Generally Forex brokers are either Market Makers or STP brokers based on their order execution and pricing methods. STP brokers can only function as ECN brokers due to their need to automatically execute trades. ECN stands for Electronic Communications Network, and an ECN broker offers its client direct access to other participants in the currency market.
ECN brokers link their clients to tier-1 liquidity providers, this link is done through using sophisticated technology setup known as the Financial Information Exchange Protocol (FIX Protocol). This means that the orders made by clients are delivered to the liquidity providersautomatically, the broker obtains liquidity from the liquidity providers and makes it available to the clients.
ECN and STP brokers go hand in hand as mentioned above, STP is straight through processing meaning trading orders go directly to the market without a dealing desk. An ECN broker matches trades between market participants making the broker more reliable to clients over other brokers, because it doesnt have to go against its clients, or make any profits out of their losses, something that non STP or ECN brokers are usually accused of, instead profiting traders are a good thing, because they are happy traders who will always return for more.
ECN brokers in the method of STP brokers, make their income from the spreads of every position opened by the client.The fee is a percentage, and therefore the higher the volume trader the bigger the fee which is why companies are always looking for clients who are willing to invest bigger amounts.
There are many benefits to trading with an ECN broker. With ECN market execution is done instantly and goes straight to the market, meaning orders are final and confirmed as soon as they are dealt. Clients trade on the global liquidity of world class banks and qualified financial institutions. And lastly clients get tighter spreads, which are variable meaning they can change depending on the price movements which can be a good thing as they could get lower than they originally are.
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