Many brokers who claim to provide ECN pricing may not be true ECN brokers. Here are some tips to distinguish them and a list of True ECN brokers to choose from.
A True ECN broker is a forex broker who connects to interbank liquidity sources such as banks, hedge funds, and mutual funds through electronic communications network (ECN) operators. Your orders will be forwarded directly to liquidity providers, which is why they are also known as "non-dealing desk brokers".
True ECN brokers work as intermediaries to match your transactions with global market participants, so they cannot bid against you (unlike market maker brokers, who stand on the other side of your trades). As they receive a commission fee based on your trading volume, they have an incentive for you to succeed so they can benefit.
The True ECN Brokers
We have browsed through dozens of international forex brokers and found four True ECN brokers with sufficient credibility. Here they are:
Sure, there are controversies as to whether this or that broker actually uses ECN technology or not. However, the four musketeers above have straight-out declared themselves as providers of ECN pricing, and they own the appropriate licenses and liquidity depth to support the claim.
Differences between "ECN Brokers" and "True ECN Brokers"
ECN brokers commonly offer variable spreads starting at 0 pips, dubbed "raw spreads," that are fed directly from the market. Spread fluctuations are highly dependent on current market conditions, and can sometimes change dramatically during periods of high volatility and low liquidity.
Because ECN brokers do not mark up spreads, they have to charge commission fees to make up a part of their income sources. Commission fees may start at $3 per standard lot traded and go higher as their liquidity gets deeper.
We can define the two common characteristics of all ECN brokers as raw spreads and costly commission fees. Nevertheless, True ECN Brokers also have to nurture a direct link to the market, i.e. connection to a network of liquidity providers.
Raw spreads and commission fees can actually be applied by any broker, even when they do not maintain deep liquidity and a direct link to the market. This is where "ECN Brokers" differ from "True ECN Brokers".
Characteristics of a True ECN Broker
True ECN Brokers should take on the role of intermediaries by transferring prices from the real market, rather than simply inventing variable spreads and calling them "raw". We may never know everything that goes on behind the scenes, but we can deduce two distinct characteristics of true ECN brokers: licenses from trustworthy regulatory agencies and connections to a network of liquidity providers -- not necessarily tier-1, but the higher the tier, the better.
Tier-1 regulatory agencies are organizations with the most stringent financial market supervision and, therefore, command high trust among forex traders. They are the Australian Securities & Investment Commission (ASIC), Investment Industry Regulatory Organization of Canada (IIROC), Central Bank of Ireland (CBI), Japanese Financial Services Authority (JFSA), Monetary Authority of Singapore (MAS), New Zealand Financial Markets Authority (FMA), Swiss Financial Market Supervisory Authority (FINMA), United Kingdom Financial Conduct Authority (FCA), and United States Commodity Futures Trading Commission (CFTC).
Tier-1 liquidity providers are big banks, prime brokers, and corporations that trade currencies directly in the interbank market. Some examples are ABN Amro, JP Morgan, Deutsche Bank, Credit Suisse, Morgan Stanley, Citibank, UBS, Barclays Capital, Nomura, Dukascopy, Venture Liquidity Providers Inc, Citadel Securities, and many others.
Forex brokers may shy away from fully disclosing the list of their liquidity providers, as it is considered a highly confidential information in the industry. Even so, qualified True ECN Brokers have to provide some information in order to gain public's confidence.
If you specifically look for ECN brokers with cheap pricing, you may want to check "Where to Find ECN Accounts with Low Commissions".
6 Comments
Feb 26 2023
Forget about the status of ECN or True ECN Broker.
I understand that ECN or True ECN or any broker claiming to be ECN provides known ECN functionality to provide traders with access to the interbank market where major financial institutions trading currencies and other assets. To do this, these brokers charge a commission for every trade made on their platform, which is often higher than the spreads offered by other types of brokers.
And I also know the reason the spread can be very low because the price and liquidity provided by the interbank market directly to their clients without any interference or manipulation. This means that the prices offered by ECN brokers are more transparent and properly reflect market conditions
So, It is yes, the spread can be very low but I dont know why the commision in ECN or True ECN Broker can be so high. Need an explanation here!
Feb 26 2023
Ternier: There are many factors that why the True Broker ECN is so high. Based on my knowledge, True ECN Broker charge higher commissions than other types of brokers because they provide traders with direct access to the interbank market, where major financial institutions trade currencies and other assets. To access this market, ECN brokers must create a network of liquidity providers, which may include banks, hedge funds, and other financial institutions. These liquidity providers charge ECN brokers to access their prices and liquidity, which then pass on to traders through higher commissions.
In addition to these fees, ECN brokers typically invest significant resources in technology and infrastructure to provide traders with advanced trading tools, such as market depth, Tier II pricing and direct market access. These instruments require fast and reliable connections with multiple liquidity providers, which can be expensive to maintain.
And, this is the reasons of True ECN Broker that can provide you the features and charge you high because of that. But this feature is not offered by ECN Brokers. So, true ECN charge with more acceptable reason meanwhile, in my mind, ECN broker will charge you high commission just because the spread is lower
Feb 26 2023
I am a beginner here. The first thing I hear about ECN brokers is that their spreads can be 0.0. And I don't know and I really don't care, is it ECN or True ECN Broker, but the spread is the same from 0.0 pips.
Talking about spreads, there are 2 different types of spreads: floating and fixed (I also know this through the article on this website). What spreads does ECN use, floating or fixed? And if the vibration has spread, that means the spread could go higher. But if 0.0 pips, can it be higher than standard account? THANK!
Feb 26 2023
Jorge: First of all, the spread that ECN account or Raw Spread use is the floating spread. So, yes, it is very possible that raw spreads have higher spreads than standard accounts offer. Raw spread accounts typically offer direct spreads based on the liquidity of the underlying market and can vary depending on market conditions. In contrast, a standard account typically has a fixed spread that does not change regardless of market volatility or liquidity.
During periods of low volatility or high liquidity, an account with raw spreads can offer very low spreads compared to a standard account. However, during times of high market volatility or low liquidity, spreads on a compounding account can widen significantly, potentially exceeding the fixed spreads offered by standard accounts. Read more about the floating spread here : What is floating Spread?
Feb 26 2023
Thanks, Thor. At least I know ECN can be "fake" as brokers can offer speeds as low as 0.0 and high commissions. This means that fees can be increased and decreased. By the way, the difference that the author wrote about ECN and True ECN is that True ECN can provide deep liquidity and direct link to the market.
Ok, I understand the direct link to the market as it is the main feature of a true ECN offering, but I don't understand the deep liquidity in itself. What functionality does deep liquidity provide?
Feb 26 2023
Erik: Deep liquidity provides several key benefits for traders, including:
And the best of all, DoM also can be the mostly feature that you can really enjoy in the ECN which you can see all the positioning of other traders too! Read here for more information! DOM: Trading Strategy For Beginner