ECN Brokers: Advantages & Disadvantages
ECN stands for Electronic Communications Network. ECN trading is done through automated computer systems. As soon as a trader places an order, the order is matched with some other order in the world through a system in return for a specified commission. ECN brokers are generally more secure than other brokers.
Because of this electronic communication feature, there are high chances of connecting with better deals.There is no direct involvement of anyone; everything is done through a pre-designed system. Now, let’s look at the advantages and disadvantages of trading with ECN brokers.
Advantages of ECN Brokers
- No Need For Traditional Trading-ECN is different from traditional trading since it doesn’t include any third-party. The buying and selling happen through already-designed computer systems. Everything works on pre-specified systems. The trading is done through the network; no physical activity is needed.
- Better Trading Deals- As the trading is done from different parts of the world, there are more traders and better deals. Traders from any corner of the world can work together. This gives a wide variety of business options.
- Works After Usual Trading Hours-The ECN network even works after the usual market timings. So, this gives opportunity to traders who are busy during day market hours.
- Low Spreads – ECN brokers provide lower spreads than traditional brokers. This reduces the cost of trading.
- High Security – ECN brokers follow strict security models to provide best services to their clients.
Disadvantages of ECN Brokers
- Higher Fees: ECN brokers may charge higher fees for their services, including commissions on trades and monthly platform fees.
- Limited Control: Because ECN brokers do not act as dealers, they have limited control over the prices at which trades are executed. This could result in wider spreads and may make it more difficult to profit from small price movements.
- Complexity: Many ECN brokers offer more advanced trading platforms that can be difficult to use for inexperienced traders.
- Lack Of Human Interaction: Because ECN brokers do not act as dealers, there is no human interaction in the trade execution process. This can be a con for traders who wish to have a direct relationship with their broker.
- Limited Support: ECN brokers may offer less support and educational resources compared to traditional brokers, as they do not have a dealing desk to support their clients.
ECN brokers offer several benefits, including access to multiple liquidity providers, lower spreads, and the ability to trade with greater anonymity. However, they may also have higher fees, offer less support and educational resources, and have more complex trading platforms. Overall, ECN brokers may be a good choice for experienced traders who are looking for fast execution and low spreads.