What's so cool about ECN brokers, I don't get it | Forex Factory

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What's so cool about ECN brokers, I don't get it

  • #1
  • First Post: Mar 15, 2016 6:54am Mar 15, 2016 6:54am
I have been reading about ECN brokers. And to me it looks like it is a rumor based ad campaign to drive people towards ECN brokers where you pay commission. And the way to do it is fear-based advertisting, as in "the evil market makers are hunting your stop, so better go to ECN brokers, where their magic will protect you for the small fee of a commission".

Only been trading with OANDA so far, worked for me, nothing to complain, but all the talk about not ECN being the devil got me interested to talk about this.
Price-Action Extremist
  • #2
  • Mar 15, 2016 9:08am Mar 15, 2016 9:08am
Start trading with lotsizes above 5-10 lot per trade and you will get your answer.
  • #3
  • Mar 15, 2016 9:47am Mar 15, 2016 9:47am
Quoting Drolph
Start trading with lotsizes above 5-10 lot per trade and you will get your answer.
I am not looking for "you have not seen anything yet" answers. What is supposed to be better with ECN brokers? So far I only found mythical stories.
Price-Action Extremist
  • #4
  • Mar 15, 2016 11:30am Mar 15, 2016 11:30am
bagman, simply put:

with non-ecn brokers: you are not trading the markets, but just betting with your broker.
Your profits comes directly from their pockets, your losses goes directly in their pockets.
Just you and your broker play the game.

with ecn brokers: you are trading in the markets, the broker just get a tiny commission for each trade.
Your profits comes directly from the pockets of some liquidity provider (bank) in the world, you losses goes in some liquidity provider pockets.
You and the market play the game.

Obviously, 100% of "scammers" brokers are the non-ecn ones, this doesn't mean that all non-ecn brokers are scammers, but that all scammers are non-ecn brokers.

There are (i guess) so many good non-ecn brokers, but how can you trade knowing that your profits are their losses?
Exaggeratedly, if one day you make 10millions profit, your non-ecn broker would go bankrupt and you would not see a dime of your profits.

See what i mean?

If you like to play micro accounts, no problem.
  • #5
  • Mar 15, 2016 12:01pm Mar 15, 2016 12:01pm
Quoting tunera
bagman, simply put: with non-ecn brokers: you are not trading the markets, but just betting with your broker. Your profits comes directly from their pockets, your losses goes directly in their pockets. Just you and your broker play the game. with ecn brokers: you are trading in the markets, the broker just get a tiny commission for each trade. Your profits comes directly from the pockets of some liquidity provider (bank) in the world, you losses goes in some liquidity provider pockets. You and the market play the game. Obviously, 100% of "scammers"...
But aren't large market makers already making money by just providing the connection to other traders in the market and earning the spread?
Price-Action Extremist
  • #6
  • Mar 17, 2016 2:39am Mar 17, 2016 2:39am
Naivety kills fast in the world of forex. Simple truth is - whatever the broker tells and writes on their site, it does not matter. ECN? How do you know for sure how the broker handles your trade. You have a platform and thats it. Have you seen your broker infrastructure?(100% of traders havent) Have you seen your brokers office? (99% have not). Even I can order a nice website with phrases of my choice.
P.S. Maybe someone will try to talk about regulated brokers again. Forex and regulation should not be used in the same sentence
  • #7
  • Mar 17, 2016 3:35am Mar 17, 2016 3:35am
That's why my short answer from above is valid and offers a simple truth - you have to find out for yourself!
Of course you can filter brokers by using ratings, reviews and all the available information to exclude obvious non ECN brokers.

Maybe a short view on why and when you need an ECN account.
Most brokers using the market maker approach simple don't earn enough on the spread, especially as they can only markup on the raw spread they receive which again only reach competitive values once you have a large pool of liquidity providers.
Having a large pool of liquidity providers raises the costs for the broker again. Some kind of vicious circle.
With this in mind and in combination with the fact that most traders loose money, the market maker model makes sense, which is absolutely fine and working as long as your lotsize stays in given value range. As long as the broker can match orders between traders and only has to cover the risk in cases a matching is not possible -> all good.

But once you get to lotsizes above average plus having a winning strategy the broker is loosing in a disproportionate way. Most likely you will start to get trouble or get your account closed directly at this point. At the latest, this is the moment you need a real commission based ECN account for beeing able continuing.

The sad truth is, no one admits that and you really have to make your own experiences here.
  • #8
  • Mar 17, 2016 3:40am Mar 17, 2016 3:40am
I also stopped worrying about this. Fact is, you never know your broker's "nature" until you're trading 10 lots and above. Big MM's will tolerate some profitable accounts, but as they feel threatened they'll take action. They don't match orders between clients, as an ECN would do, they simply do internalize everything.
  • #9
  • Edited 4:00am Mar 17, 2016 3:48am | Edited 4:00am
Quoting feline207
Naivety kills fast in the world of forex. Simple truth is - whatever the broker tells and writes on their site, it does not matter. ECN? How do you know for sure how the broker handles your trade. You have a platform and thats it. Have you seen your broker infrastructure?(100% of traders havent) Have you seen your brokers office? (99% have not). Even I can order a nice website with phrases of my choice. P.S. Maybe someone will try to talk about regulated brokers again. Forex and regulation should not be used in the same sentence
I second this.
Just for curiosity, I am adding part of such an "ECN" broker excuse, why he could not pay me out 37k$:

Quote
Hello xxxx,
First of all, I apologize for the delay. After long investigation it had transpired that none of the trades that have resulted in the profit on your account went to the banks. The bridge was blocked by the Liquidity Provider, and on top of that in fact we got charged by the LP for your account that is, not for the bridge but for the volume. So, unfortunately, the profit on the account remains virtual.
Has anyone heard of virtual trades on a live ECN account, which do not count if they are winners?
  • #10
  • Mar 17, 2016 4:30am Mar 17, 2016 4:30am
{quote} Has anyone heard of virtual trades on a live ECN account, which do not count if they are winners?[/quote]

Basically, no....

Truth is, if you win too much at ANY broker they'll find some way to shut you down. Life's a bitch.

Perhaps it's best to keep under the radar and chip away at small gains and stay alive - (small would need to be defined).
  • #11
  • Mar 17, 2016 4:56am Mar 17, 2016 4:56am
DEALING DESK FOREX EXECUTION MODEL
FXCM also offers forex execution via a Dealing Desk execution model. In this model, FXCM's compensation may not be limited to our standard markup and our interests may be in direct conflict with yours. FXCM faces market risk as a result of entering into trades with you. FXCM may take steps to mitigate its risk arising from market making more effectively by, at our sole discretion and at any time and without previous consent, transferring your underlying account to our NDD execution offering. FXCM may also choose to transfer your account to our No Dealing Desk (NDD) offering should the equity balance in your account exceed the maximum 20,000 currency units in which the account is denominated. Account equity is defined as the balance of your account plus the floating P/L of your open positions.
Dealing Desk execution and trading is not conducted on an exchange. FXCM is acting as a counterparty in these transactions and, therefore, acts as the buyer when you sell and the seller when you buy. As a result, FXCM’s interests may be in conflict with yours. Unless otherwise specified in your written agreement or other written documents FXCM establishes the prices at which it offers to trade with you. The prices FXCM offers might not be the best prices available and FXCM may offer different prices to different clients. If FXCM elects not to cover its own trading exposure, then you should be aware that FXCM may make more money if the market goes against you.


+1 to FXCM for being so straightforward.
  • #12
  • Mar 17, 2016 5:10am Mar 17, 2016 5:10am
Quoting HeyYou
DEALING DESK FOREX EXECUTION MODEL FXCM also offers forex execution via a Dealing Desk execution model. In this model, FXCM's compensation may not be limited to our standard markup and our interests may be in direct conflict with yours. FXCM faces market risk as a result of entering into trades with you. FXCM may take steps to mitigate its risk arising from market making more effectively by, at our sole discretion and at any time and without previous consent, transferring your underlying account to our NDD execution offering............
Most brokers operate on a basis similar to this, but too many traders never read the T&Cs - I think you'll find that it's on you to know and understand the shark-infested waters you're diving into - BEFORE YOU JUMP!
  • #13
  • Mar 17, 2016 5:47am Mar 17, 2016 5:47am
Quoting feline207
Naivety kills fast in the world of forex. Simple truth is - whatever the broker tells and writes on their site, it does not matter. ECN? How do you know for sure how the broker handles your trade. You have a platform and thats it. Have you seen your broker infrastructure?(100% of traders havent) Have you seen your brokers office? (99% have not). Even I can order a nice website with phrases of my choice. P.S. Maybe someone will try to talk about regulated brokers again. Forex and regulation should not be used in the same sentence

Isn't there a legal obligation for a broker to not false advertise? If a broker says, we are no dealing desk, but it turns out they are, wouldn't a regulator go after them? I am sure regulators have ways to check brokers for shady business.
Price-Action Extremist
  • #14
  • Mar 17, 2016 9:40am Mar 17, 2016 9:40am
Quoting bagman
{quote} Isn't there a legal obligation for a broker to not false advertise? If a broker says, we are no dealing desk, but it turns out they are, wouldn't a regulator go after them? I am sure regulators have ways to check brokers for shady business.
i dont know. i dont believe anything. everyone goes for profit. But your broker is your counterparty. Your counterparty is not a LP. So to say - the broker is actually your LP. Unless you are a trader with very high volume/order sizes, but as I said - I do not believe ther are many of that kind here. And if you are, you wouldn't be here reading/asking and opening account with retail brokers. There are many that would pretend to be experienced and post a lot of assumptions that may be true or false.
What I logically think is the following -> thinking too much about the broker methods of business is unlikely to result in better trading and more money for a trader. The danger is to put money in a broker that wont allow you to make withdraws if it happens for you to start making more, that have happened many times and will happen in the future. So we should make our least risky choice and go with the brokers that have the highest/best reputation, because they must have that reputation for some reason. And I definately mean "best reputiation" and not "best advertising". Best reputation is hard to measure and we should rely on our experience to make things clear. I have read many posts and many peoples opinion, also through a lot of shitty stuff and then formed my perception. There is a lot of bs here that has to be sifted out. It all comes up again to a lot of invested time and experience and there is no short way to answer to anything.
There will always be new unexperienced traders that will put there hard earned money to any broker that does a good ad and offers bonuses and has nice pictures on there website..
Going to some review page like mfxb and sorting review scores can shed some light, but we should understand that most reviews about forex brokers are false and paid. The truth is not on the surface.
And after the bottom line, lets also not underestimate the fact that majority of losing comes because of lack of skills, knowledge, understanding, all about the trades, the market, not because lack of understanding the broker routing. But I stop because thats off-topic
  • #15
  • Mar 17, 2016 9:45am Mar 17, 2016 9:45am
about fxcm- they have been up for a long time. Its like the broker of the brokers... Everyone knows them and a lot of people think that trading with fxcm is actually a sign of comprehension. I dont like brands and fxcm is a brand. There conditions are very far from competitive and perfect. But one thing we cannot deny - they remaind solvent and operating for a lot of years and have been paying their clients (most of the time), which is respectable. But yet, they are like the pro-broker for the non-pro's .. and same goes for fxpro.. ironically
  • #16
  • Mar 17, 2016 9:50am Mar 17, 2016 9:50am
Quoting bagman
{quote} Isn't there a legal obligation for a broker to not false advertise? If a broker says, we are no dealing desk, but it turns out they are, wouldn't a regulator go after them? I am sure regulators have ways to check brokers for shady business.
Depends on the country, regulatory authority. In Australia there are stories of brokers such as City index who have been fined for doing similar things.

In fact all City Index did was mention that it was easy to make money trading FX on their website.

Pepperstone was also warned because they where advertising to the Japanese market without authority from the Japanese governing body. This was not even the Australian authorities job to do but they thought they'd jut give them a head up. Pepperstone stopped all advertising to Japanese clients, closed down the website, informed all clients and returned all money immediately.

And this information is not from some blog but from the ASIC website itself. Its worth reading the brokers T&Cs but also make sure you understand the actual regulations too! There i no point getting scammed then to find out the regulation dont actually protect you from that type of scam. Because then its down to civil court and your own money to try and sue.

There a re stories on the ASIC website of deregulated brokers and broker CEOs as well.
  • #17
  • Mar 17, 2016 12:44pm Mar 17, 2016 12:44pm
Quoting feline207
about fxcm- they have been up for a long time. Its like the broker of the brokers... Everyone knows them and a lot of people think that trading with fxcm is actually a sign of comprehension. I dont like brands and fxcm is a brand. There conditions are very far from competitive and perfect. But one thing we cannot deny - they remaind solvent and operating for a lot of years and have been paying their clients (most of the time), which is respectable. But yet, they are like the pro-broker for the non-pro's .. and same goes for fxpro.. ironically...





Yeah, anyway I pasted just the "DD model", to show how a MM sees profitable people, they claim to offer a NDD model as well.
  • #18
  • Mar 19, 2016 4:55pm Mar 19, 2016 4:55pm
Quoting feline207
{quote} i dont know. i dont believe anything. everyone goes for profit. But your broker is your counterparty. Your counterparty is not a LP. So to say - the broker is actually your LP. Unless you are a trader with very high volume/order sizes, but as I said - I do not believe ther are many of that kind here. And if you are, you wouldn't be here reading/asking and opening account with retail brokers.

I think you are being too cynical about this. If someone advertises he is selling apples. Then you buy an apple and it turns out to be a cucumber then that is false advertising. Going for profit is legit btw if you are selling genuine apples instead of cucumbers looking like apples. And I am sure broker firms are not magic boxes where anything can happen and regulators are completely clueless. From my experience so far, OANDA did not get in the way of me being successful. They never got fined by a regulator and exist since 1995. What creeps me out however is when people claim this or that broker is the only legit one and everything else is just bucketshops. And I strongly suspect ECN is snake oil. Not that it is not legit as a way to trade, but how it is accepted as "the truth" that unless you trade via ECN you will get stop hunted.
Price-Action Extremist
  • #19
  • Sep 27, 2016 5:51am Sep 27, 2016 5:51am
ECN brokers are the one who don't offer fixed spread and pass on your orders to market. you would get the raw spread directly from their Liquidity Providers and all of your trades would be passed and executed at their Liquidity providers. There will be no dealing desk intervention neither they will be market makers.
  • #20
  • Oct 6, 2016 1:44am Oct 6, 2016 1:44am
An ECN broker is the one that provides its clients direct access to the market where you can trade smoothly and your trades will be displayed there as they are. ECN broker consolidates price quotations from the liquidity providers and you would get the raw spreads directly from LPs. All of your trades would be directly executed through the LP's.
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