ECN (Electronic Communication Network) is an electronic platform which performs buy and sale transactions of different financial instruments. The main goal of the ECN system is to eliminate the role of intermediaries. This electronic system is the link between the major brokers and individual traders. Thus, it serves as a direct transaction between the main participants of Forex trading without the mediators.
Among the main features of an ECN broker, is that all trading orders that are entered into the ECN system by the market’s participants are recorded in a single book of orders and are kept in its database. The main principle of ECN is the selection of appropriate orders by its order matching system. This principle allows you to automatically execute contrary orders (for buy and sell), but it must match certain parameters, such as the amount and the price.
ECN is an electronic trading system that allows a trader to send his trading order directly to the Forex market. This is a main difference between ECN brokers and the Market Maker brokers which act as intermediaries – take the orders through their internal system and display them on the market platform on their own behalf.
A main factor of the ECN system is the massive market coverage. Different financial institutions, banks and individual traders which are located in various places around the world may be involved in trading.
Here are main advantages of ECN brokers:
1) Forex traders may trade 24 hours a day for short term and long term trading. This is important, since the traders are located in different time zones.
2) There are a lot of tools that quickly supply the market’s participants with the necessary trading information.
3) Modern means of communication and electronic data processing has a great impact on the quick order execution.
4) Openness to all participants which previously didn’t have a direct access to financial markets. Currently, even the small orders of individual traders that are opened via ECN are transferred to the market and influence on its behavior.
6) Transparency of Forex trading. All orders entered into the system are reflected in it and this information is available to all participants. Thus, ECN serves as an impersonal broker for its customers handling a huge volume of transactions made between Forex traders.
ECN brokers are the most reliable Forex brokers in the market. Trading with an ECN broker you can be sure that all members are playing a fair game and the main interest of a broker is the spread it charges for its services and not the losses of the traders that is characteristic for the Market Maker Forex brokers.
According to our research most of the Singapore Forex brokers and world’s largest brokers use the ECN system. If you are looking for a Forex broker make sure that you check its type and which system it uses before you start trading with it.