How to compare ECN brokers
ECN brokers use high-speed networks to find the best pricing available and execute trade orders as quickly as possible. Where a ECN broker gets its market pricing and how fast it executes trades should always be considered alongside other more standard broker metrics. When comparing ECN brokers, always consider:
Trading cost: Traders seek out ECNs brokers because of their low trading costs. Trading costs on ECN accounts are a combination of the spread and a commission. Trading costs for one lot of EUR/USD at ECN brokers will range from 6 USD to 18 USD, depending on the broker’s trading conditions.
Execution quality:Â A combined metric used to discuss execution speed, slippage and rejection rate, execution quality describes the connection between the broker and the market and will directly impact the level of control a trader has over their positions. A high-grade ECN broker will have fast execution speeds, which leads to less slippage in pricing between when the order is executed and when it is opened, and less order rejection due to unavailable counterparties. Better execution quality will produce fewer unintentional losses.
Execution venues: ECN brokers are never counterparty to client trades. Instead, it uses its network to place trades with third parties. These third parties are called execution venues. The more execution venues an ECN broker has, the more competition there will be for its client’s trades, leading to lower spreads and lower overall trading costs for traders.
Tradable Assets:Â A good ECN broker will offer clients a larger number of FX Pairs and other CFD assets to trade. Having a limited set of trading assets can negatively affect the traders, as they would miss out on trading opportunities.
Regulation:Â Regulators monitor the activities of the broker and the trading desk. Unregulated ECN brokers are dangerous as there is no way of telling if they are ECN brokers without making a deposit and opening a trade. Brokers regulated by the FCA (UK), ASIC (Australia) or MAS (Singapore) have better reputations for enforcement and thus ensure their member ECN brokers strictly follow protocols designed to protect clients and their trades.
Trading tools:Â Leading ECN brokers will offer traders a free Virtual Private Server (VPS) service, guaranteeing high-quality execution around the clock. Other trading tools offered by the best ECN brokers include indicator packages to assist with automated trading and in-platform market analysis tools such as Trading Central or Autochartist.
What is an ECN Broker?
An ECN broker connects traders to a network of liquidity providers, unlike a Market Maker broker which takes trades on to its own books.
ECN stands for Electronic Communication Network. An ECN broker sits at the centre of this communication network, like a spider in a web. The other members of the network are liquidity providers (like banks, hedge funds and other brokers).
ECN stands for Electronic Communication Network
Every time a client places a trade with an ECN broker it collects prices from the members of this network and presents the trader with the tightest spread it could find.
Because the liquidity providers in this network are competing for your trade, ECN brokers have very tight spreads – often down to 0 pips at times of high volatility.
ECN Brokers have very tight spreads
Traditional brokers (Market Makers) have wider spreads because they charge a fee in the spread. But ECN brokers do not make any money from the spread. Instead, they will charge a commission, this is their fee for playing matchmaker and finding a counterparty to your trade.
ECN brokers charge a commission per trade
Some traders prefer to trade with ECN brokers because they have no conflict of interest. Most market maker brokers will trade against their clients, which means that they make money when their traders lose.
Because ECN brokers only act as an intermediary for a trade, they do not make money when traders lose. In fact, the reverse is true. Over time, a successful trader pays more in commission to an ECN broker, so ECN brokers want their clients to be profitable.
ECN brokers make more money when traders profit
AND
Market Maker brokers make more money when traders lose
One common issue with ECN brokers is slippage and requotes. Because ECN brokers rely on external liquidity to match client’s trades, they are not always posted instantly. This can be a problem at times of high volatility – usually after a large event or data release – or at times of low liquidity – such as when most of the markets are closed.  This also means that the market can move past your stop-loss orders, and your losses may exceed your expectations.
ECN Brokers have a higher risk of slippage and requotes
The last thing to be aware of with ECN brokers is that they generally require a larger minimum deposit – setting up and maintaining an ECN brokerage is an expensive business and traders will be charged more as a result.
ECN Brokers require higher minimum deposits
Which is the Best ECN Broker?
Axi is the best ECN broker. With competitive pricing on raw spreads, high liquidity, and fast execution Axi won our Award for Best ECN Broker of 2020.Â
Other highlights include a detailed and well-structured course for beginners and leading market analysis for all clients. Axi combines exceptional ECN trading conditions with world-class regulatory oversight. Read our full Axi review here.
What is the difference between an ECN Broker and a Market Maker Broker?
When you place a trade with an ECN broker, the counterparty to your trade will be a liquidity provider from the broker’s network. When you place a trade with a market maker broker, the broker themselves will be the counterparty to your trade. Market Makers create an artificial market for their clients – hence the name.
Market Makers always act as counterparty to your trade
Market Makers are also known as dealing desk brokers, as all trades will be filled at the rates set by the broker’s internal dealing desk.  This business model, which means a market maker will always profit from their clients’ losses, generates an inherent conflict of interest which many traders are cautious of.
Currently, most well-regulated market makers are well regarded in the industry, despite the conflict of interest, and they go to great lengths to ensure their clients are not being unfairly treated.
But, Market Maker brokers are not a common choice for experienced Forex traders. Traders are limited to trading with one counterparty who is always trading against you and never on the open market with dynamic spreads.
That said, if you do want instant execution of your trades and you don’t want to pay a commission, a trusted market maker is a good idea.
How to Identify an ECN Broker?
There are a few ways to check: ECN brokers will describe their execution model in their legal documents, ECN brokers will always have variable spreads, ECN brokers will not have any trading restrictions (trade size, stop-loss limits, scalping or hedging bans), and traders with an ECN broker will experience both negative and positive slippage.
Read the Broker Agreement
All regulated brokers are required by law to publish a Client Agreement and Order Execution Policy stipulating their execution methods. Some ECN brokers will also act as Market Maker in certain circumstances, so this is not an always foolproof method of determining a broker type. See below for an extract from Pepperstone’s execution policy showing that they are an ECN broker.
Check that Spreads are Variable
ECN’s offer tight spreads and charge a commission per trade, and the spreads will also be variable. Fixed spreads are only offered by Market Makers, as they are not taken from a live and dynamic market. Below you can see that Axi publishes its live spreads on its website, these are variable and are taken from their network of liquidity providers.
Look for Trading Restrictions
ECN brokers will never restrict your trading methods or trade size. This means that all automated trading, scalping, hedging and large order sizes (anything of 5 lots or over) will all be allowed. If a broker restricts any of these then it is not an ECN broker.
A good example of a broker with these restrictions is Plus500, a well-known market maker:
Slippage will be Positive and Negative
Slippage is the difference between the execution price and the order price at the time the order is submitted for execution. Slippage is a normal aspect of trading with ECN brokers, particularly for orders of a larger size and during times of thin liquidity and/or volatile market conditions.
Slippage can both positively and negatively impact your trading position. If you find that you are only experiencing negative slippage, then your broker is not using an ECN execution method. Another well known ECN broker is FxPro, which is dedicated to full transparency and always publishes its slippage statistics, see below for its 2019 figures:
Summary
So, while ECN brokers do not have the inherent conflict of interest present with market makers, commission will always be charged on your trades. ECN accounts will also require a higher minimum deposit – putting them out of reach for many beginner traders.
Are ECN brokers objectively better than market maker? This is not necessarily the case. All brokers we work with are trustworthy and well-regulated and broker choice is always down to personal preference. Whether you go with an ECN broker or a market maker, if you choose one from our list of the best in South Africa you will be in good hands.
FAQs
What is the difference between an ECN Account and a Standard Account?
ECN Accounts will have tighter spreads than a Standard Account, but you will have to pay a commission per trade. Standard Accounts will not have any commission, but spreads will be wider.
How do ECN Brokers Make Money?
ECN Brokers make money by charging traders a commission per trade. Because they pass pricing on directly from their liquidity providers, they do not charge a fee in the spread.
Which is better, ECN Brokers or ECN/STP Brokers?
ECN/STP brokers are better because they will have less slippage and a faster execution speed than a pure ECN broker.
STP (Straight Through Processing) is the method of the transaction – with STP your order is sent directly to the counterparty through the Financial Information Exchange (FIX) protocol. The FIX protocol decreases trade execution time, reduces slippage, and ensures that traders get the best available pricing.
The STP protocol can be used by market-maker brokers as well as ECN brokers, and some brokers use a hybrid formula, where they will sometimes be the counterparty, and other times use an external liquidity provider. While this does lead to less slippage, it does mean that some trades will have a conflict of interest.
In most cases choosing a hybrid broker is the best way to go, as they will give you the most options.
Forex Risk Disclaimer
Trading Forex and CFDs is not suitable for all investors as it carries a high degree of risk to your capital: 75-90% of retail investors lose money trading these products.Â
Forex and CFD transactions involve high risk due to the following factors: Over-leveraging, unpredictable market volatility, slippage arising from a lack of liquidity, inadequate trading knowledge or experience, and a lack of regulatory protection for clients.
Traders should not deposit any money that is not disposable. Regardless of how much research you have done, or how confident you are in your trade, there is always a substantial risk of loss. (Learn more from the FCA or from ASIC)
Our Methodology
Our State of the Market Report and Broker Directory are the result of extensive research on over 100 Forex brokers. The explicit goal of these resources is to help traders find the best Forex brokers – and steer them away from the worst ones – with the benefit of accurate and up-to-date information.
With over 150 data points on each broker and over 3000 hours of research and review writing, we believe we have succeeded in our goal.Â
In a world where trading conditions and customer support can vary based on where you live, our broker reviews focus on the local trader and give you information about these brokers from your perspective.
All research has been conducted by our in-house team of researchers and writers, gathering information from various company representatives, websites and by sifting through the fine print. Learn more about how we rank brokers.Â
4.17
Accepts Australian Clients. Average spread EUR/USD 0.10 pips with 6 USD commission round turn on the trading account with lowest minimum deposit. Max leverage 30:1. Islamic account available. MT4, MT5 & IRESS platforms supported. FP Markets is regulated by CySEC and ASIC.
