New FOREX traders at the start of their careers face the daunting question of what type of broker they will engage. There are several types of brokers in the market. They offer many distinct features, as well as types of accounts.
With the FOREX market accounting for six trillion dollars in trading daily, it offers traders the chance to successfully find the precise trading conditions they need. Key to such considerations is deciding between a standard account and an Electronic Communications Network (ECN) account. Although Arincen has recently published an article on this very comparison, in this article we will specifically explain what an ECN account includes.
Best ECN FOREX Brokers in 2022
We first list the best ECN FOREX brokers today. The list is the result of a detailed review carried out by Arincen. Our review methodology will be shared toward the end of the article so traders can comprehend why the listed companies were chosen.
ECN brokers use electronic communications networks directly to connect traders with key players in the FOREX market. These firms offer, among their other services, access to liquidity, currency, and equity. The companies might be hedge funds, other brokers, or banks. We are giving this trading class special attention because, before the time of instantaneous and safe global communications, ECN trading was not a possibility. Prior to trustworthy ECN brokers, FOREX trading took place similarly to services offered by a standard account, where a broker is a counterparty that matches traders’ orders directly with such participants as liquidity providers. By combining real-time price quotations from carefully selected partners, the broker is able to offer the trader extremely tight bid/ask spreads. The broker provides the trader access to better spreads and takes a commission for its service.
A very important aspect to note about ECN brokers is that they are permitted to match orders between market participants, but they are not permitted to trade against clients. Thus, by design, ECN spreads are tighter than those offered by normal brokers. In exchange for spreads as low as 0.0 pips, ECN brokers always take a commission for each transaction. Therefore, ECN brokers are known as non-dealing desk (NDD) brokers, which means that they put participants in a trade together in electronic form and do not execute the deal themselves.
With that knowledge, we now can see that an ECN account is nothing more than an account where the broker is able to match the trader’s orders by putting them directly in contact with third parties, who, in turn, can execute their trades. This is the fastest and most efficient method to put traders in touch with FOREX players, such as hedge funds, banks, and/or other liquidity firms.
What are ECN Liquidity Providers?
ECN liquidity providers offer the prices that the broker, in turn, may offer to traders. FOREX brokers will typically choose the best available prices from their multiple liquidity providers to make their ECN accounts competitive.
It is not rare for top FOREX brokers to have several liquidity providers, which therefore allows them to have increased liquidity levers and, by extension, allow them to offer the most stable, consistent and lowest pricing available on the FOREX market.
In general, we can see that ECN trading relies not only on the brokers to provide an excellent experience, but also on the execution and offerings of each liquidity provider.
ECN Account Vs. Standard Account
There are several major differences between a standard and an ECN trading account:
Low FOREX Spreads: ECN spreads normally begin from 0.0 pips. Although many of the top FOREX brokers may also supply low and competitive spreads on a standard account, those spreads usually begin from 1.0 pip or higher in many cases.
No Requotes and Slippage: The deep liquidity offered by ECN brokers, in combination with the lightning-fast execution speeds for orders across the networks, means no requotes are required and occurrences of slippage (defined as changes in price mid-transaction) are very rare.
Commissions Per Lot: Because they often offer a considerably lower spread, ECN brokers usually charge a small commission for each standard lot traded. Typically, this begins from about $3 per lot traded, with many major FOREX brokers able to remain very competitive on this point.
Order Execution Delay: As noted, ECN order execution is lightning fast. Thus, there is no delay in completing an order, making it the ideal model for clients, such as scalpers, as we discuss below.
Safety and Transparency: As a result of their own Straight Through Processing (STP) and NDD nature, ECN brokers cannot manipulate the market. Other than facilitating the network, they are almost completely uninvolved, and thus are a safe and transparent way to trade.
Why Are ECN Brokers Recommended for Scalpers?
ECN brokers are ideal for scalpers because scalpers rely on very small market movements. They must enter and exit the market quickly, meaning that ECNs lightning-fast execution is a huge advantage. Further, the tight spreads are also essential, as well as the stability that the deep liquidity can offer.
Therefore, ECN accounts possess all the key components a scalper needs if they are to function successfully. A further key requirement for a scalper to exploit the small market movements is the availability of trading with brokers offering high leverage. Generally, a leverage amount between 10:1 and 20:1 is enough to balance risk and reward for many.
Operating leverage under the UK’s Financial Conduct Authority (FCA), European Securities and Marketing Authority (ESMA) and Australian Securities and Investments Commission (ASIC) regulations, brokers can offer a maximum leverage of 30:1 on major FOREX pairs. If trading from outside this area, that amount can increase exponentially. One example is South Africa, where well-regulated brokers can provide clients up to 400:1 leverage on major FOREX pairs.
What is the Best ECN FOREX Trading Platform?
The final component to consider, as well as a key ingredient when choosing an ECN broker, is the ECN trading platform. For scalpers, generally speaking, cTrader is the best. It is usually favored as a top ECN trading platform by both traders and brokers.
cTrader includes all the positive points of MetaTrader, but, for scalping, is generally thought of as more efficient in order execution. This is the reason why many top ECN brokers offer cTrader as an option.
That aside, if execution speed is not your biggest concern, you may want to trade FOREX with an ECN broker and take advantage of a tight spread, then MT4 is an ideal FOREX trading platform to consider.
Pros and Cons of the ECN/STP Brokers
When considering using ECN/STP brokers, here are some of the principal pros and cons to consider:
Overall, trading costs with these ECN/STP brokers is lower.
The featured ECN brokers always offer lightning-fast order-execution speed.
Because of their minimum involvement, ECN brokers are often some of the safest and most transparent brokers with which to trade.
Trading is highly influenced by the liquidity providers’ quality. Indeed, ECN liquidity can sometimes run low. Often, when important economic news is about to break, traders will choose to hold off on trading. It could even be liquidity providers that throttle supply in anticipation of a rise in demand. This can cause trading lulls in which liquidity is scarce.
Minimum deposits for ECN accounts may be greater than the average found with a standard account, which can limit availability for casual or newer traders.
The principal difference between ECN accounts and other types of accountsis that the ECN account permits trade execution at markedly lower fees. The ECN also is faster and much closer to professional trading for those seeking an edge.
If you are wondering why brokers even bother with a standard account, it is that they know FOREX and trading in general is a daunting prospect for any newcomer. Thus, brokers can gain a new customer by offering standard accounts, even if the broker is confident that the trader will graduate to an ECN account eventually.
ECN trading accounts are favored by many retail traders serious about their investing careers and who want to adopt as professional an approach as possible. After all, ECN trading is fair, fast and anonymous. Traders receive equal treatment in the ECN realm, regardless of the size of their trades.
Arincen’s Review Methodology
The team at Arincen collected more than 120 pieces of data covering in excess of 100 licensed FOREX companies. Data collection was conducted in three ways:
Other Websites that have ranked FOREX companies.
A survey questionnaire (referred to here as Survey “1”) we had sent to the companies invited to participate in the exercise. We have identified 13 criteria for our assessment, each containing several aspects and carrying its own relative weight. These include licensing, deposits and withdrawals, number of assets, etc.
Afterward, we validated the data by:
Registering with FOREX companies as a secret shopper and/or as Arincen.
Survey number “2,” in which we asked these companies’ customers for important feedback and past experience.
The next step saw us evaluate and rank each company, relying on the hard work of 15 Arincen employees. We were very careful in ensuring the most accurate assessment possible, including taking into account different languages, as well as the various mobile-app operating systems, e.g., Apple, Samsung, etc.
To add credibility to our research project, we sent a final and third survey (referred to here as Survey “3”) to enable participating FOREX companies to evaluate our own research and whether it accurately reflects the realities on the ground. We were fortunate to receive a mark of 9.9 out of 10! We have kept to a minimum the margin of error, which stood at a measly 1%. To learn more on how we came up with the evaluation, please click here.
What is an ECN account?
An ECN account is an order-matching execution system. The broker charges a commission per trade for access to its electronic service. There is no premium placed on the spreads for this service, only a commission. By using the account, you get direct access to liquidity providers, banks and other brokers as you decide on which orders to place.
How do ECN brokers operate?
An ECN broker offers a NDD execution model, where the broker facilitates a client trade by matching buyer and seller. ECN traders are known for having no conflicts of interest with traders who do not act as counterparties to the trade, and only take a commission for their work. The commission is relatively low, and traders feel the system is fairer as they have sight of much more information related to their orders than they would with a standard account.
How do ECN brokers make money?
As mentioned above, ECN brokers primarily make money by way of commissions charged to open and close trades. As an example, most ECN FOREX brokers have a standard commission per lot traded (100,000 currency units). Thus, if the broker charges a $2 commission per lot, with a $2 minimum, every time you open and close a trade below 100,000 currency units, you will be paying $4.
Do ECN accounts have spreads?
Yes, ECN accounts have spreads. The difference is that they are usually far tighter than standard account spreads because the liquidity pool to which an ECN broker is connected is much larger and more competitive than any other.
Which is better, an ECN or an STP broker?
An ECN broker is far better than an STP broker because the ECN broker matches and routes orders electronically toward a global network of fair competition, better pricing, and tighter spreads. An STP broker chooses specific brokers or liquidity providers to whom to send its orders.
The Editorial Department at Arincen makes an important contribution to the world-class content that can be found on the site. Arincen’s Head of Content and Chief Economist Marwan A. Kardoosh brings with him over 24 years of experience working in the...