Best ECN Forex Brokers

In this guide we will go over ECN Forex Brokers based on a variety of factors. An Electronic Communication Network (ECN) broker works by “cutting out the middleman” in trading. Where other types of brokers set their ask price for buying and selling securities, ECN brokers offer a straight through processing execution to clients.

Traders using ECN accounts can set the conditions for the trades they want to make such as choosing the type of instrument, spread, lot size, etc. Brokers then search through their database for providers who offer agreeable terms.

Brokers that do not use the ECN model tend to trade directly against their clients, taking the opposite position. Many traders have reservations about this practice because there is a potential conflict of interest. If the client wins, the broker loses, and vice-versa.

For example, using an ECN broker a trader decides they want to take a Forex position. They choose the lot size they want, eg. $1,000. The ECN broker will then search through thousands of liquidity providers to give that trader access to the position.
ECN brokers charge a commission on each opening and closing trade to make money, but they are not directly involved in either side of the trading process. They are considered a non-Dealing Desk, meaning that they only facilitate trades between two parties.

Best ECN Brokers 2021

We’ve made a list of some of the most reputable ECN brokers on the market today. When examining each broker we took several aspects into accounts, such as the level of regulation, commission charges, security, customer service, and more.

Here are our top picks:

• Interactive Brokers – Best ECN Broker Overall
• FP Markets – Best Forex ECN Broker
• Pepperstone – Best ASIC Regulated ECN Broker
• IC Markets – Trusted ECN Broker
• Forex.com
• HotForex
• Admiral Markets
• Dukascopy
• RoboForex
• LCG
• ADSS

Benefits of using an ECN Broker

So now you know what an ECN is and how it works, but what are the advantages of using this type of broker offers? We’ve made a handy list to help you out.

Transparency

ECN brokers consolidate market prices from liquidity providers from all across the globe. Because they do this in real-time, traders receive the same prices from the price feed. Traders can use this information to compare data on lot prices.

This means that the broker cannot engage in price manipulation since the information is disseminated widely. Price and market manipulation is one of the largest concerns many traders have about their brokers.

Direct Trading

ECN brokers do not trade directly with traders. They link traders with liquidity providers who offer various positions.

One advantage of this is that traders can take positions instantly, rather than waiting for their broker to secure that position.

ECN brokers are not involved in either side of a trade, so they have no vested interest in the trader making or losing money.

Tighter Spreads

Because ECN brokers aggregate bid and sell prices from different market participants such as investment banks and hedge funds, they can offer lower spreads than other types of brokers.

Acting as a hub for market players, traders will have access to liquidity providers asking for a range of prices. Some of these spreads will be higher than market standards, others will have lower.

Traders can choose the positions and spread that best suit them from thousands of providers from across the world.

ECN vs Market Maker

Market Maker brokers – also called Dealing Desk brokers – operate oppositely to ECN type brokers. Instead of decentralizing trade positions, they counter the trade that each trader takes.

Market Makers are liquidity providers. They decide both the bid and sell price that is displayed to traders. The only thing that keeps Market Maker brokers from massively inflating their prices is a highly competitive market.

Market Maker brokers make money on the spread (the difference between the bid and ask price) at either end of the trade as well as whatever profits they earn during the trade. 

Institutions like banks and other large financial institutions are all Market Makers.

Difference Between ECN, STP, and Dealing Desk Broker

ECN and STP brokers are both examples of No Dealing Desk brokers. Essentially, this means they are not Market Makers and do not provide liquidity to their traders.

ECN brokers operate by linking traders through a decentralized network to liquidity providers to execute trades.

Market Maker or Dealing Desk brokers “make” a market for their traders by setting a bid and ask prices for instruments. They take the opposite side of each trade and provide liquidity directly to their clients.

STP brokers are another example of No Dealing Desk brokers. They are less common than ECN brokers, but many traders prefer them for secure trades. The differences between ECN and STP brokers may seem small, but they are crucial.

STP – Straight Through Processing – brokers do as their name implies. They pass orders from traders directly to liquidity providers in the market. Unlike ECN brokers, they do not provide traders with a massive list of all compatible liquidity providers in the market.

Using an STP model, traders are competing with other traders rather than with their own brokerage. 

Sometimes STP brokers choose to absorb some or all of the liquidity from a trader’s position without passing it on to the interbank market. 

How to tell if a broker is a fake ECN broker

Every day, traders are becoming savvier to the unsightly business practices that some Dealing Desk brokers engage in. Because of this, many DD brokers try their best to make it appear that they are ECN brokers.

Some traders using DD brokers have noticed that prices reported in demo accounts vary from those listed on their live accounts. This is a sign that your broker is playing dirty, trying to make their platform more appealing to potential clients.

There are several steps potential traders can take to protect themselves from these kinds of shenanigans, and in return protect their money.

Firstly, users should read through the client agreement thoroughly. It may seem like a chore, but in the user agreement, the broker should state clearly whether they utilize ECN or other No Dealing Desk accounts.

As tempting as it may appear, ECN accounts will not offer fixed spreads. By their nature, ECN brokers have to offer variable spreads as the liquidity providers may change their prices at any time.

Next, see what your broker’s terms are around scalping. We’ll cover exactly what scalping is later in this article, but to put it simply: it’s a trading strategy that relies on trading large volumes over very short timeframes.

Because scalping is carried out in minutes or sometimes even seconds, Dealing Desk brokers tend to disallow this strategy. ECN accounts can execute trades at ultra-high speeds and can facilitate scalping without much issue.

Lastly, it’s best to extensively research your broker. Read as many reviews and articles about your chosen broker as you can find before committing your money to it. You worked hard to earn it, it would be a shame to throw it away on a fly-by-night brokerage.

ECN and Scalping

One of the reasons ECN brokers are becoming so popular with day-traders is that they allow traders to use the scalping strategy. This term has earned an unfair association with people selling concert tickets at massively inflated prices, but it is a perfectly legal and ethical trading strategy that many traders use to maximize profits.

To use scalping as a viable strategy, traders should have access to tools such as live economic news feeds and accurate charting programs. It also requires quite a large time investment as placing trades at the right time is crucial.

Scalpers trade by taking positions for very short periods. They earn profits by buying and selling securities and taking advantage of minuscule gains between 5 and 20 pips. This relies on the idea that multiple small profits are easier to attain than singular large ones.

ECN brokers facilitate scalping because of their automated execution. Because ECN brokers act as intermediaries between trade parties, they can execute thousands of trade orders every second.

Dealing Desk brokers will not allow scalping because of the calculating power needed to facilitate thousands of short-order trades.