There are two basic types of brokers in forex market; one is the market makers and the other is ECN Broker. ECN stands for Electronic Communication Network. In simple words ECN is a financial expert who provide a direct route to its customers so that they can interact with other market participants. ECN is a type of computer software that facilitates the trading outside the market so ECN broker only acts as a middle man between your trades, not as market maker.

We are sharing some advantages and disadvantages of using an ECN broker. These points will help you in taking right decision in choosing a forex broker.

Advantages of using an ECN broker:

By using an ECN broker you can claim a number of benefits such as:

Privacy of your trades:

The role of an ECN broker in trades is only as a middleman. So when you make a trade on ECN network, you are completely secured and you account cannot be distinguished and not traced. You can protect your trade strategy by using an ECN broker because you are using the name of broker for your trades.

You are your own market maker:

You are autonomous to set your trade limits and spreads by using an ECN broker. The ECN will match your bid with the other participants and through this you can gain some extra pips. There are no restrictions and limitations about placing and canceling an order. In this way you can perform as your own market maker.

Continuous trading:

ECN provide you the liberty to trade during news and events. Continuous trading increase the price volatility and at ECN, trading always remain continuous, so you can get the benefit of price volatility.

Enhance the execution of orders:

Always keep it in mind that you are trading with ECN actually you are placing your order by using ECN. The ECN is only matching your order with the other market participant on the ECN as quickly as possible. With the help of ECN, you can easily compare your orders and also check the best price level of a currency pair offered in the market. Through this you can improve the execution of your orders.

Price volatility:

In ECN prices are not constant and change can occur too quickly. Quick changes increase the price volatility. In this situation the scalpers and the short term traders can quickly claims large profits. ECN brokers are fit for scalpers.

Greater liquidity:

ECN has eliminated the geographical distances, now different parties can trade across the world without any geographical limits. This leads to greater liquidity (i.e. there are more buyers and sellers) which increases the efficiency of the markets.

Disadvantages:

Few negative point of using an ECN brokers are:

Commission:

ECN charged commission on every trade. Sometimes due to low spread the traders have to bear loss because their earning is less than the commission they paid.

High capital:

ECN allows you to act as a market maker. High capital is needed to influence the market parameters. ECN is not a perfect place for small investors and traders.

Corrupt market makers:

Every person is acting as his market maker on ECN. So there are chances that some dishonest persons can easily influence the market by introducing a great volume of trade. Some people are also giving deceive to others by showing them the ECN broker but in fact they are not.

Conclusion:

An ECN forex broker is a financial expert who acts as middle man between buyer and seller in their trade. The advantages of using ECN forex brokers are low spread, greater volatility and high privacy. But the disadvantages attach with it are high capital and commission. Have a look at your trading strategies and financial status, then choose properly.