How Does an ECN Forex Broker Work?
How Does an ECN Forex Broker Work?
For those who are new to the FX markets or who have been recently out of college, the term “ECN Forex broker” may hold little appeal. However, it is important that you do not let this perception cloud your perception of the real thing. For one thing, when you hear the words “ECN”, what comes to mind? Some might think about banks and their traditional trading method. Others will think of brokers who have traditionally worked with large banks.
While both of these perceptions may be true, it is the more contemporary role of an ECN broker that is of great interest. An ECN is essentially a Forex trading expert who uses a centralised network to give its clients direct access to various other traders in the marketplace. An ECN broker virtually eliminates the need for the broker to physically make the trades. It also does away with the need for traders to actually sit in front of their computer and make the trades themselves.
In simpler terms, the ECN allows investors to place their trades on the behalf of other investors. This is done through an inter-bank clearing organisation (ECO). These liquidity providers take money from traders in the forex market and lend it out to buyers. These lenders then allow these traders to trade their currencies against each other. Through this process, they gain profits by taking a fee from the trader who they have given the trade away to.
The benefits of using an ECN forex broker are many. First of all, trading through an ECN removes the need for you to deal with the buying and selling components of trading. Instead, all you have to do is place orders with the liquidity providers, and they do the rest. This makes it much easier for new traders to get a foothold in the forex market since the latter does not require them to learn how to properly place trades.
Another benefit of trading via an ECN system is the reduction in trading costs. Because there are only one or two trades being made at any given time between the buyer and seller, the ECN eliminates the need for the trader to deal with buying and selling currencies individually. When dealing in cash, it is easy to lose control of your losses through emotions. This is especially dangerous in volatile markets where large movements can lead to significant losses in very short amounts of time. By dealing with an ECN, these traders can reduce their risks of losing money in each trade by simply placing their orders with the broker itself.
There are a number of different ECN brokers available, and many of them are quite capable of providing you with the services you need. Most of the top brokers will provide support for both major pairs and the major currency pairs such as the USD/JPY, the UK/USD, the Euro/USD, the Australian Dollar and the US dollar/Japanese Yen. You should make sure that you fully understand the features and benefits of the ECN platform you are going to use and then make your decisions based on the broker’s features and benefits, not on the platform you will use. This will ensure that you have the most control over the trades you place and minimize your risk of loss.
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