ECN Trading Accounts
As far back as 3-4 years ago it was possible to notice that the brokerage firms have been providing the option to open ECN account. To date, this trading opportunity has found new shape: similar offers are met in more and more brokerage firms.
The first ECN system (Electronic Communication Network) called Currenex, was formed in 1999. The principles of its functioning allowed - both sellers and buyers, to carry out the stock-exchange assets trade, without the broker interference. Today's ECN-System is an interactive trading platform, which brought together participants of the financial markets around the world by means of global electronic network.
The ECN system’s and ECN accounts principles
On the foreign exchange market has been and is an enormous amount of sellers who seek to sell the currency at a certain value. Thus on the other part is a considerable number of buyers willing to buy it. The both parts apply for its purchase and sale, and it is from these proposals the ECN trading system is formed.
The method of Forex ECN accounts functioning is rather simple. As an example, the seller determines the price at which he wishes to sell its currency. The buyers, in turn, offer their price. The offers of the both parts are taken into account by so called «market glass» - the Market Depth. If the seller’s and buyer’s price (the Ask and Bid price respectively) coincide, the deal is made. The price announced by the seller and buyer might differ on the size of the spread. In case of the price change, the spread is also modified.
As an example, the seller has made an application to sell EUR/USD currency pair at 1.60000. In turn, the buyer offers 1.60010. Accordingly, the spread will be multiple of 10 pips. In case someone else wishes to buy this currency at 1.60040, the spread will be equal to 4 pips. It appears from this, that the spread on ECN accounts is not the fixed one, but the floating.
The ECN account advantages
Concerning comparisons with customary accounts, as well as to comprehend what is an ECN account, it is worth to enumerate its advantages:
- Trader might use the scalping tactics, without the broker’s interference, as the intermediary company is interested in high commissions realization from significant number of positions;
- ECN broker generates its income not at the expense of spread, but owing to the commissions, charged from the trading operations. Thus, utterly not in the interests of broker the loss of trader’s deposit, as it means the trader’s diseconomies, as well as the broker’s loss;
- No re-quotes;
- Prices are formed as a result of the proposals of buyers and sellers, without being appointed by the broker.
In general, the opinion that the ECN account on the Forex market does for everyone is premature, by reason of that the floating spread can not be convenient for an absolute majority. As well as the trading terms for this type of accounts, implying the availability of big sum of money, as the minimum deposit size can be opened with a few thousand dollars.