ECN Forex Trading FAQ

 

ECN stands for Electronic Communication Network and refers to the electronic network of banks. This network is designed to automatically match bid and ask orders and execute transactions without any intervention. Through the ECN network, participants in different geographic locations can easily trade with each other without the need for a middleman.

• STP order processing (Straight Through Processing) is an order processing model that does not involve manual intervention. Most Forex brokers use the STP model to handle their clients' orders.
• The daily trading volume in the global Forex market is close to $5 trillion—50 times the daily volume of the New York Stock Exchange.
• About 85% of all foreign exchange transactions involve the Forex majors, and approximately 90% of these transactions are speculative.

 

1. What is an ECN Forex Broker?

 

ECN Forex brokers are large financial firms that connect traders to the ECN network via the FIX Protocol (Financial Information Exchange Protocol). They create a liquidity bridge between retail traders and the deep market of the international foreign exchange marketplace, all without interference.

• ECN brokers offer floating spreads and charge only trading commissions
• They also typically provide faster order execution than other types of brokers 

» Find and Compare Forex Brokers

 

2. What are Liquidity Providers?

 

Liquidity providers are large institutions that supply liquidity to the foreign exchange market. These include banks, hedge funds, and other major financial entities that work with Forex brokers to place orders into the ECN server. This allows Forex brokers to offer currency quotes to their retail clients.

The difference between Tier-1 and Tier-2 liquidity:

□ Tier-1 liquidity providers include major banks such as Goldman Sachs, J.P. Morgan, Morgan Stanley, Nomura, Bank of America, Citi Bank, and Barclays. In the Forex market, the most important liquidity providers are Deutsche Bank, UBS, and Barclays Capital.

□ Tier-2 liquidity providers act as intermediaries between brokers and Tier-1 liquidity providers.

More than 90% of Forex brokers do not have access to Tier-1 liquidity, as Tier-1 providers require very large trading volumes.
Smaller liquidity providers (Tier-2) include Currenex, LMAX, and Integral.

□ Liquidity providers also include some exchanges that trade Forex derivatives, such as the CME Group, CBOE, the London International Financial Futures Exchange, and ICE (Intercontinental Exchange).

 

 

3. What is Trading on Margin?

 

Margin is the amount used as collateral to open a trading position in the Forex market. Trading on margin means opening positions larger than the trader’s initial funds. This is known as trading leverage. Typically, ECN Forex brokers allow leverage up to 100:1, which means trading $1 million with an account of just a few thousand dollars. If a broker offers 100:1 leverage, the minimum margin requirement is 1% of the total trading position size (calculated as 1 divided by 100). Note that in the European Union, the maximum allowed leverage for retail traders is limited to 30:1.

• Used Margin — the amount of money in the trader’s account currently used to maintain open positions.

 

 

4. What is the Rollover?

 

Every day at midnight, all trading positions are either debited or credited an amount called the Rollover or SWAP rate. This amount reflects the interest rate differential between the two Forex currencies. For example, if you buy a Forex currency with a 5% annual interest rate and simultaneously sell a currency with a 1% annual interest rate, your account will earn a daily Rollover. Note that this rate is credited every day at midnight except on weekends. On Wednesdays, the Rollover value is tripled.

• No Rollover on weekends
• Triple (x3) Rollover on Wednesdays

 

5. What do Bid/Ask and Trading Spread mean?

 

Every Forex pair is quoted with two prices: bid and ask. The ask is the lowest price to buy a Forex pair, and the bid is the highest price to sell it. The spread is the difference between these two prices. ECN Forex brokers offer tight spreads, meaning a narrow difference between ask and bid. For example, EUR/USD usually has about a 1 pip spread, GBP/USD about 1.4 pips, and USD/JPY about 1.3 pips.

□ If Ask: 1.0002 and Bid: 1.0000 | Spread is 2.0 pips

 

6. Which are the Forex Market Sessions?

 

The foreign exchange market is open 24 hours a day, 5 days a week, from Monday to Friday. Here is a table showing all sessions based on GMT:

Forex Market Center	Time Zone	Opens GMT	Closes GMT
Frankfurt	Europe / Berlin	07:00 AM	03:00 PM
London	Europe / London	08:00 AM	04:00 PM
New York	America / New York	01:00 PM	09:00 PM
Sydney	Australia / Sydney	09:00 PM	05:00 AM
Tokyo	Asia / Tokyo	11:00 PM	07:00 AM

 

7. Do ECN Forex Brokers provide Demo Accounts?

 

Yes, ECN Forex brokers offer Demo or Practice Accounts. A demo account is a good starting point for any Forex trader before opening a Live Trading Account. Although trading conditions may differ between real and demo accounts, a demo account is generally a useful tool to understand the market. Even if you already have a real account, using a demo with the same broker is helpful for testing spreads and assessing risk exposure before opening a position on a live account.

 

8. Which Fund Methods are Available by ECN Forex Brokers?

 

ECN Forex brokers support a wide range of funding methods. All accept bank wire transfers, and most support debit/credit cards. Some ECN brokers also accept PayPal, Skrill, WebMoney, Neteller, and other online wallets.

 

9. What are the Fees charged by ECN Forex Brokers?

 

ECN Forex brokers may charge four types of fees:

• Trading commissions on volume (from $0 to $15 per lot)

• Withdrawal fees (from $0 to $30 per withdrawal)

• Maintenance/inactivity fees (from $0 to $30 annually)

• Fees for special services (e.g., VPS Forex hosting, from $0 to $50 monthly)

 

 

10. What are the essential features of an ECN Forex Broker?

 

When choosing a Forex broker, consider the following key features:

 

• Safety of Funds

Always select regulated Forex companies. Regardless of promises, a broker without regulation by a reliable authority (e.g., FCA UK, ASIC, FINMA) is risky. Also consider the broker’s years in the market and location—avoid new brokers or those based in offshore jurisdictions. A good ECN broker provides full segregation of client funds.

• Funding Methods

If the available funding methods don’t suit you, there’s no point in continuing. Ensure that deposit and withdrawal methods match and inquire about any fees via live chat or email.

• Trading Cost

Trading costs are crucial, especially for day traders (e.g., scalpers). Review the spreads and commissions for the specific account type you plan to open, as conditions may vary significantly between accounts.

• Available Technology

Technology matters when trading online. MetaTrader 4 is the industry standard for ECN Forex brokers. Some brokers offer MT4 only via software bridges (e.g., Dukascopy). Using a demo account can help test a broker’s technology before trading live.

• Trading Promotions

ECN brokers usually do not offer welcome bonuses but often provide Forex trading rebates, which are valuable for high-volume traders like scalpers and institutions.

 

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