What does ECN mean in Forex?

logomark Anthony Gallagher calendar Last Updated: November 2021 timer 4 min read
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Of all the terminology and acronyms you will find when trading forex, one you will see very often, is ECN.

What does ECN mean in forex, what kind of brokers are these, and are they better than other broker types?

These are all questions that we can help you answer and at the same time find some of the best ecn stp forex brokers around in the industry with this article taking a closer look at all the important points below.

Table of contents

What does ECN stand for in Forex Trading?

ECN means ‘Electronic Communication Network’. The reason why it’s named this way, comes from the way this technology works. In fact, it works by connecting all the different parties through a network interested in a certain asset (forex in this case). This web formed by institutional and retail parties, secures low spreads and deep liquidity.

What does it mean to trade forex in an ECN environment?

There are a few important core points when trading forex in an ECN environment. These can often differ from trading with other broker types. Here is a look at what to expect if you are using an ECN broker.

There is no fixed counterpart

The primary function of an ECN broker is to facilitate your trade. They do this by acting as an intermediary between the market and traders through the Electronic Communications Network. This is not only where you can carry out your trading, but the system through which you can be directly connected with other parties like liquidity providers, and other traders when it comes to executing trades.

The connectivity of this network of linked parties means execution can be super-fast since a counterparty for the trade is almost always available quickly and the entire matching process takes place automatically. From a trader’s perspective, a great benefit of this system is also that brokers do not act as counterparty to your trade thanks to ECN being a no dealing desk type of broker operation.

The broker can rely on Liquidity Providers

Through an ECN broker, you will have access to several different prices made available by the liquidity providers who are participating in the network. This allows your broker to choose the very best prices that are then offered directly in your trading platform from the available liquidity providers.

In summary, an ECN broker gives you greater access to the real market prices as well as helping you match trades automatically for almost instant execution at the best possible rates.

You’ll be experiencing deep liquidity anytime

The deep liquidity that you have access to on most occasions while trading with an ECN broker allows them to frequently offer very low spreads. They do though charge a small commission as their main source of revenue on your trades.

This commission averages around $3 per lot traded on each side, although this depends on the individual broker with some offering lower commissions, and some coming in above this average.

How to choose the best ECN broker

Choosing the best ECN broker will always be a somewhat individual choice though there are a few things to look out for in a good ECN account.

These include finding a safe, trusted broker with great regulation in place as well as a good value minimum deposit if you need it. You will also want to make sure that trading fees and spreads remain as competitive as possible, and that there is a professional support team available if you need them.

For a closer look at these things, and help finding a great broker, be sure to check our dedicated top ten best ecn stp forex brokers to choose the best.

Advantages and downsides of this technology

Pros

  • The spreads on offer are usually always extremely low
  • High liquidity is almost always available
  • The execution speed is as fast as you will find anywhere

Cons

  • Performance will depend on the quality of the individual ECN network
  • Liquidity very much depends on third parties due to the nature of this broker style

What does ECN mean in Forex – FAQs

What is the difference between ECN and Standard Account?

An ECN account will most typically have lower spreads than a standard account, often from 0 pips where standard accounts often start from 1 pip or more. Standard accounts though are usually commission free while this is not the case on ECN accounts.

Are ECN brokers good?

ECN brokers are considered good for a number of reasons. As mentioned above, these include providing lightning-fast execution alongside giving the best access to market prices and helping reduce your trading costs.


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About the Author

Anthony Gallagher

Broker Expert

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world.

A trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

He is a keen golfer with a very high handicap so when not helping you find the best broker for your needs, you may find him on the course or just as likely following any number of sports from the comfort of his sofa.


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