ECN broker
Also known as: ECN, ECN account, electronic communication network
ECN broker: An ECN (electronic communication network) broker routes client orders to an electronic network where prices from several liquidity providers and participants meet, typically charging raw spreads plus a separate commission.
How does an ECN account work?
On an ECN account, the quoted price reflects the best bid and ask available from the participants connected to the network, so spreads can be very narrow at liquid times and widen when liquidity is thin. Instead of a markup on the spread, the broker usually charges a commission per lot. Orders are filled at the available price, so slippage can occur in fast markets.
Is “ECN” always a true ECN?
Not necessarily. “ECN” is often used in marketing for any raw spread plus commission account, whether the orders reach a multi-participant network, a set of chosen liquidity providers (STP broker) or partly the broker’s own book (market maker). The order execution policy describes how orders are actually handled: how to choose a forex broker.
Worked example
Illustrative only: on an ECN account, EUR/USD is quoted at 1.08500 / 1.08502 (0.2 pip) and the broker charges $7 per standard lot round turn. Assuming a pip value of about $10, a 1-lot round trip costs about 0.2 × $10 + $7 = $9, before slippage.
Learn more
- How to Choose a Forex Broker: A Checklist
How to choose a forex broker: regulation, client money protection, total trading costs, order execution, platforms and withdrawal terms, with a checklist.
- What Is a Spread in Forex? How Spreads Work and What They Cost
What is a spread in forex? The gap between bid and ask, how to calculate spread cost per lot, fixed vs variable spreads, commission and why spreads widen.
Related terms
- STP broker
An STP (straight through processing) broker passes client orders to one or more external liquidity providers, such as banks, instead of taking the other side of the trades itself.
- Market maker
A market maker broker, also called a dealing desk broker, quotes its own bid and ask prices and acts as the counterparty to client trades instead of passing every order to outside liquidity providers.
- Spread
The spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair. It is one of the main trading costs and is usually measured in pips.
- Slippage
Slippage is the difference between the price you expect when placing an order and the price at which it is actually filled. It can work against you (negative slippage) or in your favour (positive slippage).