lowest transaction times.

All brokers with electronic communication networks are to be registered with regulatory authorities so that their activities can be closely monitored, eradicating the possibility of them being used for fraudulent purposes. Moreover, the payment methods and assets offered by them are quite vast.

What is an ECN Broker?

It is an intermediary that simply uses electronic communications networks (ECNs) to grant clients access to participate in the equity and forex markets. This broker uses these electronic communications networks (ECN) to match buy and sell orders in the currency exchange trading market. Simply put, the ECN is a computerized trading system that automatically matches various orders between buyers and sellers in the forex market.

Why Do You Need an ECN Broker?

Without an ECN broker, it would be impossible for clients to get direct access to stock or forex markets and carry out their trades in the swiftest way possible. Moreover, it has the amazing advantage of allowing investors from all different regions to trade on the same electronic device network – this removes any geographical restrictions that would’ve been present otherwise. Furthermore, trading via these ECNs eliminates the need for middlemen – and not only lowers costs but also allows traders to trade for a longer period of time.

They outshine their dealing desk brokers’ counterparts in many ways because the electronic communication network enables a direct connection between buyers and sellers. On the flip side, dealing desk brokers execute trades in one of two ways; they either take the opposite side of the trade themselves (meaning that they will buy from a client who places a sell order and vice versa) or pass on the order to a market maker.

This method of executing trades puts dealing desk broker clients at a disadvantage because they take the opposite side of client trades, and the potential for there being a conflict of interest is greater. Brokers with electronic communication networks, on the other hand, act in the client’s favour and do not trade against them. Additionally, if orders are being first passed to a market maker in order to be executed – it prolongs execution times, which has the consequence of clients getting their orders executed at less favourable rates. With an ECN broker, this too can be avoided because the electronic device network shortens these execution times to the max, as the delays caused by a middleman no longer exist.

Factors to Consider when Choosing an ECN Broker

Finding an ECN Broker that works best for you can be very difficult. Fortunately for you, we will go through the different factors that you should take into consideration when choosing a broker that uses an electronic network below.

Regulation

You should always conduct a background check on any broker you are looking to open an account with. Legitimate brokers will always be regulated by the concerned government institutions. This kind of licensing and regulations ensures that the brokers will always be under government surveillance – through continuing supervision – and ensures that client funds are safe and criminal activity is non-existent. For example, in the US, all ECNs need to be registered with the SEC.

Fees and Commission

ECN trading is likely to be cheaper than trading via market makers, because market makers profit from wider bid-ask spreads and unfair pricing – while ECN brokers’ only source of income, for the most part, is the commission & fees they charge on every transaction. When choosing a broker with electronic networks, you should make sure that the commission they charge is reasonable because reduced commission translates to higher possible earnings for you.

Reputation

Classifying a broker as reputable involves looking at a wide variety of factors. First and foremost, you should make sure that the broker is regulated by a reputable licensing body. For instance, FCA-regulated brokers are among the most trusted. Secondly, it is important to check if their transaction times are on par with other brokers and that their spreads are as narrow as they can be. Thirdly, you can also look at its client satisfaction rate since that’s a clear indicator of whether or not the broker is operating like it’s supposed to.

Payment Methods

Generally, the more deposit & withdrawal methods a broker can offer its clients, the better. This is because it gives them more freedom to choose the payment method that works right for them, and the one they’re most comfortable using. Most, if not all, forex & CFD brokers will list bank transfers and credit/debit cards as payment options. Other than that, e-wallet methods like Neteller and PayPal are also quickly gaining popularity.

Spreads

The difference between the bid and ask prices of a particular security/asset is what we refer to as spreads. ECN brokers consolidate price quotations from all sorts of market participants, making it possible for them to offer their clients narrower spreads than those available when trading with conventional brokerages. Choosing a broker with tight spreads is important.

Leverage

When trading with leverage, you only have to pay a fraction of the investment. Under it, you use a margin to give you increased exposure to an underlying asset of your choice. This type of trading is popular among investors – who are short on cash but still want to open more positions.

Brokers with electronic networks, like traditional brokers, offer clients high leverage, giving them the ability to control large volumes of an asset without much capital; the leverage can be as high as 1:1000 for some forex pairs. Although it might seem like a great deal, the risk of leverage trading is that you may lose more money than you have in your account, so it is advisable to be cautious when selecting leverage.

Pros and Cons of ECN Brokers

Trading Instruments Available on ECN Brokers

With an ECN account, you can trade all sorts of trading instruments. Some of them are discussed below.

Forex

Foreign Exchange trading, abbreviated to forex, is a term used to describe the trading of currencies from different countries against each other. Every broker will have its own list of forex pairs that clients can trade, some more than others. Popular examples of major forex pairs include EUR/USD and GBP/USD.

Shares

Shares represent ownership in a company and entitle you to a claim on its earnings and assets. The amount you can earn is determined by the size of your share: the larger the share, the more you earn. You can either invest in stocks, or trade stock CFDs. Tesla, Alibaba, Facebook, and Amazon are some of the more popular examples.

Cryptos

Cryptocurrencies, controlled by a decentralized system instead of a centralized institution like a bank or the government, are digital currencies that are verified and recorded in a database through the collective efforts of miners across the system.

Cryptocurrency has seen a sudden surge in popularity in recent years, and ECN brokers are hopping on the bandwagon by making industry favourites like Bitcoin, Ethereum, and Litecoin available for trade to their clients.

Indices

Assets that keep tabs on a country’s economy’s performance levels or even a specific market sector are referred to as indices. Brokers offer many indices from around the world – each made up of many shares. A few notable examples include FTSE, DAX, and, ASX.

Commodities

Commodities, which can be divided into hard and soft commodities, are goods of value that are consistent in quality and are often produced in massive volumes by an array of suppliers.

If referring to agricultural goods like sugar, corn, and coffee among many others, you’re talking about soft commodities. On the other hand, hard commodities are those that are acquired through procedures like mining. Oil is one of the most sought-after hard commodities in the world.

ETFs

ETFs are those assets that can track a specific index, sector, commodity, or other assets, much like mutual funds. The only difference is that ETFs, (exchange-traded funds) as the name suggests, can be traded on a stock exchange similar to the way you can trade a stock.

The beauty of ETFs is that they can be engineered to track everything from a single index to a vast collection of securities. What’s more, is that you can also use them to track specific investment strategies if you’d like.

The SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index, was the first ETF to come into existence that still remains an actively traded ETF in the present.

ECN Trading Platforms

Some traders might prefer trading on the big screens and so will stick to the desktop trading platforms offered by these ECN brokers, however, others may see mobile trading apps as more convenient. To satisfy the maximum number of customers, brokers with electronic communication networks should have their own proprietary trading platform along with the standard MT4 and MT5 platforms. They can both be available on desktop or mobile apps.

Desktop Trading Platforms

Desktop trading platforms are those platforms that are downloaded directly onto your computer, however, some desktop-based platforms can be accessed via a web browser too. The platform makes excellent use of the colossal screen size of PCs, and grants clients a better viewing experience. Moreover, the greater screen size means that lots of information can be displayed at once on the screen. These platforms can either be proprietary or widely available platforms like MT4 and MT5.

A really popular desktop-based trading platform among ECN clients is the MetaTrader 4 (MT4). This has been a broker favorite for a long time now because it has proven to be a powerful platform to trade forex and other forex and other monetary instruments like CFDs of stocks, indices, commodities, and cryptos.

MetaTrader 5 (MT5), much like MT4, also offers a suite of trading instruments however it is distinguished by its ability to execute trades at a much faster rate – something really important to ECN clients.

Mobile Apps

Moving on to mobile trading apps, ECN brokers might offer mobile versions of famous trading platforms like MT4 or may develop their own ECN mobile-based platforms specifically for their clients. These kinds of applications allow clients to check their trading activity on the go, especially in situations where they might not have access to their PCs. The app sizes are usually small too, so they won’t take up lots of storage space. Plus, they may be used via a web browser too.

ECN mobile-based trading platforms will make sure that you are kept up-to-date with the latest market trends through notifications and price alerts, so that you never miss out on a life-changing trade.

Beginners might find such ECN platforms particularly helpful because the smaller screen size of phones limits the information that is displayed on the screen at once, giving the ECN platform a clean and polished look – that isn’t too overwhelming. It also helps that the user-interface too is easy-to-use and easy to learn.

ECN vs STP Brokers

Let’s begin with STP brokers. In the STP environment, it is common to observe liquidity providers competing against one another for the best bid/ask spread. Trading with this type of broker ensures that you are able to get the best spreads on the market at that particular moment. However, due to spreads being a source of income for them they might also add their own mark-up on top of these highly competitive spreads, making them slightly less narrow than they could’ve been.

However, in ECN systems, all of the participants in the network like major brokers, individual traders, and liquidity providers trade against one another to get orders. What this does is that it not only ensures that order execution rates are the fastest, but also creates a high liquidity environment with the best spreads. Since they don’t earn from spreads, ECN brokers may charge other fees and add commissions on every transaction to make a profit.

The following are the main differences between ECN and STP brokers.

Order Routing

While brokers with electronic communication networks route your orders straight through to the central interbank market, STP brokers pass your orders directly to another party which might be another STP broker, market broker, or even a broker with electronic communication networks.

Speed of Execution

While it is true that STP brokers route an order directly to their liquidity providers, exactly how fast that order is executed depends on the precise route it takes. As the other brokers, their operations and direct order routing makes it so that orders are executed almost instantly.

Trading Fee Structure

The source of income varies for both parties, while ECN brokers can only earn through the small commission they charge clients, STP brokers can charge commission and earn from spread mark-ups too. STP brokers can offer both variable and fixed spreads, while true brokers with ECN will always offer variable ones.

What is the Difference between an ECN Broker and a Market Maker Broker?

Brokers operating on an electronic network are more likely to be transparent about the prices because they do not work against you. However, because brokers in the market maker model act as counterparties to each forex transaction, they take the opposite side of your trade. Due to this conflict of interest, brokers in this model may be incentivized to offer you a set price which may not be the best price available in the market. Moreover, in extreme cases, it can also lead to price manipulation and stop hunting. However, the pricing model with market makers usually facilitates commission-free trading, as the broker profits exclusively from the spreads.

Additionally, currency price movements are usually less volatile in market maker systems compared to ECNs, which may be well received by those traders that are risk-averse. Keeping that in mind, scalpers that thrive on such volatility may be disadvantaged. In fact, market makers often do not welcome scalping on their platforms and may even put active restrictions around it.

Some market makers may offer spreads fixed to a level that best suits their interests because it represents a primary source of generating profits for them. On the other hand, true ECN platforms will always only feature variable spreads dependent on market forces. This means that it is common to see zero spreads on liquid forex pairs like the major ones during periods of low trading activity.

How do ECN Forex Brokers Make Money?

Whenever an order is placed, irrespective of it being a buy or sell order, the ECN platform automatically deducts a predetermined fee from the client’s account. ECN platforms feature a fixed commission for every transaction. So if the market is thriving and more orders are being placed every minute – the greater their profits are – whether you lose or win a trade, it has no impact on their earnings. It is worth noting that they do not earn from spreads, unlike market makers and STP brokers, either.

How to Identify if a Broker is a True ECN?

In this day and age, it is quite easy to disguise yourself as an ECN forex broker. However, if you as a trader keep the following tips in mind, you’ll have no problems distinguishing between fake and true brokers with electronic communication networks.

• A regulatory requirement, more often than not, is for brokers with ECN to clearly mention in their client agreements that they in fact are a true ECN broker or an ECN by association. If a broker doesn’t explicitly do this, the chances of them being a fake ECN platform are quite high.
• True brokers with electronic networks will never provide any sort of fixed spreads to their clients – they always offer only variable spreads.
• If the broker allows negative slippage to affect client trades, then there’s a chance they might not be the true one.
• They will never put restrictions on large-volume orders. If the broker you’re trading with rejects orders of for example more than 5 standard lots, the chances are that they aren’t a true ECN platform.
• Lastly, you may check if the broker is a non-dealing desk. Only market makers are dealing desk brokers and would place trades against their clients, not true ECN platforms.

Are ECN Brokers Safe?

ECN brokers that have obtained licenses to operate in a particular region from the concerned regulatory institution are safe to deal with because they’re under government supervision.

Also, many ECN platforms like MultiBank Group believe in segregated client accounts and maintain separate client accounts without merging them with their company investments, to ensure that they cannot withdraw funds from their clients in order to clear debts or for personal gain. The funds are also stored in top-tier banks, maximizing client fund safety.

Furthermore, a lot of ECN platforms will also have attractive insurance policies which are either mandated by the regulatory bodies of the regions they offer their financial services or because the broker believes in ultimate client fund protection. Insurance like this puts your mind at ease, as in the unlikely event the brokerage firm files for bankruptcy – you can rest assured that your funds (for the most part) will be returned to you.

What Do Reddit & Quora Users Say About ECN Brokers

Reddit

Reddit users had their own views on brokers with electronic communication networks, with some speaking out in their favor and others complaining about the high initial deposits and commission fees on these ECN platforms.

This particular Reddit user claims that most ECN and “non-DD platform(s)” are quite hard to customize because of their software. They even call them “stiff”.

Another Reddit user, although does comment on the commission fees being quite “high” with his ECN broker, feels as though it is worth paying considering his ECN platform “Dukascopy” grants it a suite of benefits not limited to “fast execution”, “good pricing” and “decent support”.

Quora

Andrew Washington, a Quora user, explains that the best ECN brokers are those that “execute trades quickly” and offer “thin spreads”. His choice of ECN platform seems to be “coinex” which he portrays as a very good ECN platform with “tight” spreads and fast order execution times.

In this Quora user’s opinion, most ECN platforms feature “tight spreads” and have reasonable “commission costs”. He says that the ECN platform he trades with, the FP Markets trading platform, offers spreads from “0 pips” for most of the day – hinting at contentment with his choice of broker. Also, he plainly mentions that the commission cost is $6 per round per lot.

Bottom Line

An ECN brokerage firm makes use of electronic communications networks (ECNs) to give clients access to participate in the financial market. They operate with a different model, but you will find their range of assets to be pretty similar to those of dealing desk brokers. Indices, Forex, Cryptocurrencies, Commodities, Shares and ETFs, among many others can all be found on ECN platforms.

ECN platforms can be either desktop-based or mobile-based and most brokers will offer both to their clients, to satisfy everyone. Both platforms have their merits and downsides, and their popularity with an individual depends on many factors.

Moving on to payment methods, the best ECN platforms will accept a wide variety of payment methods like bank transfers and even e-wallet methods – so that deposits/withdrawals can be made a hassle-free task for all.

Furthermore, it is worth keeping in mind that brokers with ECN primary source of income is the commission they charge you on every transaction. They do not earn from spreads, like STP brokers, and so will always quote the tightest spread in the market without any additional markups. Price feed transparency is also more apparent in ECN models.

It is worth bearing in mind that there are plenty of fake brokers with ECN out there, and spotting a real one can be quite difficult if you don’t have the adequate information you need to distinguish between them. Remember that, true brokers will always be regulated, offer only variable spreads, and will never put any restrictions on scalping or large-volume orders.

Lastly, the best ECN brokers prioritize client fund safety and have lots of measures in place like segregated client accounts and insurance policies to protect their clients.