Exactly what is an ECN broker? An ECN broker stands for Electronic Communications Network broker. ECN forex brokers are not comprised of having a dealing desk. Instead they provide a market place that is networked with other market makers and financial institutions. What this type of broker allows is the trader can enter bids into their trading software inside or outside the market spreads. This gives the advantage of getting better spreads.
By using ECN forex brokers, the trader will get into a trader at a better price than a trader that is entering using a market maker broker. An order by the trader is sent to the best bid/ask offer there it. Spreads usually are in range of .5 pips to 3 pips. Compare this to market mover spreads, which can sometimes be as high as 8 pips. ECN forex brokers do however charge small commission fees. This is actually how the broker actually makes their money since the spread they offer is extremely low. This does not harm the trader much though since they are able to benefit at getting in at a better price. They will only match your offer and send it to the best bid/ask in the computer network market.
Now since we are comparing this broker with others, I will explain what the market maker broker does.
Market makers in the forex market are the ones that provide liquidity in the markets. They are the ones that will quote both a buy and sell price on a financial instrument. The way they make their earnings is through their spreads on the bid/ask prices. They are important in that they keep the market moving as they take the opposite positions the traders placing orders on. The makes sure that there is constant liquidity in the markets.
By taking on the other side of the trade, market makers do take on some risk but still look to profit from the bid/ask spreads. They will often widen their spreads during fast moving markets. The appeal most traders get out of these types of brokers is that they are advertised not to take on any commission fee. One still should remember however that you make up for this in the price you get in at when your trades are executed. Weighing the benefits would be the best option before deciding.
Courtesy: http://www.associatedcontent.com/article/403679/ecn_forex_brokers_why_are_they_better.html
By using ECN forex brokers, the trader will get into a trader at a better price than a trader that is entering using a market maker broker. An order by the trader is sent to the best bid/ask offer there it. Spreads usually are in range of .5 pips to 3 pips. Compare this to market mover spreads, which can sometimes be as high as 8 pips. ECN forex brokers do however charge small commission fees. This is actually how the broker actually makes their money since the spread they offer is extremely low. This does not harm the trader much though since they are able to benefit at getting in at a better price. They will only match your offer and send it to the best bid/ask in the computer network market.
Now since we are comparing this broker with others, I will explain what the market maker broker does.
Market makers in the forex market are the ones that provide liquidity in the markets. They are the ones that will quote both a buy and sell price on a financial instrument. The way they make their earnings is through their spreads on the bid/ask prices. They are important in that they keep the market moving as they take the opposite positions the traders placing orders on. The makes sure that there is constant liquidity in the markets.
By taking on the other side of the trade, market makers do take on some risk but still look to profit from the bid/ask spreads. They will often widen their spreads during fast moving markets. The appeal most traders get out of these types of brokers is that they are advertised not to take on any commission fee. One still should remember however that you make up for this in the price you get in at when your trades are executed. Weighing the benefits would be the best option before deciding.
Courtesy: http://www.associatedcontent.com/article/403679/ecn_forex_brokers_why_are_they_better.html
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