The term "ECN Forex Broker" stands for "Electronic Communications Network Forex Broker." An ECN broker is not limited in the same ways that another broker might be. Instead, they have connections that allow them to utilize software to improve market spreads.
ECN Forex Broker Spreads:
ECN Forex brokers are capable of providing completely different spreads from market mover spreads. A market mover spread can go as high as 8 pips. An ECN broker can provide a spread range of 5 to 3 pips. That means that you, as the trader, can enter a market at a lower price and, therefore, risk less money on a trade.
ECN Forex Broker Fees:
Of course, ECN Forex brokers do have to earn a living. So, they do charge commission fees for each trade. However, those fees are usually small and they are always factored into whatever trade you are making. In other words, you can tell the broker what you want to invest, they will tell you what their commission fee would be and then the broker will use that information to put in a bid on your behalf. They will use the computer network market to explore and find the perfect trade for you that meets your budget requirements.
How ECN Forex Brokers Compare With Market Maker Brokers:
In order to understand the difference between ECN brokers and other brokers, you need to know what a market maker broker does. A market maker broker actually quotes both sell and buy prices on a trade. In that way, they create a liquid market. They earn their money from the bid/ask spreads, which is why their spreads tend to be much higher than ECN Forex broker spreads. A market maker broker takes the opposite position of a trader. That helps the market to thrive.
Market maker brokers take higher risks than ECN brokers. In a fast moving market, they will increase their spreads. So, the risk is higher, but so is the potential reward. However, that isn't necessarily a good thing.
The other thing to know about market maker brokers is that they don't typically take commissions. That's why many new traders find them appealing. However, that doesn't mean that you can save money by using a market maker broker. After all, they still make money on every trade. The only difference is in how they make that money. In the case of trading through a market maker broker, you are not going to get in on a trade at as low of a price as you would with an ECN Forex broker.
Which Type Of Broker Is Best?
Which type of broker should you choose to use, an ECN Forex broker or a market maker broker? Well, that all depends on your personal preferences and the type of market that you plan to trade in. The important thing is to carefully research all types of trading before you decide whether or not an Electronic Communication Network broker is the right choice for you.