ECNs represent the modernization of online trading for retail and institutional traders and have been a milestone in the trading industry due to the transparency, ease, and advantages that it entails.
With direct market access to multiple liquidity providers and automatic matching and executions of orders, traders can get tight spreads, deep liquidity, price transparency in execution, low slippage and last but definitely not least, low latency.
The advantage of an ECN account :
Full transparency since the broker directly connects your orders to other market participants
Very low or even no spreads during times of high market volatility
NDD (No Dealing Desk) technology ensures that there will be no re-quotes
The best bid and ask prices available since a variety of market participants are involved
The high price volatility makes for a great environment for scalping
What is an ECN?
What does ECN stand for? Electronic Communication Network. What's the secret? Like much of the forex market mechanisms today, an ECN is an automated component of trading, since it connects traders to liquidity providers such as banks, brokerages and other traders around the world and eliminates the role of the traditional middleman.
Traders get access to different prices from a variety of market participants directly on their trading platforms and are shown the best bid and ask prices available in the market. The matching and execution of orders ensue automatically and in this way, the trader can always be sure that the broker they are using does not have any dealing desk involvement against them or the trade is processed on an STP (straight-through the process) basis. For each transaction, traders are charged a small fee by the broker.
Equal Trading Rights and
Price Feed Transparency
All the traders receive the same price feed and trade at the same prices. The historical price feed must be publicly available in tick format, which means the values of each and every price at a given moment. This approach guarantees that price manipulation is not possible.
Trading conditions are the same for all the traders, the only difference being trading commissions (that are charged in addition to the spread). In case of any issue, each trader can compare the prices of order executions with historically quoted prices as well as with order execution prices of other traders, since all the traders are getting the same feed. Such a transparent environment makes it possible to verify order execution prices and protect the clients' interests.
Forex ECN brokers are driven by improvements in performance to attract more clients and more volume. Low latency trading is the next race for ECN brokers as we strive to have client orders filled in the least time possible.
Average execution times of under 40ms for Forex and Metals (ECN products) are now normal. Low latency environments benefit HFT/Algorithmic traders the most where every millisecond counts.
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