What Is ECN in Forex: How Does It Work
Electronic Communication Network, also known as ECN, is an electronic trading system that is aimed at reducing the number of intermediaries and exchanges between a broker and a trader. In a conventional system, the broker selects the other side of the transaction based on the orders available to them. When it comes to ECN, this process occurs automatically, and the most suitable party is selected from the entire database.
In a liquid market, ECN has undeniable advantages: the speed of execution increases and the trading conditions improve. The interest of the company providing this system is to receive payment for a transaction or for the time of using such a service. Another difference between the electronic communication network and the conventional system is that the second party is not necessarily a market maker.
That is, an order placed by a trader with a certain volume and at a set price can only be partially executed. In this case, the system selects another offer closest in terms of trading parameters. That is, the actual price may slightly differ from the initial one in the case of large orders.
Fortunately, there is a so-called order book that provides comprehensive information about market depth. Thus, you can see the volume and price of buy and sell orders at a certain interval.
The best thing about ECN systems is that they unite clients (traders and financial institutions) from completely different parts of the world, which significantly increases the total turnover. ECN allows you to trade around the clock and increases market liquidity, which has a beneficial effect on the execution speed and spread.
As a rule, companies that work with ECN trading systems provide their users with accompanying analytical and informational support. In addition, different trading platforms are often offered. So, everyone has plenty of options to choose from.
The ECN system allows you to execute standard order types widely used by most market participants: market order, limit order, stop-limit order, stop loss, take profit. A trader can decide on a trading approach and strategy that would work best for him.
How Can You Open an ECN Account?
Already know what is ECN and want to test it out? There is a way out. You can open an ECN account with a brokerage company that provides access to this system, such as Forextime. Instead of rushing and picking the very first company from the Google search, approach the choice of a brokerage company responsively.
The firm you pick must have all the necessary licenses, a flawless reputation, high reliability, and trading conditions suitable for you. Make sure you have a convenient trading platform or mobile trading app if required.
ECN – Specs, Benefits, Trading Opportunities
The ECN system has a number of undeniable advantages. These include the following:
- Market globalization – Thanks to the use of ECN, it becomes possible to trade daily and around the clock, while sellers and buyers can be located not only in different geographic locations (like South Africa, China, etc.) but also in different time zones.
- Expanded trading geography – Thanks to the use of ECN, there is a significant increase in the contingent of trading participants, each of which offers different quotes. This has the most positive effect on the already good liquidity of the Forex market.
- Minimum spreads and commissions for transactions – A trader can save significant amounts on commissions that most trading systems charge.
- High operation speed – Deals made in ECN systems are usually executed at a decent speed; there are no re-quotes, and slippage is minimal.
- 100% transparency – All transactions made in the system are as transparent as possible. This means that the names of the counterparties and the volumes of their transactions are freely available to all subscribers of the system.
- Easy data management – All participants in the Forex trading market are supplied with a full range of information necessary for trading.
ECN is a modern, high-tech electronic trading system that provides a trader with great trading conditions. The advantages of Electronic Communication Network outweigh the disadvantages. To trade, you need to open an ECN account with a reliable broker and make sure that you are satisfied with the provided trading conditions.