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Difference between ECN and retail broker?

  • Post #1
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  • First Post: Edited Nov 19, 2012 5:27am Apr 23, 2006 10:47pm | Edited Nov 19, 2012 5:27am
I have read a couple of posts that state that when you have a larger account, you should change from a retail account to an ECN. Is this the right thing to do?

1- If so, why?

2- What are the differences between a retail fx account and an ECN?

3- Can you successully day trade on an ECN account?

Thanks in advance for all feedback.
  • Post #2
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  • Edited at 11:32pm Apr 23, 2006 11:25pm | Edited at 11:32pm
A retail forex company acts as the market maker for all your trades. They shade prices, widen spreads arbitrarily, and trade against you. Their basically modern day bucket shops. The advantages retail brokers provide are that you can open an account with very little money, they give you crazy leverage, and usually you can demo trade on their platforms until you learn what you're doing. Most of them also have micro and mini lots so you can trade very small sizes.

An ECN is like an interbank broker. They don't trade against you so there is no need to manipulate the price. They consolidate bank quotes and show you the best bid and offers available. Spreads are tighter, but you have to pay commissions. When you make a trade they pass it through to interbank, so the counterparty is a real trader. Leverage is generally lower and minimum balances are higher. Interbank trades in $100,000 increments, so you need to be large enough to fit $7-10 per pip trades into you rmoney management.

--Forget the day trading question--
For day trading, the ECN brokers are better because it is so much easier for the retail guys to manipulate prices in the short term. Also, most ECNs allow you to trade between the bid and the ask, so you can scalp as it was originally done by floor traders.
Quoting Darkstar
A retail forex company acts as the market maker for all your trades. They shade prices, widen spreads arbitrarily, and trade against you. Their basically modern day bucket shops. The advantages retail brokers provide are that you can open an account with very little money, they give you crazy leverage, and usually you can demo trade on their platforms until you learn what you're doing.

An ECN is like an interbank broker. They don't trade against you so there is no need to manipulate the price. They consolidate bank quotes and show you the best bid and offers available. Spreads are tighter, but you have to pay commissions. When you make a trade they pass it through to interbank, so the counterparty is a real trader. Leverage is generally lower and minimum balances are higher.
ECN looks more more profitable.
what would you do?

5 pip spread = $50 -OR- 2 pip spread w/comm. = $20+$2 = $22
I guess that's a bit of my confusion then. You say that ECN's do not work against you. This is one of the claims by Interbankfx. Are they an ECN?
Coesfx, Currenex, HotspotFXI, MBTrading, and Interactive Brokers are the only ECN style brokers that I can find. There are a few more that have white label agreements with these guys, but they just add on more commissions.

Interbankfx is a retail firm.
The simple way to look at it is by asking who is the counterparty to your trades. At a retail firm, the firm will be the counterparty to all your trades. With an ECN you will have a bank, hedgefund, insurance pool, or another speculator will be.

At a retail firm they can see everything your doing, they know where your stops are, they know how much money you have in your account, and because they are the counterparty to your trades, they profit from your loss.

The ECN broker could care less what your doing so long as they get their commission.
First I would like to say I do not endorse IB or button trader I have not even ever try button trader.

But they have put together a document that might help you understand the differences.

Please read the attached document
Attached File
File Type: doc ForexTrading_V01.doc   810 KB | 10,970 downloads
A truly wise man, always has more questions than answers.
This is most of them:

FXall
HotspotFXi (don't get confused w/ HotspotFX the retail version)
Currenex
Fx Connect
Reuters dealing 3000 Direct
Fx Trading on Bloomberg
LavaFX
Forexster
eSpeed

will need to find a prime brokerage for most of these


turbo
Quoting Claude
First I would like to say I do not endorse IB or button trader I have not even ever try button trader.

But they have put together a document that might help you understand the differences.

Please read the attached document
Good doc Claude (as usual)
Nolite dormiens pungere ursum. -- Latan Proverb.
are there any ECNs that have 100:1 leverage?
ECN brokers do not deal againt you- Almost no freezing or reqoutes nor cancellation of your order. Ask and Bid are not fixed. My broker charges me a fixed commision of slighly half a pip and the spreads are sometimes zero. Ask and bid could sometimes be the same. Examples of normal spreads, see below. Your money or deposit are usually put separately in a bank and is not use by your broker to run it's company's expenses. In case the broker goes down like REFCO, your money is not touched and you can easily withdraw it. YOUR MONEY IS SAFE. If you have huge trades, you don't even need to send all your money to your broker. Your bank can issue a garantee and you can have your own money in your own bank.
Concerning IB, there are two kinds. The first kind gets a commision which you have to pay him extra through your broker and an additional commision the IB gets it from the broker firm. These IB s could be someone advising you on your trading or giving you signals.
The second kind of IB gets only a commision from the broker and in no way cost you nor affect you in your trading spreads nor commision. They do it for other reason. Too long to explain here. Google "dukascopy" to read more about an ECN broker
Highway
Attached Image
Here is an interesting pdf compiled from info by Forex Facts that gives the pros and cons of ECNs and retail brokers that brings out many unknown practices in Forex trading.
Attached File
File Type: pdf Real Cost of Non-Institutional Forex.pdf   116 KB | 10,852 downloads
Quoting jerseydevil20
The correlation between number of posts and forex experience is?

The correlation between registration date and forex experience is?

Wait a minute. I don't have 50 posts either. I guess I should keep my mouth shut, or make a bunch of useless no-content replies like some do. Rules are rules I guess... (Although somebody posting links to providers that were requested by the person that opened the thread doesn't seem to apply here).

Nothing personal Akuma - I enjoy following your threads. This kind of stuff just irritates me.
I have to some what agree on this one. So if some asks what are some books.
I guess untill we have 50 post well tell ya then. lol

No worries rules are rules but i think they can clearly see if some one is promoting content (SPAM)

just my 2cents


turbo
Quoting richx7
Here is an interesting pdf compiled from info by Forex Facts that gives the pros and cons of ECNs and retail brokers that brings out many unknown practices in Forex trading.
Qouted from the pdf attached files from Richx7
Good to hear some critics finally. But what I do not understand is why do Dukascopy need to spike 75 pips since they do not trade against you. They just pass the trade to Interbank and earn on the commision they charge you. Can you explain ?
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when trading FX with banks, do some banks allow for hedging without loss to margin?

anyone have a list of links to good banks for FX trading?
The article was written in 2004 as far as I understood and Dukascopy platform has been upgraded so many times ever since. After realising the problem the system has been immediatly changed and upgraded. Now the platform doesn't have this kind of problem and more we don't trade against clients. The spread that Dukascopy has is very tight it's often 0 sometimes you could even catch a negative spread. Please go to the homepage of Dukascopy and find out more about the platform now, you could even apply for a DEMO account and you will see that the platform is really so much better.
Quoting highway3000
Qouted from the pdf attached files from Richx7
Good to hear some critics finally. But what I do not understand is why do Dukascopy need to spike 75 pips since they do not trade against you. They just pass the trade to Interbank and earn on the commision they charge you. Can you explain ?
The article was written in 2004 as far as I understood and Dukascopy platform has been upgraded regulary whenever we received justified complains. After realising the problem the system has been immediatly changed and upgraded. Now the platform doesn't have this kind of problem and please note ! ! We don't trade against clients ! !. In the office we have the minimum number of employees only to to close client's position on request when they call. Please visit our Dukascopy homepage and find out more about the new platform. Just apply for a DEMO account and you will see how accurate your order is executed relative to the click of the mouse. To narrow the spreads, our support is mostly automated electronically with less employees. You are advised to to your contact person or IB's for your questions.
so does dukascopy require the 25% security deposit (or any security deposit) as mentioned in that previous post?
Quoting ycomp
so does dukascopy require the 25% security deposit (or any security deposit) as mentioned in that previous post?
With Dukascopy you can trade until there is not enough money to open a position. There is no such saying as security deposit with us.
I just received an email from FXCM promoting their new division. It is called PropFX and is supposed to be designed for professional traders. The minimum account is $10,000. They say that this new platform has no dealing desk and no fixed spreads, and no guaranteed stop loss (do not like that), best bid and ask from 10 banks, 2 to 3 pip spreads on majors most of the time, etc... It sounds suspiciously like an ecn (sort of).

Frankly, I just do not trust FXCM.

Makes you wonder whether they have noticed how much business they are losing to other brokers.
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