ECN Forex Brokers

Before even being able to understand what an ECN Forex broker is or does, it would probably be best to understand what ECN means in the first place! ECN stands for Electronic Communications Network and is a system whereby traders can buy or sell directly without the necessity of going through (or paying!) a middleman.

Basically, in laymen’s terms, it is a computer network that usually utilizes its own resources to fill buy sell orders among Forex traders. Perhaps you could look at it as a peer to peer network of sorts in that one peer lists currencies to be sold so that another peer can log on to snatch them up. That leads us to the question of what an ECN Forex broker is, or more particularly, what is the function of an ECN Forex broker.

As we well know, it isn’t just anyone who can hop into the market and buy and sell stocks, bonds, commodities, futures or even currencies. Anyone who trades in the respective market is required, by custom and law, to hold a valid broker or broker-dealer license. Let’s rephrase that a bit. Since the only people who are authorized to trade in the open market is a person with the credentials to do so, even if you want to buy currencies, you would almost always need to communicate with a broker.

This is the role of the broker in an electronic communications network. The subscriber is an authorized broker or broker-dealer who does transactions on the market as a service for his/her clients. An ECN Forex broker then is a person who subscribes to an electronic communications network in order to buy/sell currencies on behalf of clients for a fee or equitable consideration.

There are some major advantages to having an account with an ECN Forex broker in that with the elimination of the middleman, it is possible to carry out transactions directly with your peers. Remember, the broker subscribes to the market and you subscribe to the broker! You can literally do business 24 hours a day because some currencies market around the world will be operational, except of course between the close of the business day on Friday (5 PM) ET and will not resume again until the start of the business day in Wellington, New Zealand which is 5PM Sunday ET.

However, there is one drawback that many people encounter from time to time. Since an ECN Forex broker is able to match buyers with sellers based on currencies they have available, they cannot fill a buy order if those currencies are not listed for sale. This type of brokerage is referred to as a market-maker because they actually hold the currencies to be bought or sold to their subscribers.

Once you have an account with a broker-dealer who is an ECN subscriber, it is possible to set your Forex trading robots to watch not only market trends but to put buy/sell orders into your broker’s network. If there are any matching currencies (either sell or buy requests) then the transaction will take place automatically, carried out by the ECN and your bot. That’s the beauty of the age of technology.

You need to understand how to trade in the Forex market, but once you’ve gotten your system down, you can automate your bot to talk to your ECN Forex broker and just walk away and let technology do your trading! Since you can’t subscribe directly to the ECN you will need to open the account with the broker-dealer, but after that, your trading can be set to autopilate.

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