ECN Brokers are reliable in their execution and pricing, but most of them may not be affordable for some traders. If you're a swing trader, are ECN brokers worth it?
Electronic Communications Network (ECN) brokers give their clients direct access to the financial market. They put together quotes from different market participants, which lets them give customers the best price. This is not the case in the market maker model, where investors trade against the broker. To make money, brokerages usually charge a fixed commission per trade. This lets traders know upfront how much each trade will cost. Most Pure ECN providers trade on the forex and stock markets, but some accounts also give you access to CFDs.
Due to the benefits, many hail ECN brokers as the most recommended type for traders who seek the best execution and pricing. But with such advantages, do ECN brokers fit all trading styles? What about its compatibility to swing trading?
For your information, swing trading is a type of trading strategy that tries to make short to medium-term gains in a financial instrument over a few days to a few weeks. Technical analysis is the primary way that swing traders look for trading opportunities. The goal of swing trading is to optimize a price swing that might happen. Some traders look for assets that go up and down a lot, but others may prefer assets that don't change as much. In either case, swing trading is the process of figuring out where the price of an asset is likely to move next, opening a position there, and then taking a piece of the profit if the move happens.
Benefits of ECN for Swing Trading
Several traders are beginning to prefer using ECN brokers for their swing trading strategy. They're obviously not doing this for no reason. Here are the top reasons why traders prefer to use ECN brokers for swing trading:
1. Actual Market Conditions
True circumstances of the market will be represented in real ECN brokers. Consequently, there will be no bias on neutral pricing according to the techniques, tactics, or existing market positions that you have taken. When you work with a genuine ECN broker, you will also have the opportunity to benefit from several trading aspects including the efficiency of tight spreads and rapid transaction execution speeds.
When it comes to investing money, you want to give your hard-earned money to a broker you can trust to get the most out of your money. I can think of several reasons why ECN brokers are more reliable than market makers. For a start, an ECN broker uses the latest technology. This is to ensure that trades are executed quickly and smoothly. They also offer the best market prices and spreads that are acceptable for most traders. They make money by taking a cut of how much you trade, which means that they want you to win. They let their traders get the actual market price by giving them direct access to the financial markets. Because they are honest and open, ECN brokers are more reliable than market makers.
3. Access to Liquidity
As we just discussed, ECN brokers give their customers direct access to the liquidity providers, which might include banks and other types of institutional investors. Traders are allowed to engage in transactions with the worldwide liquidity pool since it comprises highly competent financial institutions that are also competitive and regulated. This guarantees that the order is carried out excellently.
4. No Dealing Desk
This is most likely the benefit that stands out the most when working with a genuine ECN broker. The vast majority of ECN brokers have earned a solid reputation in the industry for their expert level of skills, honesty, and dependability. The reason for this is that they do not require the assistance of a dealing desk, which provides them with greater freedom when dealing with client orders. Because of this flexibility, ECN brokers can execute their customers' orders without any intervention from other parties.
Risks of ECN for Swing Trading
Although ECN brokers have quite a few benefits for swing traders, we believe it is just as important to mention the risks this type of broker carries as well. Here are the top risks associated with ECN brokers for swing trading:
- High Transaction Costs
There is a significant cost associated with using the services of a genuine ECN broker who can establish a direct connection between you and other market players, including major financial institutions. One of these is the relatively higher initial deposit, which must be made before opening an account with an ECN forex broker. In addition, it is possible for ordinary forex traders not to be able to afford the commissions that certain brokers demand, which may reach $3.50 per transaction.
- Variable Spreads
ECN brokers provide spreads that can change based on various factors, including the state of the market at any given time. Occasionally, these differences can vary drastically, particularly when there is substantial volatility, which may influence both your trading technique and any open positions you have.
Notable ECN Brokers for Swing Trading
Exness provides an ECN-like trading condition in their Standard and Zero Professional Accounts. Both are suitable for swing traders with low spreads, market execution, and no-requotes. Traders can choose to trade between forex, metals, cryptoсurrencies, energies, stocks, and indices.
- IC Markets
The Australian-based broker is known to have one of the best raw spreads in the forex industry, which is an essential instrument in an ECN broker. It supports zero-spread trading on MetaTrader which is a highly popular platform. More than just swing trading, IC Markets Global Raw Spread account is also built for day trading, scalping, and automated trading since they aggregate their source of pricing from up to 25 institutional grade sources.
FBS used to specifically provide an ECN account, but they have restructured their account types recently and accommodated their ECN trading conditions into the Pro account. With this service, swing traders can enjoy unlimited orders, lower spreads, market execution, and upgraded VPS service.
FXOpen is recognized for being the trailblazing broker that launched a genuine MT ECN trading platform. This platform is directly linked to an extensive retail forex liquidity pool, consisting of numerous top-tier banks and liquidity providers. As a result, FXOpen's MT ECN establishes an incredibly liquid and competitive trading environment for swing traders.
Vantage's Raw ECN Account is provided with ultra-tight spreads starting at 0.0 and access to institutional-grade liquidity. The broker has the most cost-effective forex where clients can trade with liquidity sourced directly from the world's largest banks and financial institutions, all with no spread markup, just a minimal $3.00 commission.
After understanding how ECN brokers work, what the swing trading strategy is, and analyzing the pros and cons of ECN brokers for swing trading, we can safely conclude that ECN brokers are indeed good for swing trading. I find this to be the case mainly because there are way fewer long-term costs associated with this type of broker, such as spreads and other transaction costs. I also like how no middlemen are involved, which gives reliable market conditions to perform swing trading much more securely.
In addition to swing trading, we have discussed ECN brokers' compatibility to another strategy that is much more extreme than swing trading. You can reveal the story in "Is ECN Account Good for Scalping?"