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ECN accounts a recipe for success?
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ECN accounts a recipe for success?

created Paweł Mosionek30 March 2018

Some traders believe that it is the choice of the broker that determines our success. ECN accounts, which a decade ago were unobtainable for most retail traders, today are much easier to access. But do they actually play a key role in our trading and decide about the balance at the end of the year? Yes and no.

ECN accounts - the evolution of the Forex market

The popularization of ECN accounts began around 2009-2010. It was then that, on the wave of unflattering opinions from traders, Market Maker brokers felt a drain of customers. If you do not know what the differences between individual order execution models are, I invite you to read this article.

What were the results of dissatisfaction? First of all, from impure practices used by unethically operating companies. By 2010, the forex business was a real eldorado. The MM broker, a party to the transaction, like a casino, captures deposits that are losing traders. And as you know, it loses most. And as you also know, the casino does not like to lose.

A conflict of interest occurred notoriously when an effective trader appeared. It was him who made the broker have to tip the scales in his favor. The methods were different. Some of them are described in the article-ranking TOP 5 Dirty Licks of Brokers. However, you can not generalize in 100%. They were brokers on the market, who were playing fair and securing transactions of their clients all the time. But the fact is that they were a minority.

The traders' community took a moment to figure out what was actually happening behind the scenes of their platforms. But in the end the awl came out of the bag, and the news spread quickly and gave way to hiccups "Forex casinos". MM brokers are no longer of interest to more informed retail clients. There are two options left - to tempt traders with more and more sophisticated promotions (bonuses, contests, prizes), or ... Transform into an STP or ECN model. It was also an opportunity for fresh companies that could enter the market with a blank slate and offer to retailers "new quality".


READ NECESSARY: ECN / STP broker. Summary of the best offers


Conflict in new models attracted. The feeling that we are finally trading with other traders and large institutions, not with a broker who only combines how to take our money, was to help us earn money. If not from the technical side, then at least psychic. Did it really change anything? In the case of effective traders, perhaps.

Trading with an ECN broker - what it entails

conflict of forex interestsBrokers operating in this model usually offer lower leverage than Market Makers, although it does not matter for Polish residents. But there are more positive differences, e.g. express execution of orders, market spreads or access to market depth. However, the problem is the lack of centralization of the Forex market. There were differences - both technological and qualitative. Depending on the platform, we could expect access to various functionalities (e.g. various types of orders, insight into different DoM, speed of order processing at different levels, etc.), as well as other instruments and, above all, different liquidity.

Previously, we were used to having fixed spreads, or moving within a predetermined range, and our orders were executed point-to-point (unless we received a re-quotes). Suddenly, a retail trader had to face the real picture of a decentralized market. Where the spread of one ECN broker during the data was extended to e.g. 2 pips, the other could have jumps up to 10 pips. Complaint? The chances of its recognition are negligible. The broker is an intermediary - he just passed the order on, and liquidity is not affected. The same is with slippage when concluding a transaction. A slip by any number of pips is not subject to complaint. The decisive factor is the market, or rather its part, to which our ECN gives us access.

The ECN broker is your friend. Are you sure?

In a perfect world, it certainly would. The broker, who earns only on commissions from your orders, wants you to trade and generate an ever-increasing volume. Thus, it is in his interest that you earn or at least do not lose money. In the end, earnings are a chance to increase your position. However, our world is missing the ideal.

All that glitters is not gold. In other words, not everyone is playing clean. One ECN will be a true white crow and another will be a black sheep - an ECN only on paper. How is this possible? There are several options. For example, the broker obtains an ECN / STP license and passes the orders to the liquidity provider. This supplier turns out to be company X ... belonging to this broker. So everything stays with him. But this behavior of the "ECN broker" is the worst-case scenario. Another option is to only pass part of the orders. And actually, except "Smart" broker's strategy, there is a lack of transparency on the market. There is no effective method, so that the trader can independently determine what is happening with his orders.

Supervised activity

However, it can do financial supervision by exercising control over the broker's activities. The more conscious, strict and meticulous regulator, the greater the chance that our broker will work as we would like. Loss of licenses or severe financial penalties is often a nail into the company's coffin, so it's the right motivation to follow certain rules. Business FXCM found out about it the hard way. In other words, regulations are crucial.

Assuming, however, that we have chosen well, the problems may be different, e.g. the aforementioned liquidity. It is not something constant and uniform for the ECN model. Do you remember black Thursday 15 January 2015.? Each broker had a different gap, others high and other low price on that day. The spreads have fallen to cosmic values. This is an extreme example showing that the next enemy may be ... The ECN model itself, i.e. the fact of trading on the market. The MM broker animates the market, offering us its certain reflection. But in a conflict-free scheme, we have to face a ruthless opponent - other traders.

ECN accounts - necessary for whom, and optional for whom

Analyzing technical issues, one can come to the conclusion that ECN accounts will be useful, but not all. Some people simply will not feel their advantages. Long-term and medium-term trade are types of trading that are not susceptible to manipulation or risk from brokers. The speed of execution of orders is irrelevant, and 0,5 pips one way or the other will not decide about our success or failure. But the shorter the interval, and the more transactions, the more important will be all the elements of the forex puzzle.

Scalpujesz? Do you use a dynamic EA? A good ECN seems to be a necessity. And the more demanding your strategy is, the more you will have to return the broker's offer to the details.

Market Maker brokers are evil?

You can not demonize them. Over the past 10 years a lot has changed. Competition has increased, similar to the investment awareness of clients. Thanks to forums and social networks, information spreads much faster. This increases the quality of services and drastically reduces the chances of being a victim of manipulation. Have they become perfect? Certainly not. Conflicts of interest can occur at all times, and fees are still slightly higher. But they are able to offer us elements of the offer, which we can only dream about at ECNs (eg Guaranteed Stop Loss).

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the ForexClub.pl website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.