The forex markets globally account for a turnover of more than $6 trillion every year. Although banks and institutional investors hold a major share in this value, when you consider individual transactions, retail traders are in the majority. Most of them invest between $5,000 to $10,000, making it a bit challenging to sign up with a genuine ECN broker. This is so because ECN brokers require you to invest a huge sum of money in order to trade with them. As such, most retail traders end up with market makers, often known as dealing desk forex brokers.
However, dealing desk forex brokers take the opposite of the trade to provide you with liquidity. This sometimes leads to a conflict of interest, increasing the chances of manipulations by immoral forex brokers. Therefore, it is better to work with ECN brokers.
What Are The Benefits Of Working With A True ECN Forex Broker?
ECN brokers create a positive vibe for the traders when compared with dealing desk forex brokers. Such positivity is the result of the numerous benefits an ECN broker brings. Some of them are discussed below:
1. Anonymous Trading And Fair Pricing:
ECN trading is anonymous, meaning the traders can take advantage of neutral pricing. Therefore, pure ECN brokers always offer excellent trading conditions, and there is no bias. Additionally, the traders can also benefit from numerous technical efficiencies, such as fast trade execution and tighter spreads.
2. Better Accessibility And Liquidity:
When you choose an ECN trader to trade with, you get access to municipal market participants, which are some of the major players in the market, such as institutional traders. Therefore, clients can get to trade with a pool of liquidity providers who are highly competitive and regulated and the order execution is virtually done.
3. Traders Can Make Their Way To Top:
ECN brokers make money from the set commissions and the trade size, not from the traders’ winning or losing. Thus, traders have numerous strategies at their disposal to use, such as scalping. As mentioned above, their execution speed is much higher. Therefore, traders can trade conveniently with the help of Expert Advisors by implementing automated trading strategies.
What Are The Risks Of Trading With A True ECN Broker?
The risks of trading with an ECN broker can vary from trader to trader based on their profiles. However, small retail traders are the most affected ones. Thus, if you are thinking of using an ECN broker, here are the things to keep in mind:
1. The Potential Risk Of Variable Spreads:
ECN forex brokers charge variable spreads, which are based on the current market conditions. Therefore, sometimes, such spreads can move drastically, especially if there’s a slippage in the foreign exchange market. This can significantly impact your trading strategy. So if the market is highly volatile, spreads can widen considerably, affecting your open positions.
2. High Trading Costs:
The cost of working with an ECN forex broker can be immensely high compared to other forex brokers. This is so because they deal with the market directly as well as offer other market participants, including some of the widespread financial institutions. Such benefits come with a price that not everyone can afford. In addition to this, one needs a high initial investment to open a trading account with a trustworthy ECN broker. Also, ECN brokers charge commissions rather than spreads to make profits if the trader cannot place high-volume trades. This makes the whole process quite expensive to carry in the long run. It’s worth mentioning that some ECN brokers can charge commissions as high as $3.50 for every trade you place. When you add up this cost for all the trades you are going to place in the forex market, the amount will turn out to be enormous.
To conclude, one can say that although working with a true ECN broker has multiple benefits, there are some drawbacks too, which prospective ECN forex traders should take note of. These shortcomings are very much important before you make the final decision to trade in the foreign exchange market with an ECN forex broker. Traders with high net worth find working with ECN forex brokers more beneficial than small retail traders with less capital. In contrast, small traders tend to prefer market makers because of their restricted financial outlays.