STP and ECN Forex Brokers: What Are The Differences?

Several forex brokers use automated electronic communications networks (ECNs) for trading, as they directly match buy orders with sell orders and execute trades instantaneously. An STP broker will send the orders directly to its liquidity providers (banks, market makers or other brokers) for processing when the client trades, without human intervention. Liquidity providers are generally able to conduct forex transactions at a higher level, directly connecting to the interbank market. An ECN broker stands for Electronic Communication Network (ECN). This type of broker provides its traders with direct access to other market participants via interbank trading prices. This network allows buyers and sellers in the exchange to find a counterparty of their trading positions.

An ECN broker only matches trades between other market participants; it cannot trade against the client. ECN spreads are often narrower than those used by conventional brokers, but ECN brokers still charge clients a fixed commission per transaction. The bid and offer price quoted by each liquidity supplier is not exactly the same, and the brokers can choose the best price from among them to be displayed on the trading platform.

Forex Broker Types. A-Book and B-Book

ECN brokers are non-dealing desk brokers, meaning that they do not pass on order flow to market makers. Difference with ECN – Market makers “make” or set both the bid and the ask prices on their systems and display them publicly on their quote screens. They stand prepared to make transactions at these prices with their customers, who range from banks to retail forex traders. In doing this, market makers provide some liquidity to the market. Put in a simple format, ECN offers a linkage or a bridge between retail traders and liquidity providers.

what is ecn trading

Depth of Market (DOM) is typically displayed as an electronic list of outstanding buy and sell orders, organized by price level and updated in real-time. The figure for point 3 displays a Depth of Market, which helps to analyze the current market situation. If traders do not use pending orders when trading, then the deal goes “into the market”. This means that it will be executed at the price that is currently in the system. While your order is being processed, the price in the system may already change, and your trade will be executed at the closest one.

Advantages of ECNs

Because ECN has an open structure, it allows developers and related units to execute their orders quickly and optimally. Banks, investment funds and investors from retail to institutional level are all components that have a great influence on the market. Look no further than FXOpen to represent a trader’s interests with fairness and accuracy. Moreover, FXOpen offers an affordable ECN solution with commissions starting from only 1.5 USD per standard lot.

Many brokers claim that they are truly ECN platforms, but the system behind them is only STP. Strictly speaking, only a handful of trading platforms meet the definition of ECN. Before making any investment decisions, ecn broker you should seek advice from independent financial advisors to ensure you understand the risks. The main disadvantage here is the traders will always be charged commissions on every order they open.

Possible high requirements for the starting deposit

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Since the spreads of liquidity providers are generally low, brokers can add one or a half-point to this spread to make a profit. If the broker works with several liquidity providers, it can pick the best offer and bid prices to reduce the spread as far as possible, thus increasing the profit ratio. An ECN trading platform, therefore, routes the clients’ orders automatically to the ECN broker’s liquidity providers.

what is ecn trading

First, because of their global nature, ECNs have significant liquidity, which means that their execution costs are relatively tiny compared to other companies. These companies design their ECNs and then sell their systems to brokerage companies. The brokerages then display the best prices provided to them by the communication provides.