ECN brokers and market-makers is the topic always discussed by traders. To answer the question which is better for you we should study their differences and our trading needs. After reading our ECN forex broker review you will get the idea which type works best for you as well as choose the best broker from our list.
ECN brokers allow traders both retail and institutional take a real place in the forex market. They act as counterparties to foreign exchange transactions but do not take part in forming the price. ECNs (Electronic communication networks) connect various market-makers, banks, hedge-funds and individual traders in the fashion you are able to see the depth of market and get the best price available from a given trader. They get the price feeds collected from all of its members and these feeds are relayed into their trading platform.
The main benefit of trading through ECN-type brokers is the way they earn money from your trading. These brokers charge fixed commissions based on your trade size and volume. Commissions is the only way authentic ECNs make money, they do not earn from the bid/ask difference that’s quoted in their feed for the traders. As true ECNs don’t make the price for traders – there’s no price feed manipulation, requotes, anti-scalping tricks used by market-makers and dealing-desk dealers. This way the risk for retail traders are greatly reduced. Especially if you are a have a scalping system your best choice is to select the right ECN broker to suit your automated trading system.
When it comes to choosing the best currency pair, the lowest spread is in those currencies that have most liquidity and have the biggest trading volume. No doubt these currencies are the majors EUR/USD, GBP/USD, USD/JPY and USD/CHF. During active trading times the spread on those and some other currency crosses often approaches the zero point which makes perfect sense as more and more parties offer their prices competing for the best bids and offers and liquidity increases.
The bigger your capital is the better conditions you can be offered. As there are both retail and institutional ECNs. The minimum account requirement to trade with an institutional ECN forex broker can be as high as $50 000. Nevertheless even for retail ECN accounts for example with the swiss forex bank Dukascopy you can get great conditions, ultra-tight spread, great execution as lots of huge liquidity providers are connected through their SWFX marketplace. So you will be relayed the best bid/ask price from both big market players such as banks and hedge funds.
Just like with market makers, there are also two main types of ECNs: retail and institutional. Institutional ECNs relay the best bid/ask from many institutional market makers such as banks, to other banks and institutions such as hedge funds or large corporations. Retail ECNs, on the other hand, offer quotes from a few banks and other traders.