What is ECN Account, and how does it work?

ECN

ECN (Electronic Communication Network) is an electronic communication network, which is a special trading account through which transactions are made directly between market participants.

The purpose of ECN accounts is to reduce the number of intermediaries and to connect the participants of the market as quickly as possible.

In a standard account, the broker itself links the order with those that are available to him. ECN, on the other hand, provides a huge network of applications not only from the broker’s clients but also from other brokers, investment funds, banks, and financial institutions. By opening deals on an ECN account, you trade not only with a market maker but also with other market participants.

ECN account – is an account for which the broker provides the customer the conclusion of positions on the “interbank market” (the interbank market on the trader’s jargon). The very concept of the interbank market is somewhat arbitrary since there is no single world platform where banks, large companies, investment funds, and other market makers would trade. Large transactions between banks can take place outside any system.

But for Forex trading, ECN technology implies the withdrawal of orders to a certain platform, to which other trading participants are connected, for example, banks or investment funds. The broker’s clients’ orders are displayed on this platform and executed in a split second, faster than on ordinary accounts.

ECN in simple words is an account, transactions on which are opened immediately and without processing by the broker, working in a single order journal.

Companies providing Forex services connect to special ECN platforms.

Among the most authoritative and reliable systems for organizing electronic trading: Currenex Classic, FXall, and British Atriax.

For example, the world-famous top echelon banks such as Barclays, JP Morgan, Deutsche Bank, Merrill Lynch, or UBS work with the ECN Currenex Classic platform.

How an ECN account works?

The key feature of the technology is the elimination of even a theoretical conflict of interest between a broker and a trader:

1-The broker does not execute the client’s order, instead, it is transferred to the interbank, and that is, access to the interbank liquidity is organized.

2-If an order to buy/sell was sent at the market price, then in a matter of milliseconds the counterparty is located. Anyone can play his role – a bank, a large company or an investment fund. Due to the abundance of offers, the spread (the difference between buying and selling is minimal and for major currency pairs can reach 0 pips). Because of this, brokers introduce commissions on ECN accounts, commissions provide the company’s earnings.

3-As soon as the counterpart is found, the order is executed, information about this is recorded on the broker’s server. Closing a position follows the same principle.

The broker cannot influence the execution of the order at any stage. The broker’s role is reduced to mediation – he accepts the application, broadcasts it to the ECN gateway, and stores information about the client’s trade.

Trading participants who have opened an ECN account type with a broker form a single network among themselves, buying or selling financial instruments from each other. Institutional participants such as banks, hedge funds, and others are also connected to this network.

The broker in this system is only an intermediary and cannot manipulate quotes and volumes.

ECN trading process

The process of placing a deal on the open market on an ECN account is as follows:

1-The trader opens a trade. The order goes to the server of the brokerage company.

2-Further, the broker displays the trader’s application on the interbank market, which operates on the ECN platform.

3-Among the participants in the trading scheme, there is always the opposite side, with which the deal is concluded at the time the order is withdrawn. At the same time, among all proposals for the price, the most favorable for both participants are selected.

4-After selecting the optimal price, the platform concludes the deal.

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