Your Guide to ECN Trading

Today, global financial markets are more accessible than ever. Online trading is booming, with over 15 million individuals accessing the global exchange. The currency market is the largest in the world, with over 6 trillion US dollar circulating daily. Now, any resident of Nigeria may buy and sell currencies through a broker. But should you become a client of a market maker or an ECN firm?

Your Guide to ECN Trading

Specifics of Foreign Exchange

Currency trades take place on the global foreign exchange. This is an over-the-counter market, where retail traders, market traders, and banks connect with one another directly. Their profit depends on the ever-changing currency rates. It is also the most liquid marketplace, as buyers have little problem finding sellers, and vice versa.

Stocks are traded on a regulated exchange (e.g., NYSE). Since currency trading is international, this does not involve a physical centre. Instead, participants manage their positions through electronic terminals, while brokers provide access to the global exchange. Your intermediary type defines what rates and conditions you get.

Why ECN Beats Market Maker

As the term suggests, brokers classified as market makers have the power to ‘make the market’ — i.e., define conditions for clients, including Ask and Bid values. The difference between the two, known as the spread, constitutes their major source of revenue. Therefore, if you win, the broker loses — your winnings are paid out of their accounts.

This means the interests of such brokers and their clients clash, which may lead to all sorts of unfair practices. However, ‘may’ does not mean ‘definitely will’. All the prices you see are set by your intermediary. On the other hand, ECN firms do not care about the outcome of your trades: their profits are unrelated to it. For a full guide on what is ECN trading in Nigeria, visit the FXTM website.

ECN stands for Electronic Communication Network. This means that prices are set by the market, regardless of an intermediary’s goals. By connecting to different providers of liquidity, such brokerages allow unhindered competition within the system. As a result, traders gain access to the tightest spreads and lower costs.  Buyers and sellers connect using interbank trading prices. The environment is thus more efficient and transparent.

To conclude, ECN brokers will never trade against their clients. Instead, they charge a fixed commission on each trade regardless of its financial result. Their only role is to connect you to other participants in the global market. This is why ECN is seen as the purest form of Forex trading.

Overview of Benefits

ECN firms have multiple advantages for retail traders in Africa and elsewhere. They never bet against their traders, and never set their own quotes. This presents an impartial system of pricing which ensures:

  • no conflict of interest between you and the provider;
  • no price manipulation by the broker;
  • access to real-time data;
  • instant execution and confirmation;
  • tight spreads;
  • transparency and fairness of operations;
  • lower costs and better conditions overall.

Manipulation is not an option for three reasons. On the one hand, brokers get their commission whether you win or lose. On the other hand, connection to some liquidity providers makes interference complicated. Finally, traders have access to live quotes and accurate price history records.

Your Guide to ECN Trading

How to Choose ECN Broker

While ECN trading is clearly the most beneficial, it does not mean any such broker is reliable by default. First, make sure you are dealing with a genuine ECN system. This always excludes the following:

  • fixed spreads,
  • dealing desks, and
  • negative slippage

The latter happens when your trades are executed at prices different from requested ones. This may happen due to excessive volatility, or when there is no exact match for your order.

ECN brokers have no dealing desk by default as execution is automatic. Brokers with dealing desks fill orders on a discretionary basis. The arrangement means they hold the trades within their system, rather than pass them to another liquidity provider.

It is crucial to check the legal status of your potential provider. In Nigeria, the most reliable brands are international, as these are subject to strict control by authorities like CySEC. Official registration and license for operations in the region are a must.

Different types of accounts come with different trading conditions, including minimum deposit, payment methods, main currency (e.g., FXTM registers accounts denominated in the Nigerian Naira), etc. Top providers have support centres that work around the clock. This way, professional guidance is available whenever you need it.

Prominent ECN brokers also provide cutting-edge software, which is suitable for currency trading and other instruments. Through MetaTrader 5, you also gain access to spot metals, stocks and assorted CFDs. Once you learn the art of currency trades through ECN, you may add more instruments to your portfolio. 

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