How Does Forex Trading Through ECN Work?

Forex traders access to the market through brokers. These companies are classified as ECN or market makers. The first type of brokerage has undeniable benefits. It offers a fair trading environment with transparent conditions. Here is how the ECN scheme works in Nigeria. 

The emergence of ECN revolutionized Forex. It created a marketplace with free competition between liquidity providers. Here, clients enjoy tight spreads and favourable conditions overall. Orders are matched and executed automatically, and currencies are traded via cutting-edge software.

Why ECN Beats Market Maker

Market makers do exactly what the term suggests - make the market. They have the power to set the prices their clients see. Ask and Bid values define the 'spread'. The wider it is - the better for the broker. Spreads constitute their source of revenue. What's worse, if your trade brings profit, it is paid from the broker's accounts. 

This points to an obvious conflict of interest. This does not mean market makers are evil by definition. However, unscrupulous providers of this do tweak their prices, and the system allows them to do so.  

ECN stands for Electronic Communication Network. These brokers do not care whether you win or lose: they get revenue regardless. Check the What is ECN Trading? guide for more information.

Basically, prices are defined by the market. The broker is only an intermediary with no power over interbank trading prices. They only charge a commission for each trade. In these systems, different liquidity providers compete freely. For a trader, this translates into tighter spreads, lower costs, and more favourable conditions in general. 

Overview of Benefits

ECN brokers never bet against their clients. As they do not influence quotes, their business is impartial. Clients are charged a commission regardless of their financial results. Therefore, 

• there is no conflict of interest; 

• price manipulation is avoided;

• clients access real-time data;

• execution and confirmation are instant;

• spreads are tight and flexible;

• operations are transparent;

• costs are lower. 

For a broker, there is no point in fabricating prices. First, their commission does not depend on the rates. Secondly, liquidity providers make this complicated. Thirdly, traders can see live quotes and past price history. Other benefits include the following.

Complete Anonymity of Trading

ECN trading is anonymous. The prices you see are real-time quotes on the market. Thus, ECN brokerage is best for those who need privacy, particularly when trading large volumes. 

Flexible spreads

ECN brokers have variable spreads. Clients see Ask and Bid prices which reflect the actual market situation. Currency rates are always moving, and traders may get floating spreads. In particular, this happens when trading sessions overlap. 

Are There Any Drawbacks?

Naturally, not everyone is comfortable with paying the commission. This is charged on a per-trade basis. In the long term, the costs may be substantial. However, this depends on the frequency and volumes of trading. On the other hand, you know exactly how much the broker charges. Market makers, on the other hand, include their profit into pricing. Transparency may be worth paying for. 

How to Choose ECN Broker

ECN is the most transparent model of brokerage. However, not all ECN brokers are the same. First, it is crucial to check that the company is officially registered and licensed. Global brands are preferable, especially when they are monitored by reputable watchdogs like the CySEC. Next, examine the offerings. There should be no:

• fixed spreads,

• dealing desks, or 

• only negative slippage.

Dealing desks are only used by market makers. Order filling is performed at their own discretion. Trades are therefore held inside the system, rather than passed to other liquidity providers. In ECN systems, trades are executed automatically.

Negative slippage is observed in highly volatile markets. It also happens in the absence of a match. It means that your trade is executed at a price which differs from the one you requested. Slippage may be avoided if you use limit orders instead of market orders. ECN brokers offer both positive and negative slippage - i.e., it can also work in your favour.

Brokers like ForexTime offer different accounts to clients in Nigeria. Check the comparison table to see which one is best. Conditions include different deposit requirements, payment methods, main currency, etc. An important advantage is the opportunity to register accounts in the Nigerian naira. 

Choose Trusted Providers

It is advisable to trade through global brokers, as these are well-established brands. Their clients have access to professional support 24/7. Clients also trade through advanced software, such as MetaTrader 4 and MetaTrader 5. These have web-based, desktop, and mobile versions. Cross-platform functionality allows you to manage the same trades via different devices. 

One piece filler list