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23.07.2021

ECN: Hits and Misses for Brokerage

ECN: Hits and Misses for Brokerage

An electronic communication network or ECN automatically matches orders to buy and sell currencies or securities, while traders are located in different parts of the world.

From the client’s point of view, brokers using the ECN are more reliable and secure platforms. As for the brokerage business, the system allows companies to avoid involving a third party as an intermediary.

The ECN system has both pros and cons. Let’s check the practical benefits of using a communication network and the disadvantages of the system for Forex brokers.

KEY TAKEAWAYS

◻ ECN is a communication system that matches buyers and sellers to trade currencies, securities, and other instruments.

◻ The electronic system allows investors to trade from different parts of the world without involving intermediaries.

◻ ECN ensures data confidentiality and offers faster processing speed.

◻ ECN is excellent for attracting a vast pool of clients as they can trade during non-business hours. In turn, users can react to market changes 24/7 and show higher trading activity.

◻ The use of ECN allows brokers to reduce the time for order matching significantly. It also makes it much easier for clients to open and close positions.

Why Use ECN?

The system brings together brokerage companies and individual clients, avoiding intermediaries such as banks and other financial institutions.

The mechanism of ECN looks as follows:

1. ECN displays the order book for buying and selling an instrument from several liquidity providers (LPs)

2. The system automatically matches and executes orders

This mechanism guarantees:

◻ Seamless trading

◻ Passive order matching

◻ Instant execution speed

Orders placed via ECN are most often limit ones. In this way, users can hedge their risks outside of business hours, taking into account volatility. A sharp drop or rise in the price of a currency can occur at any time and radically change the value of a trading instrument.

Some ECNs may be used exclusively for institutional investors. Others are designed to serve retail consumers.

Pros of ECN for Brokerage

Integration of the network into the trading system allows brokers to provide their clients with a broader range of trading opportunities. Users can trade during non-business hours. This is especially true for traders who prefer flexibility in their choice of markets.

An equally important advantage of using the network is that customers can avoid wide spreads. ECN also means lower commission fees. Ultimately, this can positively affect the overall results of the trading session.

ECN brokers can also position their services as more secure in terms of data privacy. This is suitable for traders who conduct large transactions and are interested in a high level of data anonymity.

Cons of ECN

Perhaps the main disadvantage of using ECN is that the trading platform may seem more complicated for a novice user. A professional set of data analysis tools can make the currency trading process a much more challenging one.

ECN: Undeniable Benefits for the Brokerage

ECN is a vital part of a trading server. It allows a brokerage to combine digital channels from several LPs to create a single digital flow. This provides clients with the best order execution prices available on the market.

Advanced functionality allows a brokerage to minimize low liquidity risk – even during periods of a volatile market. ECN is a high-precision software product that can provide an order execution speed of 1 million transactions per second.

Key benefits of ECN:

◻ Support for different classes of trading assets, including Forex, crypto, CFDs

◻ Processing speed of 1 transaction is 100 nanoseconds

◻ ECN minimizes a broker’s expenses from involving third parties for orders execution

ECN is the right solution if you plan to increase the profitability of your brokerage and attract customers with higher efficiency. The software will allow you to eliminate intermediaries and instantly optimize the costs of transferring transactions to LPs.

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