ECN Brokers

ECN brokers enable traders to use electronic communication networks for direct access to forex and stock markets. In this review, we provide a step-by-step guide to finding the best true ECN brokers in the UK. We also look at the ECN model vs market makers, taking into account spreads and leverage.

How ECN Brokers Work

True ECN brokers use electronic communication networks to connect trade participants and execute deals. ECN brokers are non-dealing desk (NDD) brokers, which means they work directly with liquidity providers. Traders, therefore, get access to interbank market rates, unlike when using market makers.

Traders receive quotes from multiple market participants which can lead to competitive bid and ask prices. The electronic communication network aims to match open buy and sell orders. If this isn’t possible, it will provide the most competitive prices available on the market. The broker will then use ultra-fast ECN technology to instantly execute the quote.

ECN Brokers Vs Market Makers

A market maker (also known as a dealing desk broker), defines its own quote to generate profit from the bid-ask spread, rather than quoting the market price. This is effectively their commission for the risk of holding the asset after it’s sold but before it’s bought. This helps to increase liquidity in the market making it easier for traders to buy and sell. As ECN brokers don’t set prices or profit off the spread, they usually charge a commission per trade instead.

Pros Of ECN Brokers

The use of ECN technology offers traders several advantages over dealing desk brokers.

Price Transparency

As ECN brokers’ prices come directly from liquidity providers, they do not trade against the client and receive a commission regardless of whether the client makes a profit. All traders have access to the same price information when using ECN brokers.

This is opposite to market makers, who are on the other side of the trade to you and therefore set the rate according to their own interests.

Spreads

ECN brokers receive quotes from multiple market participants, which can lead to competitive bid and ask prices. ECN brokers are therefore generally able to offer lower spreads than traditional brokers. However, ECN brokers charge a commission for each trade, which can quickly eat into profits if executing a high number of trades.

Trading Hours

Electronic communication networks can be used for extended trading, outside the hours of the traditional market opening. This allows traders to act on economic news at any time, as well as providing additional flexibility. However, liquidity is lower outside traditional operating hours, which may make it more difficult and expensive to buy and sell.

Choosing The Best ECN Brokers

The best ECN broker for you will depend on multiple factors including what you want to trade, how regularly you want to trade, and in what volume. Here, we explain how to identify a true ECN broker and provide a list of factors to consider when opening an account.

True ECN Brokers

First, determine if the broker is a pure ECN broker. Some brokers are ECN-only brokers, while some offer different account types.

True ECN brokers should have narrow spreads. You can check this by picking a forex pair and comparing the spread with other ECN brokers. Additionally, the fast execution of trades is another indicator of an ECN broker.

Be aware that ECN brokers are very similar to STP brokers, who also have no dealing desk. However, ECN acts as a central liquidity hub, unlike STP which routes the trader directly to the liquidity provider. Admiral Markets is an example of an STP broker rather than a true ECN broker.

Location

UK-based ECN brokers are recommended. Advantages of trading with a UK-based broker include guaranteed English-speaking customer support and no foreign currency charges if depositing in GBP.

Regulation

Traders should use FCA-regulated ECN brokers. The Financial Conduct Authority has many regulations in place to protect UK clients, such as the segregation of broker and client money. Additionally, the Financial Services Conduct Authority (FSCS) will cover up to £85,000 of funds should the broker become insolvent.

Note, you won’t normally find regulated ECN brokers with no deposit bonus deals.

Spreads

ECN brokers usually have low spreads, even with low minimum deposits. Pepperstone is an ECN broker offering some of the lowest forex spreads, starting at zero pips (average 0.09 pips) for EUR/USD with their Razor Account. However, this is in exchange for a commission, unlike their Standard Account that primarily makes money through spreads.

Deposits & Withdrawals

Brokers often have minimum deposit requirements depending on the account type with micro accounts typically offering lower limits. FXTM is an ECN broker with a low minimum deposit requirement of £10. It’s also possible to trade using ECN brokers that have no minimum deposit requirements, such as Pepperstone.

Make sure to check withdrawal requirements including fees and timescales. Withdrawal times should be no longer than a few days.

Markets

Ensure your ECN broker offers the virtual instruments you’re looking to trade. Forex is the most popular market for ECN trading, but it’s possible to trade CFDs too. ECN brokers offering binary options are rare.

Leverage

With the best FCA-regulated brokers, leverage is limited to between 1:30 and 1:2, depending on the asset. For high leverage limits, traders may consider ECN brokers regulated outside the UK. For example, RoboForex is an ECN broker that offers leverage up to 1:500.

However, we recommended sticking with UK-regulated brokers to reduce the risks that come with using high leverage. FXTM and Pepperstone are some of the best UK-regulated ECN brokers, that also offer the highest leverage in line with the FCA limitations.

Platforms

The trading platform is the software you’ll use to facilitate trades. Some brokers offer a proprietary platform, while others lease third-party software such as MetaTrader. Often, ECN brokers will offer more than one platform option. IG and Pepperstone are good ECN brokers that offer the MT4, MT5 and cTrader platforms via web, tablet and mobile.

Consider if the platform is intuitive and whether the charting and indicator functionality supports your trading strategy. A demo account is a great way to test this first.

Final Word On ECN Brokers

ECN brokers provide traders with direct access to markets that can result in competitive spreads, though traders should be aware of commission fees. FCA-regulated ECN brokers are highly recommended for traders based in the UK, offering multiple protections for clients looking to enact high-volume scalping strategies, for example.

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