ECN trading account in Forex means that a trader can directly access a huge pool of market participants, which are called liquidity makers. They consist of banks, intermediary financial institutions, and other traders.

Securities that are traded on this network are highly volatile because the prices change fast, which requires caution while placing any market orders. 

Using an ECN Forex account, traders can see live price movements, which the broker has no control over, and as a result, causes higher volatility. In addition, since the broker cannot set their own spreads, ECN execution in Forex is done using the live spreads of the market.

ECN trading accounts in Forex appeared after some brokers abused their position in the trading process. Classically, if you wanted to place any market order, the order goes to the broker who acts as the middleman between the trader and the market.

Any order placed by the trader is processed by the broker, who takes into consideration the best price quote that benefits the broker. This process resulted in delays in the order execution, and eventually, the trader would see different quotes than what they originally saw and placed.

The ECN account in Forex avoids this conflict of interest because the broker here has no power over the order. The broker only acts as an intermediary that helps the investors access the ECN market, and place their orders according to live market indicators.

ECN order execution process

Trading with an ECN account can be confusing sometimes. It might also look similar to Direct Market Access (DMA), which is another type of account offered by some brokers. To understand how ECN trading works, let’s take a look at the following step-by-step process.

1. A trader looks at the different currency pairs and their price movement as they are traded in a live market
2. A “buy” order for the EUR/USD pair is placed by the trader
3. The market order is passed directly to an anonymous global ECN server
4. On the same ECN server, there is a large number of liquidity makers, who are selling and buying huge amounts of currencies
5. The ECN works on immediately matching your order with another trader’s order, to place your “buy” trading position

There are several reasons why the ECN accounts gained so much popularity, and more brokers are offering this option to their traders. Once a trader understands the notion of an ECN trading account, they can enjoy the following perks.

Low spreads

Usually, in volatile markets, the broker sets their own upper and lower limits on the market price, which enables them to control the spread. Then they add a markup on the spread to offer their clients a spread with a slightly wider range than originally, which represents the broker’s income.

However, using the Forex trading ECN account the trader uses the spread directly given by the market, without any influence from the broker. Therefore, traders enjoy the tightest spreads from the Forex market, which could be as low as zero pips in some currency pairs.

The reason for low spreads while trading in an ECN account is that there is a huge number of market participants buying and selling a large number of currencies, which creates high liquidity for some of these currencies.

High liquidity

One of the important determinants of market price and volatility is how easily traders can buy and sell securities in this market, without having a big impact on the market price. It is also defined by how many buyers and sellers there are, who are pumping cash into the market.

Unlike trading with a dealing desk, the liquidity in ECN-based markets is not determined by the broker's equity. Rather, it is determined by liquidity makers. Using an ECN broker, the investor is connected to a lot of liquidity makers, huge banks, and financial institutions that offer high liquidity in the Forex market.

The high-order execution rate

When a market is characterized by high liquidity, it means that traders can buy and sell market positions quickly, because there is a huge number of buyers and sellers that can match your executed order.

In addition to that, avoiding the dealing desk makes the ECN order execution process much faster, because the market position is placed in the marketplace book directly. 

In other instances, the broker would receive the market order from the trader then adjust it according to the market prices, and add the broker’s markup. 

The broker’s process usually takes a few seconds or even less than one second, but any tiny time delay results in slippage. While the ECN markets, the order is instantly processed and placed.

No dealing desk

Using an ECN Forex trading account, the investors are interacting directly with the marketplace, where they can place orders according to the live price changes, and live spreads, without any interventions. Thus, having more transparent market trading.

The difference between an ECN and a standard account is that trading the classic way will have the market orders going to the broker, who can accept your order as it is, or re-quote it taking into consideration the broker’s benefit. This way, the dealing desk of the broker is trading against the investor, which creates a conflict of interest.

This conflict of interest is avoided with the ECN trading account because it allows users to jump over the dealing desk and place market orders directly.

Now that we have learned what ECN trading is, there are some steps you need to take before starting trading Forex using an ECN trading account.

• Research financial brokers that provide ECN trading accounts
• Check the license of the broker to verify the legitimacy of their ECN account offer. Unregulated brokers might trick you into a fake ECN account that is a scam, where you might lose a huge amount of money
• Compare the features of the ECN account against other trading accounts offered by the same broker, there might be huge barriers to entry, high commissions, and minimum deposit that does not make this account beneficial
• Sign up at the broker's website, fund your account, and start trading using the ECN broker

Even though ECN trading accounts in Forex seem to be ideal, there are several reasons other types of accounts still exist, and dealing desks in the standard accounts are still offered.

Most financial brokers that offer ECN Forex trading accounts require a huge minimum deposit. This kind of account is designed for wealthy traders who can take higher levels of risk.

The Forex market that is based on the ECN account is highly volatile, therefore the ECN account is good for experienced traders, who take calculated risks, and who can bear the quote changes due to slippage.

In addition, since the broker does not benefit from the spread offered in the market, brokers charge separate commissions in the form of a flat fee or percentage of the traded capital. Eventually, these fees might accumulate higher than normal account commissions, and become more expensive than standard accounts for the average traders.

Forex ECN execution brings about a lot of benefits for traders, and it looks like a win-lose situation for the trader over the broker. But, there are some catches that work in favor of the broker. To wrap up, let’s check the advantages and disadvantages of trading with an ECN account.

Advantages

• Low spreads
• Fast order execution
• No dealing desk
• Direct interaction with the marketplace
• Exposure to a huge amount of liquidity providers

Disadvantages

• High ECN fees and commissions charged by the broker
• High volatility
• High chance of slippage time
• Difficulty to place stop-loss or take-profit orders due to consistent high volatility

• FX trading ECN execution is done directly in the market books
• ECN accounts avoid the dealing desks of the broker
• ECN servers connect traders around the world and work on matching market orders
• ECN trading came about as a response to brokers using their power in the trade, acting as counterparts to the investors
• Trading with ECN accounts gives users the tightest spread ranges in the market, which the broker cannot control