About Zero Spread (No Spread) Forex ECN Trading Platform
Forex ECN trading account, also known as The Electronic Communication Network (ECN), is currently one of the most reliable forex trading models. This gives traders a better competitive edge in terms of spreads and prices, as well as speed of trading, and also provides depth of trading for traders to judge market trends.
The ECN trading model is an on-the-dealing desk environment, in contrast to the normal accounts provided by dealers, which makes it very likely that traders will bet against the dealer, the so-called ”betting platform”, which is not uncommon of course, but most dealers will bet against the dealer in order to maximise their profits.
What are the advantages and disadvantages of choosing a zero spread (no spread) forex ECN trading platform?
In the ECN trading system there is complete transparency of execution, all orders are sent to primary market makers and compete with other traders in the market (pricing and trade execution) and back from traders to liquidity providers (trade orders) without any interference from the broker’s trading platform.
In addition, Direct Market Access (DMA) technology provides pricing from multiple liquidity providers, ensuring that there are no re-quotes and no re-executions, as order price accuracy is guaranteed.
About the pros of the ECN trading platform
- Traders are free to choose their buying and selling prices and select the best price from multiple liquidity providers.
- ECNs generally offer very short term scalping trading because the more volume an ECN broker trades,the more profit it earns rather than through client losses.
- ECN brokers are able to accept large forex orders as transactions are routed to multiple liquidity providers and not just one buyer/seller.
- Investors can use ECN orders and trading volumes to determine market trends and provide them with trading ideas.
About ECN Trading Platform Cons
- Traders have to deal with changing spreads (which may increase in times of high market volatility) and must also pay a handling fee for each trade, regardless of the amount.
- The minimum lot size must be increased as a fixed handling fee will be charged regardless of the size of the trade and is therefore not suitable for traders with small amounts of capital.
- In order to obtain better trading prices, brokers often require clients to complete a certain number of lots per month in order to offer a discounted handling fee.
One factor that traders must deal with is the cost of ECN trading. ECN brokers usually charge a commission on each trade, which is economical for larger trades and high frequency traders only, compared to the market maker model which only charges a spread increase.
The liquidity requirements of ECN trading are also high as the trader deals directly with the liquidity provider. Unlike the market maker model where the market maker provides liquidity intervention on behalf of the trader, the responsibility for meeting the liquidity requirements in the ECN model rests entirely with the trader. Like this, the
The capital requirement for opening an ECN account is much higher, for example, LCG requires a minimum deposit of £10,000 to open an ECN account.
conclusion
There are several brokers offering market making and ECN trading models. Some brokers are specialist ECN brokers and some specialise as dealing desk market makers.
As a basic rule, ECN brokers are suitable for traders who can meet their capital requirements and want a trading platform with generally superior trading conditions.