What is an ECN account in Forex?
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amir - Blog
amirIntroduction:
With the rapid development of the financial market and the advancement of technology, trading opportunities in the Forex market (Foreign Exchange) have become one of the most attractive ways to invest and earn money. One of the types of accounts that exist for exchanging currencies in forex is the ECN account. In this article, we will go through the details of an ECN account and explain to you its features, advantages and disadvantages.
ECN account definition
ECN stands for “Electronic Communication Network”, and means “Electronic Communication Network”. ECN brokers connect traders with liquidity providers such as banks and financial institutions through an electronic network. ECN allows traders to trade with transparency, speed and low spreads. Integrating and combining rates announced by several market agents is one of the most basic functions of ECN, so ECN clients pay less spread (difference between Bid price and Ask price) in most cases. The best announced rates from various market participants are automatically collected and thus the orders are executed. Most of the orders registered through ECN are limit orders.
ECN is not limited to only large exchanges when they run. In other words, this ECN trading system allows to operate at other times, such as outside business hours and forex trading. Some ECNs are set up specifically for investment institutions, while some types of ECNs are tailored to the needs of retail clients and traders. In general, ECN stands for fast order execution, passive order matching and automated trading, allowing traders to trade with transparency, speed and low spreads.
ECN is interpreted as an electronic communication network that is created by some reputable forex brokers to execute currency transactions. This network allows direct transactions between traders and liquidity providers and has a less intermediary role in the transaction execution process.
The difference between an ECN (Electronic Communication Network) account and a Dealing Desk-based account:
1- ECN account:
In this type of account, transactions are done based on the network. This means that buy and sell orders are transmitted by traders directly to an electronic network, allowing the best possible price for the trader to be obtained by matching orders with other market participants.
2- Account based on Dealing Desk:
In this type of account, the broker can match clients’ trades with other clients’ orders or even participate in trades as a trading party.
The main difference between these two types of accounts is the method of executing transactions. An ECN account provides access to direct market transfers and greater pricing transparency, while a Dealing Desk-based account may create a conflict of interest between the broker and the client.
Important feature of ECN account
ECN account is available in some brokers. In this type of account, excellent trading conditions and zero spread fees are provided for traders.
The ECN account has certain advantages that we discuss below:
benefits:
Advantages of trading in ECN forex brokers:
High transparency:
One of the important features of an ECN account is high transparency in the execution of transactions. All trades are publicly displayed and you can see market transactions in real time. This transparency assures you that the prices are fair and accurate.
Quick run:
An ECN account allows you to execute your trades at high speed. With numerous reliable suppliers and selectivity in execution of transactions, it enables the exploitation of short-term opportunities.
Lower costs:
In an ECN account, you face lower transaction fees. Generally, brokers receive some commission from you. This will reduce hidden costs and not reduce your profit.
Opportunity for scalping:
Scalping is a common method that attempts to profit from small price changes. ECN account offers more opportunities to scalpers as it helps them with fast execution and low fees.
In an ECN account, trading is done directly between market participants and there are no second parties involved. Traders trade at neutral prices, which reflect actual market conditions. These prices are not created artificially against the clients trading strategy or tactics.
A significant reduction in transaction costs is another advantage of ECN accounts. With an ECN forex account, a trader only needs a computer and an internet connection to execute orders and perform other trading activities.
In order to directly register orders in ECN conditions, the trader must subscribe to an ECN account. Then the trader can make trades through the network. In ECN mode, customers have direct access to market prices. The announced prices are constantly fluctuating due to the difference between supply and demand and other conditions. Order execution in ECN is realized when the price of a buy order and the price of a sell order coincide with each other.
Who can subscribe to ECN?
Usually, trading institutions and brokers can subscribe to ECN, and individual traders must open an account with a brokerage to be able to trade under ECN conditions.
ECN account comparison with other accounts:
Now that we’ve covered the features of an ECN account, let’s compare it to other accounts in the forex market:
1- Standard account:
Standard accounts generally use the Dealing Desk model. In these types of accounts, the broker acts as an intermediary and undertakes the purchase and sale of currencies.
2- account STP (Straight Through Processing):
STP accounts also use a network-based transaction execution model, but may have some cost and speed concerns.
3- Slippage account:
In trader accounts, you may encounter slippage (the difference between the actual price and the strike price), which may affect your profits. An ECN account may alleviate this problem.
4- Negative slippage account:
In some trader’s accounts, one may encounter negative slippage, in other words, trades are executed at a price higher than the trader’s desired price. An ECN account allows the trader to avoid this negative slippage as much as possible.
And the final point:
Using an ECN account is one of the popular options for all traders. By checking and choosing a good broker, the trader can open this type of account and have his transactions in this type of account.
