ECN/STP is a broker's model of business which client's orders"trades" are sent directly to one or more liquidity providers to be executed on their end.
Liquidity providers like :
- Companies
- Banks
- Financial institutions
that quote buy and sell price in a financial instrument.
“ECN” stands for “Electronic Communications Network”. ECN brokers construct and utilize such networks"platforms" to match their client’s trade orders directly with other market participants.
ECN brokers make a profit every time their clients trade, unlike “market makers” / “dealing desk” model brokers who make greater profits when their clients lose as they are taking the other side of the trade.
The more liquidity providers a broker has in general, the better execution for its clients will be (more liquidity available generally means less price slippage).
What makes a true STP (Straight through processing) broker is that the STP broker doesn’t internalise the orders, but sends them to liquidity providers, acting as the center point or the connection ring between their client and the real market.
ECN brokers typically charge both a spread and a commission which is usually a percentage of the trade size. Therefore, although their spreads are mostly considered lower than those offered by market makers, the total cost per trade may not be very different between high-quality brokers of both types.
ECN brokers usually require a higher minimum deposits than market maker / dealing desk brokers, meaning that smaller clients may find ECN services unavailable to them.
ECN advantages:
- Anonymity
- Immediate trade execution
- Client, liquidity access
- Automated Forex trading/market data feed
- Variable Spreads
ECN Vs. Dealing Desk
So what are the critical differences between an ECN/STP broker and dealing desk brokers, who are often referred to as "market makers”? We have compiled a simple table of pros and cons, in order to outline the key points of difference between ECN/STP brokers and dealing desk/market making brokers
Forex Rollover (Swaps)
A Forex rollover/swap is described as the interest added or deducted for holding any currency trading position open overnight. It is important therefore, to consider the following aspects of rollover/swap charges:
- Rollover/swaps are charged on the client's Forex account only on the positions kept open to the next Forex trading day"overnight".
- The rollover process starts at the end of day, at 23:59 server time.
- There is a possibility that some currency pairs may have negative rollover/swap rates on both sides (Long/Short).Every thing is possible/ you don't know the future.
- When the rollover/swap rates are in points, the Forex trading platform converts them automatically into the account's base currency.
- The rollover/swaps are calculated and applied on every trading night. On Wednesday night rollover/swaps are charged at triple rate.
Slippage
Slippage, in trading terms, can be described as having an order filled at a different price to the price initially quoted on the trading platform. However, slippage should be regarded as a positive indication that the market and the trader's chosen market access, is operating in a transparent and efficient manner.
