Friday September 15, 2017 - 11:23:30 GMT
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What is an ECN Broker and How to Choose the Right One
Thanks to recent changes in methodology, there is a genuine debate about the precise amount of money traded on the forex market each day. While previous measures estimated the total volume at around $5 trillion, for example, global settlement bank CLS has suggested that this number is inflated and that the actual figure is closer to $3 trillion.
Regardless, this is still a huge market, and one that traders must approach carefully if they are to thrive amid sustained volatility.
One approach may be to partner with an ECN broker, but it is important to choose the right one from a vast selection. Here is a brief guide to making an informed decision:
What is an ECN Broker?
The term ECN stands for electronic communications network, which serves as a marketplace for private investors and corporations from across the globe. Through this interconnected platform, participants can bid and offer against one another, and ECN brokers perform the crucial task of connecting aspiring investors within this space. They leverage their skill and forex market knowledge to achieve this aim, integrating price quotations from within the marketplace and offering clients tighter spreads that would otherwise have evaded them.
In simple terms, ECN brokers match trades between market participants, helping individuals to achieve the best possible deal. They do not trade in opposition to their clients, instead making their money by charging participants a fixed commission on each completed transaction. Given the service that they provide and the fact that their pricing is transparent, it can be exceptionally beneficial for inexperienced forex market traders to partner with an established ECN broker from the outset.
What to Look for in an ECN Broker?
With this in mind, the next step is to identify a reputable ECN broker who can deliver outstanding value for money. The first thing to look for is the presence of a fixed commission fee, as this highlights the brokers' core revenue stream and their objectivity as intermediaries. So while it may be initially tempting to partner with an ECN broker that claims to charge nothing in fixed commission, this type of operator is not to be trusted and will most likely look to profit from your losses.
On this subject, you should also appraise potential ECN brokers by looking out for the presence of a dealing desk. With true ECN brokers there should be no dealing desk at all, while those that do are typically market makers that will almost certainly trade against you in the marketplace. If you are unsure, you can test the principle by opening a demo account as your first port of call, as you look to execute simulated trades that do not place your capital at risk. Once you have been assured, you can then consider opening a full account and working alongside an ECN broker.
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