ECN Forex Brokers like Vantage FX are becoming incredibly popular as retail forex traders become more savvy about the options available to them when selecting a broker. So what is an ECN forex broker and why do so many traders consider them the best forex brokers?
ECN stands for Electronic Communications Network – using MT4 bridge technology, ECN brokers pass their clients’ trades through to their liquidity providers and the real forex market. ECN forex accounts offer clients the lowest spreads possible and completely remove any conflicts of interest, aligning the broker’s interests with those of their clients.
No Spread Markup
Even though STP brokers also act as middlemen and place their clients trades in the real forex market, they still put a small markup on their price feeds. ECN brokers on the other hand offer you ‘raw’ pricing – there is no markup on the spread. Instead, ECN brokers charge their clients a flat commission fee per trade. This means transaction costs are fixed and completely transparent, rather than being hidden in the spread, and is one of the main reasons why the vast majority of professional and automated traders favour the ECN model.
With a true ECN forex broker like Vantage FX, the spread on EUR/USD can be as low as 0 pips. Even after factoring in the $3 per side / $6 round turn commission charge, the transaction cost is only 0.6 pips, this is substantially lower than the commission-free spread on an STP account and miles ahead of the spreads at market-making ‘bucket shop’ brokers. Despite the clear cost advantage provided by the ECN model, some traders don’t like the idea of paying commissions and actually prefer to have transaction costs hidden in the spread.
This is the reason Vantage FX offers clients both STP and RAW ECN accounts; though we truly believe the ECN account is the best option, we aim to be the best forex broker in the world and restricting our client’s choices to a single model would not fit in with our vision.
An ECN Forex Broker Means ZERO Conflict of Interest
Forex brokers who operate on the market-maker model trade against their clients and profit when their clients lose. This means they offer very little education, or even very poor education, as they don’t actually want their clients to win.
A true ECN broker like Vantage FX only makes profit from commission fees – if a client loses their money on the real forex market and stops trading, then they are no longer paying commission fees and earning profits for the broker. This is why Vantage FX is committed to providing our clients with solid education and timely, objective technical analysis and why we are widely regarded as the best forex broker. We are only as successful as our traders.
Because Vantage FX only operates ECN and STP accounts, this means our clients are free to run any strategy including scalping strategies. In fact, scalping is actually encouraged as scalping strategies tend to churn through a lot of volume and hence produce a lot of commissions. If you trade a strategy like this profitably at a market-maker, you will very quickly find yourself banned and may even have trouble withdrawing your profits. You could even fall victim to something even worse…
No Order Rejection or Price Manipulation
As market-makers stand to gain when their clients lose, many have been known to engage in extremely underhanded and unscrupulous practices in order to affect the results of their client’s trades and hamper client profitability. If you are running a profitable scalping strategy at one of these brokers, rather than banning you or preventing you from withdrawing profits, they may just opt to interfere with your trade and cause you to lose.
This can be achieved through artificially widening the spread or even causing spikes on the charts that aren’t reflected elsewhere in the real forex market.
Though the above examples of trade interference are rather extreme examples, and this sort of behaviour tends to be limited to the worst brokers, nearly all market makers do seek to make profitable trading difficult by rejecting and requoting orders. This sort of behaviour ensures the client always gets a worse price than they would have and the broker retains an edge.
When you trade with a true ECN broker like Vantage FX, we will never re-quote or reject your order, your order will always be accepted and filled at the best available price on offer from our extensive network of liquidity providers. There is no reason for a true ECN broker to offer you a worse price: we want you to win, we have everything to gain if you are successful and everything to lose if you fail.
The ECN brokerage model is far superior to other brokerage models and truly aligns the broker’s interests with those of their clients. Once conflict of interest is removed from the equation, a mutually beneficial relationship evolves between the broker and client. This situation encourages the true ECN broker to educate their clients and help them on the path to profitability.