Electronic communications network - what is it?Barry Copeland 30 / June / 21 Visitors: 629
ECN - translated as electronic communication network. Through this system the orders for purchase and sale of assets are passed by both ordinary traders and banks and brokers.
The biggest advantage of the ECN accounts is that orders are directed to the liquidity providers (Straight Through Processing or STP). The broker providing this type of account does not interfere in the trade. The accounts have five digits after the decimal point.
Advantages of ECN accounts
Small spread. The spread in the pools of liquidity is small (can go down to 0.2 pips). Such situation is favorable for scalpers and pip traders who have a huge number of deals with small targets of a few pips.
Instant execution of requests. All requests are executed immediately. Under normal market conditions, the execution of an order of up to 20 lots occurs in fractions of a second. And also quickly allows you to exit a position when the target is reached.
Visible perception. Visualization is a great enhancement for ECN accounts. All users of the ECN system are provided with a "market depth of orders" (two columns with bids and asks of market participants with the market price in the middle). This way a player can see at which prices market participants are more interested.
Avoiding the risk of price manipulation. In this case, the trader can not worry about manipulation of prices or positions by brokerage companies. This advantage becomes important when volumes of trades are significant.
At first glance the advantages of ECN systems are tremendous. But not everything is as smooth as it seems. This type of market operation has its disadvantages.
Disadvantages of ECN accounts
Widening spread. Because on the open market, the spread is formed by supply and demand, in some cases, can vary from 3 to 8 points per lot for EUR/USD.
Slippage. If a buy/sell order is intercepted by another market participant at the moment of execution. It will be executed at the next worst price. The difference can reach 0.5 points. When trading on internal execution you may receive requotes and refrain from the transaction.
The impossibility to contest the results of transactions. When working with the ECN system dealing centers provide only intermediary services between the trader and ECN system: opening an account, providing a terminal and taking a fixed fee for that. If the slippage is 10 points and spread is 7 points on a quiet market, there is nobody to complain to. This is the market and it has its own risks.