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What is ECN and what makes a good ECN broker?

ECN stands for Electronic Communication Network. An ECN broker is electronically connected to the network of banks, hedge funds and investment corporations which are interconnected in a form of hub.

In forex trading, there are two big groups of order execution categories:

  • No dealing desk: this means that your orders are routed directly to the liquidity providers/interbank market. The broker only passes your trades through, but doesn't intervene. Main examples of this order execution type are ECN (electronic communication network), STP (straight through processing), and their various hybrids.
  • Dealing desk: this means that you interact directly with the broker/dealer and not the liquidity providers/interbank market. The broker can intervene, e.g. by requoting your orders. The main example of this order execution type is market maker.

When you trade forex using ECN, you buy and sell directly from the connected network of banks and financial institutions, and they provide you the liquidity. Many forex traders prefer ECN routing over another popular forex routing model, called market maker. The main reason is that by using an ECN broker, clients essentially trade on the interbank market instead of making transactions with their own brokers.

ECN and market maker structures differ in routing practices, pricing, the possibility of conflict of interest and re-quotes.

Differences between ECN and market maker routing structures
  ECN Market maker
Routing practice Buy and sell orders are routed directly to the network of liquidity providers You trade with the broker, your orders are executed at the broker
Commission Fixed commission No commission
Spreads Tight and floating spreads, determined by the market Fixed spreads, determined by the broker
Dealing desk No dealing desk Yes, there is a dealing desk
Conflict of interest No potential conflict of interest as an ECN broker does not trade against its clients Potential conflict of interest as the market maker might take the other side of your positions
Requotes* There are no requotes There could be requotes
*A requote is when the broker is not able or willing to execute your order based on the price you entered. If there is a requote, you have the opportunity to either accept or decline the new offered price. Requotes usually happen in fast-moving environments. During requotes, there could be cases when the broker buys the instrument at a cheaper price from you, and sells it at a higher price on the interbank market.

At BrokerChooser, we test online brokers based on close to 500 criteria, using a real account and real money.

The most important factors to consider when selecting the top forex brokers are the fees of forex trading. Besides trading fees, you should also look at the number of available currency pairs. In addition, check if the broker provides great customer service, advanced research tools and easy account opening.

Save yourself hours of research and use our unique broker finder tool to get a personalized list of brokers tailored to your preferences. Alternatively, check out the Best ECN brokers toplist compiled by our team of financial experts. 

 

 

Author of this article

Krisztián Gátonyi

Author of this article

Krisztián has 15 years of experience in proprietary trading, mainly in the interbank currency market as a foreign exchange risk manager. He received his MSc degree in International Business from the University of Middlesex. He is interested also in real estate and dividend growth investing. His purpose is to help people find the best investment provider.

Krisztián Gátonyi

Senior Broker Expert

Krisztián has 15 years of experience in proprietary trading, mainly in the interbank currency market as a foreign exchange risk manager. He received his MSc degree in International Business from the University of Middlesex. He is interested also in real estate and dividend growth investing. His purpose is to help people find the best investment provider.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology

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