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What is true ECN

Discussion in 'Beginners Bootcamp' started by Svetkata, Oct 27, 2010.

  1. Svetkata

    Svetkata Recruit

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    Hi,
    I wonder if anyone is willing to help.
    I have been advised to use a real ECN. I got the definition that is Electronic Communications Network – independent execution systems set up by brokerage firms, matching new retail limit orders with compatible orders already in the system.
    However it will be very helpful if anyone is willing to explain here how does the ECN work and what would a trader benefit using it. Maybe someone would be kind enough to share their knowledge and experience. If you guys find it appropriate may be you could give some indication for further reading and research or maybe few names.

    Thank you
     
  2. JohnSkr

    JohnSkr Private

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    An ECN Broker (Electronic Communications Network) does not operate a dealing desk to trade foreign currency, but instead provides a marketplace where multiple market makers, banks and traders can enter competing bids and offers into the platform either inside or outside the spread, allowing traders to trade on narrow spreads. ECN Brokers usually have a commission fee attached to each trade, but if you calculate it, most of the time it translates into less than a pip per trade.
     
  3. Pharaoh

    Pharaoh Colonel

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    Another feature of true ECN brokers is that the spread is variable. Fixed spread and true market spread are mutually exclusive terms.

    Be careful out there. Some brokers lie about being ECN.
     
  4. Svetkata

    Svetkata Recruit

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    Thanks indeed.
    Maybe I haven't ask properly. What I'm up to is what is important to consider when choosing a ecn. I found something really confusing on the forums. People talking about treu ECNs what would that mean

    Thank you
     
  5. vippip

    vippip Recruit

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    ECN sends orders to market, acts as an intermediary and not as counterpart, in return receive a commission.:)
     
  6. Svetkata

    Svetkata Recruit

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    Who are the quotes providers and who is the opposite side of the trade?
     
  7. Svetkata

    Svetkata Recruit

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    Hi What do you mean about some brokers lie about that
     
  8. Pharaoh

    Pharaoh Colonel

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    I know of at least one bucketshop that claims to be ECN because they process trades "Electronically".
     
  9. RahmanSL

    RahmanSL Major

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    "Hi What do you mean about some brokers lie about that?”

    In plain simple English, that means some (probably most) Brokers claiming to be ECN are lying to their clients…hence ECN would (in that sense) stands for Electronic Con for Newbies who don’t know any difference : )
    Through my 11+ months in forex, Dukascopy is the only one that is true ECN with many other Brokers using them as market liquidator.
    Most other Brokers claiming to be ECN is in fact misleading unsuspecting traders (mostly Newbies & gullible). Read the fine prints on your "ECN" Broker to find out whether they are "True ECN", "ECN by association", or outright Bucketshop.
    There area a lot of Brokers making all sorts of false claims and some (ForInvest for example) will unashamedly claim to be the "Best Broker of the Year" and Swiss registered.

    All ECN platforms should have variable pip spread as the Broker charges commission (fee) for every trade that is made regardless of whether the trade is profitable or not.
    None ECN Brokers will have fixed pip spread as their commission and they stand to earn more money if your trade losses money as they will trade against you (i.e. take an opposite trade to your trade). In plain old English, if you win in your trade, your none ECN Broker losses money. If your trade losses money, your Broker makes money.
     
  10. florentin29

    florentin29 Recruit

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    difference

    Hi,

    I saw an interesting categorization:

    True ECN", "ECN by association", or outright Bucketshop.

    Can you briefly describe these three categories ?

    Thanks in advance
     

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