Whether you are a beginner or work as an expert trader, it would help if you always chose a reliable broker to stay by your side during the first trading. When searching for the best broker, you should never limit your search to the regulations and certifications. Brokers are generally divided into two main types, and hence you should choose someone wisely who is professional and reliable.
There are two types of accounts for trading. There are namely ECN accounts and a Standard account which is also known as an FX account. The broker you are choosing will largely depend on the accounting method you are opting for.
We will discuss the ENC account right through this guide and see how it is different from other FX accounts.
What is an ECN account?
ECN is the abbreviation of Electronic Communication Network, a system of connection of computers with one another. It might sound expansive and vague for some people, but it’s an essential factor in Forex trading.
In short, you can call this account to be the order-matching execution process in which the trader has direct access to the liquidity providers. The ECN account works as the primary liquidity source hub, designed to buy and sell the orders and connect the trader’s account with the Forex networks. This can be either hedge funds, banks, or other major market players.
Who are ECN brokers?
Talking about ECN brokers, they use Electronic communication networks (ECNs) and represent all the non-dealing desk brokers. The latter is acting as the intermediaries in upholding the transactions between the individual clients and the market/interbank system.
These reliable ECN brokers are offering a direct connection between the clients and the liquidity providers. They will never trade against any of their clients and will never take their customers’ trading positions.
What are the main differences between ECN & FX accounts?
ECN orders are generally executed by using direct access to the liquidity providers. But the FX account orders are filled internally with the broker’s customer pool.
An ECN Forex account has a commission in which they pay a fixed sum of commission for each trades you take. But the FX account does not have any commission; they just have spread.
The ECN account is based on a tighter spread in comparison with the FX accounts.
ECN accounts are just offering non-dealing brokers only, but FX accounts also deal with the (market-making) brokers.
ECN is just charging a piece of commission for the execution without the placement of any premium over the raw spread. But the FX account is automatically charging the premium spread on the profit from the execution.
The ECN broker acts as the intermediary between the selling and buying orders matching with various market participants. Therefore, they will never bet against you, which is their positive point. Plus, they will never take the side of your trading positions.
Compared to the FX account, the ECN account ensures no such conflict of interest because the ECN broker will take the commission if you lose or make money.