ECN, that stands for Electronic Communication Network — is an innovative and futuristic way to trade on Forex market. To the clients is offered full access to orders and an opportunity to execute demands even not during traditional exchange hours (the post-market and premarket), that increased the competition among brokers and trading companies. ECN can be called alternative or off-exchange distribution network.
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ECN is an electronic trading system with direct access, the order for the client through it arrives on the market directly. This is the main system difference from the regular broker acting as the intermediary and outputting the order for the market on its own behalf, processing it in the internal system. Actually ECN is a connecting link between large Forex broker and traders, allowing them to make transactions on the first price. As intermediaries don’t participate in the transaction, the price isn’t overstated. Orders opened in ECN, come to a database, in the so-called uniform book of orders (demands). The system of order selection, which is the cornerstone of ECN, gives the chance of coincidence of their some parameters (quantity, the price, an asset) to execute opposite orders automatically.
To get access and to start trading through ECN it is necessary to open the account at the direct access broker. By the withdrawal of the order via the exchange terminal provided by the broker, it is necessary to determine the buying price and ECN. In turn, ECN will find the seller in the base of orders with such number of stocks and the price which will correspond to requested for the purchase. In case the seller couldn’t be found at once, the order will be displayed in the list, which is available to all participants in the market. Usually the seller and the buyer are anonymous and in listing are displayed as «participant».
Often ECN compensates to the traders part of the paid commission (provide rebate) for addition of liquidity in the market.
Considering work features of similar systems, it is possible, to sum up, all the advantages of ECN. The main plus is, of course, that the broker isn’t interested in the trader’s loss. If the dealing center doesn’t bring the transaction to the market, the profit of the trader will be a loss for broker and deposit plums respectively, on the contrary. Working with ECN the main brokers profit is commission, that is why the broker is interested in successful trades to get the biggest profit.
The trader can influence on the spread, and also to trade in the international market. ECN specifies the contractor and some of them could be large banks.
ECN permits scalping and a pipsing, after all, the broker who receives the commission from each transaction of the trader, is very interested in the strategy considering a large number of the opened orders. As the transaction will come directly to ECN system, there are no requotes.
ECN offers the possibility to trade daily, day and night, the participants of the Forex market are supplied with all trading information very quickly. The high speed of transactions is reached through to electronic data processing and usage of modern means of communication. The full disclosure is provided to participants who had earlier no opportunity to compete with brokers and had no direct access to the auction.