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How ECN Brokers Work on the Forex Market


It is believed that a Forex dealer in its purest form is actually an ECN broker. This is mainly because there is no profit made on spread difference – the ECN brokers charge a commission and, thus, they work for the interests of their clients.

In short, the client of such a broker must win if the latter wants to get a commission.

You may wonder how this type of brokers work on the Forex market – to answer your questions, keep on reading this article, as we’ll explain everything you need to know!

What is an ECN Broker?

Short for Electronic Communications Network, an ECN broker is basically a Forex financial expert. True ECN Forex brokers use the Forex network in order to provide their customers with direct access to other types of market participants.

Worth mentioning is that such a broker is labeled as a non-dealing desk broker. This means that they electronically match participants in a trade and then pass the orders to providers of liquidity instead of passing an order flow to market makers.

Moreover, due to the fact that ECN spreads are much narrower when compared to those of everyday brokers’, a broker of this type will charge a fixed commission per transaction, as mentioned above.

However, because of this commission, ECN brokers cannot trade against the client!

How Does an ECN Broker Work?

Now that we’ve got the basics out of the way, it’s time to see exactly how an ECN broker works on the Forex market.

It starts by consolidating the quotes from several participants, thus determining whether to offer a tighter bid or ask spreads. Important to keep in mind is the fact that individuals are not the only ones that can take advantage of an ECN broker.

Single traders, market traders, as well as banks are among the types of clients that can use an ECN broker.

The main purpose of such a broker is that it provides the clients/ traders a market where they can trade against each other, by sending offers and bids into the system. Then, this whole interaction/ process is dealt with by the system, while traders usually get the best offer at the time of transaction.

The Advantages of an ECN Broker

  • Variable Spreads – given that an ECN broker cannot control the bids like a dealer does, they will always have variable spreads.
  • Instant Trades – with the help of live streaming, the trading takes place on the spot, so to say – instantly; immediate confirmations, as well as the best final prices, are shown. Once a trade is labeled as dealt, it is final and then confirmed.
  • Automated Data – The risk management system and trading model of a certain trader – meaning you – can be connected to the ECN broker’s data feed, as well as to its matching engine. This gives you access to the best prices and bid, as well as to other data.
  • Complete Anonymity – Any trading activity done via an ECN broker is anonymous. Every trader can deal on neutral prices which reflect only real market conditions.

The Bottom Line

In short, an ECN broker makes a whole new market available to you, so to say, where you can trade against all types of users – single and market traders, as well as banks.

An ECN broker can also be seen as an interbank market which – via the way it executes bids – prevents conflicts of interests between traders and brokers and also allows the execution of the clients’ bids at the best of prices.