How Does an ECN Broker Work?

Definition of ECN Broker

An ECN broker is an electronic system which links the market participants, the buyers and the sellers, to an automatic program which matches markets orders and then executes them. Themarkets participants are a basket of brokers, banks, hedge funds, liquidity providers and retail traders, all hoping to obtain the best possible price available. The ECN engine then displays the best available bid and ask quotes from the multiple market participants, and orders are then automatically matched and executed. The speed at which this is done is one of the main attractions of an ECN model; another attractive feature of the ECN model is the absence of a Dealing Desk.

So how does it actually work?

When the client selects his preference of currency pair, an ECN broker will provide him or her with market depth ( order book),that is the ‘bid prices’ of buy orders, the total volume of bid price, the ‘ask price’of sell orders and the total volume of ask price. All quotes come from the market participants and the ECN engine matches the best ones to each other and then displays them to the client directly, there is no middle man intervention, no Dealing Desk.The orders processed by ECN agents are usually limit orders.

Because ECN spreads are much narrower than those used by everyday brokers, electronic communication networks brokers charge clients a fixed commission per transaction.

Electronic communication networks allow individuals to communicate almost instantly regardless of geographic location. This makes ECNs an effective way for individuals to come together and make direct trades.

ECNs have also made the financial markets more efficient and more global.

Advantages of ECN trading

• No Dealing Desk
• Spreads are narrower
• Fast trade execution, clients trade forex instantly on live streaming, with immediate execution. 4. The market participants providing price quotes are world-class banks and financial institutions.
• Transparency- all orders and rates can be seen, reflecting market depth and enabling the client to make better buying and selling decisions. This will help you analyze market depth, which in turn enables you to make better buying or selling decisions.