Is An ECN Forex Broker Right For You?

By: Charley Warady

There has been a lot of talk lately as to the advantages of having an ECN Forex broker. The first thing to note is who is doing the talking? First of all, the novice, newbie, and small time recreational Forex trader need not apply. The absolute consensus amongst traders is that the ECN Forex broker is for the experienced Forex trader.

Many traders complain about the size of the spread offered on the pairs, and their stop loss that keeps getting hit, and sometimes disappearing trades. These are all legitimate concerns, and should be addressed through a Forex trader's individual broker. If you are unhappy with your broker, there are others out there and certainly DailyForex can help you in your search. But an ECN broker for your Forex trading is located in a completely different ballpark.

It takes money to make money

Take a look at some of the leading ECN brokers such as FxPro, and you'll see that they haev a higher minimum deposit than most regular Forex accounts.  Likewise, you won't find any mini-pip traders playing around with an ECN Forex broker. An ECN is like an interbank trader, so you have to be able to trade $7-10 per pip trades because interbank trades in $100,000 increments. This is playing with the big boys. You can also forget about not paying commission. ECN brokers generally charge commission because they're not making their money from taking the other side of your trades on the spread.

Because of the concentration of the niche traders involved, there are only a handful of these brokers around. They're easily found through Google, and you can tell right away they are only out to attract the serious Forex trader and the ones who have capital to back their trades.

Your Forex trade is out there

The retail Forex broker offers spreads that may vary according to the broker you are using. That's how they make their money. That's why you're not charged commission. On the other hand, the ECN oftentimes will have little or no spread at all. Your Forex trade is passed through to interbank, so you are trading with a real trader.

At a retail Forex broker, generally speaking the broker is on the other side of all the trades. Using an ECN Forex broker, the other side of the trade could be either a bank, hedgefund, insurance pool, or even another speculator.

Because the buy/sell spread is of little or no concern, this makes for a great opportunity to not only day trade, but scalping becomes much more feasible.

What's your Forex flavor?

 It's like your mother has told you time and time again: There is a time and place for everything. It is a judgment call on the part of individual Forex trader. The advantages with going through a retail Forex broker are numerous. You will have that demo account that you can use as a consistent tool. The minimum monetary requirement is very much less. There are a lot of traders that make a very nice living going through retail brokers.

However, if you meet the relatively high requirements of trading in big numbers and maintaining a high balance; if you don't want to give up any room on a spread; and you want your trade to not stay “in house”; then perhaps an ECN Forex broker is right for you.

The DailyForex.com team is comprised of analysts and researchers from around the world who watch the market throughout the day to provide you with unique perspectives and helpful analysis that can help improve your Forex trading.

1 User Reviews
  • Frank

    MB Trading is an ECN broker and allows smaller traders to trade in 10k lot sizes. The only complaint I have is their Web app is lousy and the Navigator apps are ok. I am using the Free Ninja trader with MB Tradings live connection and that is a really nice setup. I'm a newbie to this as I've only been real money trading 3 months now. I have been up and down with my account but am starting to get better.

    Frank October, 2010

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