Electronic Communications Networks, or ECNs, are electronic trading systems that automatically match up pairs of buy and sell orders at given prices. There’s a fair few sites around the place that tap into these in one way or another to provide a forex trading service. This said, these are very definitely for the bigger player than the average (small) trader on the retail forex market.

Advantages
The big advantage of ECNs are the low pip spreads available on a trade. Despite what some will say, these are not at interbank levels, but they’re not too far off.

Also, you’re not going to have any trades stop-hunted. ECN providers talk a lot about the transparency of their set-ups – and it is true, you’ve got more control over where your money is going.

Disadvantages
Maximum leverages offered tend to be around 1:33, 1:50 – so you need some capital behind you. You won’t get 1:100 leverage with a ECN deal, let alone 1:400. (Yes, maybe this should be under avantages…)
With ECNs you tend to be trading in 1 lot minima – and, usually, a minimum account margin somewhere around $10,000.

During certain market conditions, liquidity can be a problem. Available trades tend to slip away at news time, simply because the feasible spreads are getting too wide (much the same, in practice, as the standard forex broker).

They’re for longer-term action, in general – definitely not for you if you’re into the cut-and-thrust of scalping off the 5-minute charts and relatively small lots.

And lastly, there’s a commission to be paid to the ECN on every trade.

Conclusion
Maybe it’s just me and I don’t move in the right circles any more, but ECNs seem less popular than they were a couple of years ago, with fewer standard traders making the jump up to their sort of level. This might even mean that the average retail forex dealer is getting their act together… or maybe not.

2 Responses to “Forex and ECN Trading”

1. ForexPerform » How Retail Forex Actually Works (Roughly) says:

   February 11, 2009 at 1:26 pm

   [...] another twist to the spot forex market – dealing via Electronic Communications Networks, or ECNs, which we’ll look at [...]

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2. Forex and ECN Trading says:

   February 11, 2009 at 2:31 pm

   [...] Original post by ForexPerform – Learn Forex Trading [...]

   Reply