BROKERS

THERE IS NO SUCH THING AS AN ECN BROKER FOR RETAIL TRADERS..

There is a serious epidemic of absolute B.S marketing by brokers who call themselves an ‘ECN broker’ or a ‘True ECN’, and try to make out they are ‘more legitimate’ or ‘more transparent’ than their competitor brokers. I hear about ECNs multiple times per day on our email support line and my response is very frank when I try to explain the reality of what’s really going on here.

Let me explain the truth about ECN Broker Accounts…

ECN is an industry term originally coined by banks and institutions which really just means ‘Electronic Communication Network’. It implies your order from the broker is sent directly to the market with no middle man and no market making activity by the broker. However, the truth is that 99.9% of all brokers and platforms are market makers and they are not always sending your trades through to a bank or liquidity provider at all.

The forex market is not like the stock market, there is no central exchange where one trader’s order is matched with another traders order, the prices in FX are ‘market made OTC products’. These products and prices are created by banks, institutions and brokers. With FX and CFDs, even when trading with a so-called ECN broker, there is still no central exchange and no real transparency.

Undeniable Proof:

Recently one of the largest brokers in the world who claimed to be a ‘True ECN’, suddenly removed this wording from their website and no longer claims to be an ECN broker! Rumour has it the broker was forced to remove this wording on their website by various global regulators for misleading customers. I had actually been warning our members about this broker for years and I always struggled to convince people it was just very clever marketing. All along these ECN brokers have still been market-making part of the order flow coming from clients and have not always sent every trade through to the banks or liquidity providers.

Even if ‘magically’ they did send every trades through to the banks or liquidity providers, you still don’t really know what’s on the other side. There is ALWAYS an institution or company making a market (settings the prices you trade on). The price is never the same across all banks and brokers. There is no central exchange to compare prices or dispute prices either.

In short, do not rate a broker higher just because they use words like ECN, STP or DMA. There are very reputable brokers out there for sure, but don’t be naive or fooled by clever marketing and choose one because of a story they are peddling you. A bank or broker somewhere is always taking the other side of the trade when it’s an OTC market, there is no exceptions to this.

It’s best you decide on a broker based on things like regulatory conditions, global presence, payment and banking conditions, customer service, and overall reputation in the industry.

Market Makers are not always a bad thing, and we need them too

A bank, an institution, a broker, or a liquidity pricing provider are the counter parties that take the other side of the trade when it’s an ‘OTC market’ such as FX and CFD’s. Did you know that Banks are ARE market makers too? It’s amazing how much respect and credit is given to Banks, as they are really just very large brokers at the end of the day. There is nothing wrong with reputable FX brokers who make a market and don’t send every trade through to a bank. Think about that for a moment… We seem to judge brokers for being market makers, yet if they send your trade through to a bank or large institution, they are just sending it through to a market maker!

This is actually a massive misconception. In fact, what you don’t know is that you will often get a better price and better experience with this kind of provider. This is assuming the broker is reputable, has international offices and a global client base (regulated), and upon your own testing is offering good order execution and good trading conditions.

Other benefits of Market Makers:

You can trade very small lot sizes, whereas you can’t if going direct to the banks.

You will often get tighter/better spreads.

You will often experience better order execution and speed of execution (better fill price on orders)

You can often access a broader range of markets including Cash CFD’s as apposed to just Futures CFD’s. (overnight swap vs monthly swap)

The broker is often taking less risk by making a market, there is actually more costs and way more balance sheet risk sending every trade through to banks. This is actually why some retail brokers survived the Swiss Bank crisis in 2015 and some didn’t, it came down to the brokerage model they had been operating.