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“ECN” stands for “Electronic Communications Network”. ECN brokers construct and utilize such networks to match their client’s trade orders directly with other market participants, instead of operating dealing desks and taking the other sides of their clients’ trades.
The unique selling point of ECN brokers is that they have no inherent conflict of interest with their clients. ECN brokers make a marginal profit every time their clients trade, unlike “market makers” / “dealing desk” model brokers who make greater profits when their clients lose as they are taking the other side of the trade.
ECN and STP Forex Brokers
ECN brokers typically charge both a spread and a commission which is usually a percentage of the trade size. Therefore, although their spreads are mostly considerably lower than those offered by market makers, the total cost per trade may not be very different between high-quality brokers of both types.
ECN brokers usually require considerably higher minimum deposits than market maker / dealing desk brokers, meaning that smaller clients may find ECN brokerage services unavailable to them.
During periods of low liquidity or news shocks, trading through a market maker / dealing desk broker may be less prone to negative outcomes such as slippage and slow execution.