ECN means Electronic Communication Network, and in the context of Forex (Foreign Exchange) trading refers to a type of order execution adopted by some Forex brokerage firms.

It should be noted that modern Forex brokers now all use a hybrid execution model. Many ECN brokers also use STP technology and even a Market Maker model for some clients. Many brokers might offer different types of accounts using one predominant model rather than another, but they are always run under a hybrid execution model.

Therefore, although we keep talking about ECN brokers and ‘broker types’ or ‘account types’, it would be more correct to talk about the types of executions that can be used by brokers and that could be predominant.

However, to continue using a common lexicon, in this guide we will refer to the ECN Forex broker as a specific type of Forex broker, and will discuss the characteristics of an ECN Forex broker and this type of execution.

Table of Content

What is an Electronic Communication Network?

An Electronic Communication Network (ECN) is a type of computerized system that facilitates the trading of financial products outside traditional stock exchanges. It is designed to match buy and sell orders for securities in a fully automated, electronic environment.

ECNs enable participants to trade directly with other participants, bypassing the need for intermediaries such as market makers or floor brokers. This system provides a platform for institutional and individual investors, banks, and brokers to interact, ensuring greater transparency as it displays orders in real-time and allows market participants to view the depth of the market.

ECNs play a critical role in the modern financial landscape, particularly in the trading of stocks, currencies, and other financial instruments. They are known for their efficiency in executing trades, offering tighter spreads compared to traditional exchanges, and often providing anonymity to its users.

This anonymity can be particularly advantageous for large institutional investors who wish to carry out substantial transactions without revealing their intentions to the market, which might impact the price of the security.

What is an ECN Forex broker?

An ECN Forex broker is a type of No-Dealing Desk (NDD) broker that connects traders to an Electronic Communication Network (ECN). Through this network, Forex traders can see the trading activity of the participants, benefiting from tighter spreads, transparency, and faster execution, while the broker typically charges a commission on trades.

A very common misconception in the industry is that using an ECN Forex broker means that a trader’s trades will have other ECN participants as counterparties.

This is simply not true.

An ECN Forex broker actually only shows traders what is happening inside the ECN, in technical terms the Depth of Market (DOM). The broker then allows the trader to open trades using the same prices and liquidity shown in the ECN, but then it is the broker who is the counterparty to the trade, via a Contract For Difference (CFD).

The broker will then use its connection to the ECN to hedge the risk of being the counterparty to the trade. This hedging strategy is beneficial as it allows the ECN broker to provide continuous liquidity to its clients without bearing the full risk of market movements.

The whole process is carried out automatically and regularised by various technological systems, which is why an ECN broker is in fact a Non-Dealing Desk broker.

How do ECN Forex brokers work?

The ECN Forex broker begins by receiving a continuous stream of live market data and pricing from the ECN. This includes various buy and sell orders from different market participants, such as banks, financial institutions, and other traders. The broker then relays this information to its clients, providing them with up-to-the-minute quotes and market depth, which shows the available volumes at different price levels.

When a trader decides to make a trade through the broker’s platform, they are effectively entering into a Contract for Difference (CFD) with the broker.

After a trader opens a trade, the ECN broker’s role is to manage the risk associated with this position. The broker does this by taking the same side of the trade within the ECN. For instance, if a trader buys a currency pair, the broker will buy the equivalent position in the ECN, and vice versa. This process is known as hedging the trade, which helps the broker maintain a neutral position, avoiding the risks associated with market movements (is the concept of A Book vs B Book models).

This hedging is a crucial aspect of the ECN broker’s operation. It allows the broker to provide a trading service without being exposed to significant market risk, as any profit or loss the trader makes is balanced by the corresponding loss or profit on the broker’s offset position in the ECN.

In summary, ECN Forex brokers function as intermediaries, providing traders with access to the broader Forex market via ECN, while managing their own risk through hedging trades within the ECN. This system offers transparency, efficiency, and direct market access, benefiting both the traders and the brokers.

How do trading fees work on ECN brokers?

ECN Forex brokers typically charge trading fees through commissions, as the tight spreads in ECN environments can often be too narrow to generate significant profits for the brokers. These commissions are usually levied in one of two ways: “per lot” or “per percentage.”

In a “per lot” model, the commission is typically scaled to the size of the lot. For instance, a broker might charge $10 per standard lot traded. However, if a trader deals in smaller lot sizes, like a mini lot or a micro lot, the fee is proportionally reduced. For example, if a standard lot is 100,000 units of currency, a mini lot (10,000 units) might incur a $1 fee, and a micro lot (1,000 units) might have a fee of $0.10. Thus, the actual commission depends on the lot size the trader chooses to trade.

In the “per percentage” commission model for ECN Forex brokers, the commission is charged as a percentage of the trade’s value and is applied both when a trade is opened and when it is closed.

For example, let’s consider a broker who charges a 0.05% commission. If a trader opens a position with a trade value of $100,000, the commission at the opening of the trade would be 0.05% of $100,000, which is $50. Similarly, when the trader closes the position, if the trade value remains at $100,000, the closing commission would again be $50.

So, for the entire round-trip transaction (opening and closing the trade), the total commission paid would be $100 (i.e., $50 at opening and $50 at closing).

Both methods help brokers earn revenue in a market where spreads, the difference between the buy and sell price, are highly competitive and often minimal. This ensures that the broker’s operational costs are covered while providing traders with access to tight spreads.

ECN Forex brokers vs STP vs Market Maker

Following is a comparison of the ECN Forex broker’s characteristics with the other main types of Forex brokers, i.e. STP broker and Market Maker broker:

  • Market Access: ECN brokers provide an environment where trades are matched with various market participants, offering direct and transparent market access. STP brokers, meanwhile, forward orders to a select group of liquidity providers. Market Makers create and control their own internal markets for clients.
  • Transparency: ECN brokers excel in offering a transparent trading environment with detailed market depth information. STP brokers offer moderate transparency, while Market Makers generally provide less pricing transparency.
  • Spreads and Fees: ECN brokers typically feature variable spreads and levy commissions on trades. STP brokers also offer variable spreads but include mark-ups. In contrast, Market Makers usually provide fixed spreads without direct commissions.
  • Cost Calculation: With ECN brokers, traders need to consider both spread and commission for cost calculations, adding complexity. STP trading mainly involves the spread cost, while Market Makers typically incorporate all costs into the spread, simplifying the calculation.
  • Market Insight: ECN platforms provide valuable insights through Depth of Market data, enhancing understanding of market dynamics. STP brokers offer less of this insight, and Market Makers provide minimal market depth information.
  • Liquidity Sources: ECN brokers connect traders to a diverse pool of liquidity providers, ensuring competitive pricing. STP brokers have access to a limited range of providers, while Market Makers act as the sole liquidity source for their clients.
  • Initial Deposits: ECN accounts often require higher initial investments compared to STP and Market Maker accounts, which are more accessible to a broader range of traders due to lower deposit requirements.
  • Complexity: ECN trading platforms are generally more complex, catering to experienced traders. STP platforms offer a simpler interface, while Market Maker platforms are designed to be the most user-friendly.

How do ECN brokers make money?

ECN Forex brokers primarily generate revenue through trading fees and non-trading fees. Unlike traditional market maker brokers who earn from clients’ losses and spreads, ECN brokers rely on commissions as their main trading fee.

This commission-based structure is essential in the ECN model, where spreads are typically very tight, often near zero, due to the direct competition among numerous market participants. Therefore, ECN brokers charge a commission on each trade, either on a per-lot basis or as a percentage of the trade’s value. To compensate for the low spreads, ECN brokers depend on a high volume of trades to accumulate sufficient revenue.

ECN brokers also accrue profits through the collection of swap fees on positions that traders hold past the daily market close.

In addition to trading commissions, ECN brokers also charge non-trading fees. These non-trading fees may include inactivity fees, withdrawal fees, and other administrative fees, which are common among the ways in which Forex brokers make money.

Are there risks in trading with ECN brokers?

Trading with an ECN broker in Forex exposes traders to the general risks inherent in Forex trading, such as market volatility, leverage risks, and geopolitical influences. These are standard across all trading platforms.

Specifically for ECN traders, there are additional risks to consider.

During periods of volatility, spreads can widen significantly, potentially increasing trading costs unexpectedly. Slippage is also a concern, as rapid price movements can lead to execution at a different price than expected.

Additionally, the complexity of ECN systems can be challenging, particularly for less experienced traders, requiring a deeper understanding of market dynamics and platform functionalities.

Pros and Cons of ECN Forex brokers

ECN Forex brokers have several advantages, but also a number of disadvantages of which you need to be aware. Below is a list of the pros and cons of ECN Forex brokers:

Pros of ECN brokers:

  • Direct Market Access: Traders have direct view of other market participants (DOM), which can lead to better and more efficient execution of trades.
  • Transparency: ECN trading is known for its high level of price transparency, as traders can see the real market prices.
  • No Dealing Desk: ECN brokers do not trade against their clients, reducing the risk of any conflict of interest.
  • Tighter Spreads: Due to the direct competition among numerous participants, spreads are generally tighter, which can reduce trading costs.
  • Instant Trade Execution: Trades are typically executed swiftly, which is crucial in fast-moving markets.

Cons of ECN brokers:

  • Variable Spreads: Spreads can fluctuate significantly, especially during high volatility or low liquidity periods, which can increase trading costs unpredictably.
  • Higher Deposit Requirements: ECN brokers often require a higher initial deposit.
  • Complexity: The ECN environment can be more complex and less user-friendly, particularly for novice traders.

What are the best true ECN brokers?

The brokerage firms considered to be among the top ECN Forex brokers are:

  1. Pepperstone: best ECN broker overall
  2. Admirals: best ECN MetaTrader broker
  3. FP Markets: top ECN choice for scalpers
  4. Vantage: best ECN broker for expert traders
  5. Dukascopy: great ECN service for professional traders

These are only five of the brokerage firms recognised as the best ECN Forex brokers around, although there are also many others.

What is the best ECN trading platform?

cTrader is widely regarded as the optimal platform for ECN trading due to its advanced trading capabilities and user-friendly interface.

The cTrader platform was developed by Spotware, and although it is relatively new compared to MetaQuotes’ competitor platforms, it has been and is proving very successful.

Firstly, it offers a high level of transparency. Traders can access in-depth market depth information, allowing them to see the full range of executable prices streaming directly from liquidity providers.

Secondly, cTrader is celebrated for its sophisticated yet intuitive user interface. It caters to both novice and experienced traders with its customizable charts, one-click trading options, and detailed analysis tools.

Moreover, cTrader provides robust charting tools and a wide range of technical indicators, essential for technical analysis in fast-paced trading environments. Its algorithmic trading capability, through cAlgo, allows traders to create custom trading robots and indicators, enhancing their trading strategies.

Additionally, the platform is known for its speed and reliability, ensuring rapid execution of trades, which is critical in the volatile ECN trading environment.

Who should choose an ECN Forex broker?

ECN brokers are suitable for all types of traders, but they particularly benefit professionals in general, scalpers and DOM (Depth of Market) experts, news traders, and algo traders due to their direct market access and rapid execution speeds.

Professional traders in general often prefer ECN brokers for their transparency and reduced risk of price manipulation

Scalpers, who make numerous trades for small profit margins, find ECN brokers advantageous due to the tight spreads and fast execution, crucial for this high-frequency, low-margin trading style. Depth of Market (DOM) experts also benefit from ECN brokers as they provide transparency and real-time data about market depth, which is essential for making quick trading decisions.

News traders benefit from the huge liquidity and rapid execution speeds of ECN brokers, allowing them to capitalize on the volatility and quick price movements following major news releases, even though an increase in spreads can always occur.

Lastly, algo traders, who rely on automated trading systems, find ECN brokers suitable due to their compatibility with advanced trading platforms and APIs, facilitating efficient algorithmic trading.

Do best Forex brokers offer ECN accounts?

Some of the best Forex brokers offer ECN accounts, although it’s not extremely common due to the additional costs involved in running an ECN system.

The infrastructure required to operate an ECN system is more complex and costly compared to traditional brokerage models. ECN networks need to maintain robust IT systems to handle high-frequency, real-time trading and to connect to various market participants.

For this reason, usually only the best and most reputable Forex brokers can afford these costs and are willing to invest in these systems to provide the best services to their traders.


filippo ucchino

About The Author

Filippo Ucchino
Co-Founder - CEO - Broker Expert
Filippo is the co-founder and CEO of InvestinGoal.com. He has 15 years of experience in the financial sector and forex in particular. He started his career as a forex trader in 2005 and then became interested in the whole fintech and crypto sector.
Over this time, he has developed an almost scientific approach to the analysis of brokers, their services, and offerings. In addition, he is an expert in Compliance and Security Policies for consumers protection in this sector.
With InvestinGoal, Filippo’s goal is to bring as much clarity as possible to help users navigate the world of online trading, forex, and cryptocurrencies.

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