Forex ECN Brokers – Compare The Best 2023

Trading is gradually gaining popularity among the general public. Brokers, who provide many turnkey solutions to an increasingly diverse range of investors and traders, are on the rise. This guide will teach you everything there is to know about ECN brokers. 

What is a Forex ECN Broker?

The ECN broker, which stands for “Electronic Communication Network“, is a broker that falls into the category of NDD (no dealing desk) brokers, alongside STP (straight through processing) brokers. The ECN broker is an NDD broker since it allows direct access to the interbank market. 

To better understand what an ECN broker is, it is necessary to gain some perspective on the two main types of brokers: 

► DD (Dealing Desk) brokers: These brokers are the market makers. Indeed, DD brokers offer a purchase price and a sale price for all the assets they display. As we will see, they are the counterparty to the trade. 

offer a purchase price and a sale price for all the assets they display. As we will see, they are the counterparty to the trade. 

► NDD (No Dealing Desk) brokers: These brokers play the role of executing the trader’s order. They only transmit the order without being the counterparty to the trade. STP and ECN brokers are two examples of NDD brokers.

Good to know: Some brokers use mixed methods. Depending on the type of asset, they will then be a market maker or not. This method is also often used by brokers who are STP or ECN brokers.

The difference between an ECN broker and a broker who is a market maker, therefore, lies in whether or not he is the counterparty to a trade.

Each purchase of an asset inevitably requires consideration.

Let’s take a simple example to understand better:

► Alex wishes to buy GBP/USD at a given price, a counterparty must agree to sell at the given price.

► By going through a DD broker, it is the latter who will be the counterparty and who will agree to buy or sell according to your needs.

► NDD brokers, including ECN brokers, are not counterparties to the trade. They will act as an intermediary between the trader’s order and the interbank market.

► In a way, the DD broker is a direct counterparty while the NDD brokers make it possible to find a counterparty on the markets.

How Does an ECN Broker Work?

The ECN Forex broker operates similarly to an STP broker in the sense that it receives an order from the trader which it transmits directly to the markets. He is then an intermediary between the Forex trader and all the liquidity providers of a market.

The ECN broker’s system, which operates like a stock market with an order book, makes it possible to match buy and sell orders. ECN brokers operate through electronic trading systems. It is then a question of grouping together a certain number of suppliers and applicants via a stock exchange system.

There are three types of ECN brokers:

► “Real”, True, ECN forex brokers: they provide a transparent platform that brings together all market players

► ECN Broker by Association: Typically, this is an association of two Forex brokers that act as a bridge between traders and the market.

► The ECN forex broker by intermediation:  these are potentially fraudulent brokers that are multiplying on the financial markets.

How to Choose an ECN Broker?

A certain number of parameters are very useful for choosing the right ECN broker. We will detail these different parameters to consider before opening an account with an ECN broker.

Register with a broker that offers a demo account

While many platforms offer this functionality, most limit the use of the demo account to a period of a few weeks. It is then difficult for the novice trader to train well in trading and to get used to the functionalities of the platform.

This is why we advise you to favour a broker who offers a demo account that can be used without a time limit.

Platform security: a parameter to consider carefully

If all the brokers seek to offer security for their platform, it would seem that security issues are better managed by certain brokers. Without going into technical details and platform security protocols, it is important to focus on finding out whether a particular platform has already been attacked.

This is often a good indicator of the effectiveness of security protocols. Likewise, it is important to register with a regulated broker. Indeed, these brokers have a framework of financial market regulators.

In some countries, the conditions set by regulators are more restrictive. This is particularly the case in the United Kingdom where the FCA firmly regulates the practices of brokers.

Test different platforms

This parameter is directly related to the first. By benefiting from several demo accounts, it is possible to test the operation of several platforms. Because the best platform for one trader will not be the same for another.

This will depend in particular on criteria such as:

► The level of skill and expertise of the trader.

► The type of assets the trader wishes to invest in.

The best platform is therefore above all the one with which you will feel comfortable. For this, it is therefore important to compare the services.

Compare transaction costs between platforms

This is an essential point. On a trading platform, fees can be of two kinds for each trade:

► The existence of a spread.

► Commissions on placing an order.

► A mix of these two positions.

To be successful in trading, earnings are as important as fees. By comparing the platform’s compensation system, you make sure to limit trading costs, which will be very profitable in the long term.

Be careful because some platforms offer competitive spreads on certain assets and much higher fees on others. It will therefore be necessary to ensure an overall comparison.

The importance of ancillary services

If the comparison of transaction costs or withdrawal or inactivity fees are important elements, it is essential not to focus only on these. Very often, the angle of the cost of the service is only one parameter among others. It should not be an exclusive decision parameter.

Thus, we recommend to each trader who wishes to register with an ECN broker, to also consider additional services such as:

► Customer service, responsiveness and ability to communicate in your native language.

► Payment methods and withdrawal methods accepted.

► The minimum deposit amount.

► The platform’s training offer which can be a particularly interesting element for novice traders.

The number of assets available on the platform is also a factor to consider. Indeed, the more a platform allows you to trade a large number of assets, the easier it will be to implement your portfolio diversification strategy.

The Difference Between an ECN and STP Broker?

As we have seen, both are NDD (No Dealing Desk) brokers, ie the brokers are not market makers. In fact, a broker who is purely ECN or STP will never be the counterparty of a trade. However, if this point is common to ECN and STP brokers, there is a certain difference in the protocol.

The STP broker receives orders from the trader which it transmits directly to the interbank market. It is a one-way process. The ECN broker operates as a financial centre with a system similar to that of an order book.

The counterparties of a trade can be different between an ECN broker and an STP broker. Via the STP broker, the counterparties are systematically banks or liquidity providers. With an ECN broker, the counterparties can also be other traders. Thus, with an ECN broker, the counterparties can be larger than with an STP broker.

Good to know: ECN brokers are necessarily STP brokers. However, the converse is not always true.

The ECN broker is not to be confused with the ETF broker which allows you to trade fund units. It is also different from the CFD broker which allows you to trade contracts on underlying assets with a broker.

The Advantages of a Forex ECN Broker

The ECN broker has many advantages for the trader. In this section, we will come back to all of these advantages.

ECN broker: more transparency for traders

For true ECN brokers, the protocol offers more transparency. Indeed, in this type of scenario, the broker is never the counterparty to the trade of one of its users. Thus, the broker does not seek to make money from traders’ losses.

While this argument is often put forward, it needs to be qualified. Indeed, during a trade, if the broker is a market maker, he will not necessarily seek to earn money on the users’ trade. It will simply be a consideration for it. If the trader wins, the broker loses, if the broker loses, then the trader wins.

Another point, the forex ECN broker allows to maintain anonymity since the stop orders of the clients are not known.

A protocol that offers even more liquidity

The ECN protocol gives privileged access to a large number of liquidity providers: whether banking institutions or other individual traders. This has the effect of creating even larger markets, both in terms of supply and demand.

In fact, with more potential buyers and sellers, the transaction volume is generally greater via ECN brokers. Creating more liquidity in the market.

In addition, to enhance this market liquidity, some brokers can also take on the role of market maker depending on the circumstances. They then allow a quotation and a possibility of purchase and resale of all the assets of the platform. In this case, the broker becomes the counterparty.

Order execution speed

This is also what characterises NDD brokers like the ECN broker. Via this protocol, orders are executed instantaneously without any re-quoting (modification of the purchase or sale price compared to the price visible when the order is placed).

Also according to the broker FXPro, the majority of orders submitted to the broker are processed in less than 11 milliseconds. Or 10 to 20 times faster than the blink of an eye.

Disadvantages of a Forex ECN Broker

As with any protocol, ECN brokers have certain limitations, this is what we will detail here.

Variable spreads

Using an ECN broker often means having to pay a variable spread to the broker. This is not inherently a bad point, however, the variable spread is a particularly dangerous tool for the trader when an asset becomes very volatile.

To these variable spreads, it is also sometimes necessary to add commissions which differ according to the volume of orders placed. These commissions are often set per million dollars of transactions. They must therefore be integrated, given the importance of the volumes processed by ECN brokers.

Most brokers are not “real ECN brokers”

Being an ECN broker seems to be a selling point for many brokers. However, most brokers are not “true ECN brokers” in the sense that they are hybrid brokers between Dealing Desk and No Dealing Desk.

There is then a risk for traders who absolutely want to trade with a No Dealing Desk broker. To find out if your broker is a real ECN broker, the general conditions of use often provide a better understanding. When it is stated that the broker works “at the ECN price”, this generally means that it is not a real ECN forex broker.

A high minimum deposit

A high minimum deposit: This remains true for genuine ECN brokers. Many brokers offering an ECN account requires a minimum first deposit of 20,000 euros to open.

For most retail traders, this amount is too large. It will then be necessary to turn to brokers who are market makers and who offer a protocol system that works like an ECN. For real ECN brokers, it is also often required to trade a significant volume.

Thus, some assets are not infinitely segmentable. Hybrid brokers and also using ECN protocols allow a much lower minimum deposit.

Conclusion: Which is the Best ECN Broker?

As we have seen, all brokers who are STP brokers are also ECN forex brokers, without the converse being systematically true. There is also a large majority of brokers who use the ECN protocol without being 100% real ECN brokers.

Depending on the circumstances, they can sometimes become Dealing Desk brokers and become market makers. In terms of liquidity, this makes the market in question more fluid. Nevertheless, the broker will then become the counterpart of each trade, whether buying or selling.

Some brokers like Admiral Markets or FXPro seem to us to be among the best-equipped ECN brokers. In any case, these are the ones that seem to offer the best ratio between the number of available assets, the security of the platform and also the amount of fees.

FAQs

How do I know if my broker is an ECN broker?

This information can be found by reading the terms and conditions of the platform. As we have seen, most forex ECN brokers on the market are brokers who sometimes take on the role of market maker. Thus, real ECN brokers are quite rare.

What is the last look principle?

This principle applies to both STP brokers and ECN brokers. It is concretely a question of leaving the last word on the validation or the invalidation of the trade by the bank which receives the order.

Is it possible to know the liquidity providers via an ECN broker?

Typically, liquidity providers are big banks or even other brokers. It is possible to contact the technical team of the broker to know the identity of the liquidity providers with whom the broker works. Certain international banks such as JP Morgan, BNP Paribas or Morgan Stanley are preferred liquidity providers by many brokers.

What is a spread?

The spread represents the difference between the buying price and the selling price of the same asset at the same time.

Market maker or NDD broker, how to choose?

Each solution has its advantages. The market maker broker makes it possible to offer more liquidity on an asset while NDD brokers such as ECN or STP are more transparent. For some traders, the issue of trade counterparty is also important. With an NDD broker, the broker does not make money when you lose.

Is an ECN broker suitable for scalping?

Yes quite. ECN brokers generally display fairly low spreads, so they are particularly suitable for trading movements over a very short time. Day trading or scalping are therefore two of the trading methods that work with an ECN broker.