What Is Meant By ECN Trading?
ECN is a short form for Electronic Communication Network. ECN trading refers to a network of digitally computerized systems that facilitate sell and buy orders for securities in a forex trading market. ECN trading is generally preferred by traders living in different geographical boundaries who wish to trade without the involvement of a third party, offering more privacy. ECN trading allows the buyers and sellers to work outside regular hours of trading, which also allows them to anticipate after-hours market happenings. Currencies and stocks are the primary instruments of the ECN trading system.
In simple words, ECN trading refers to a computerized network of orders that lay out the best bid and ask price from various participants in the trading market and matching and completing orders. They allow the traders to not only work together during regular trading hours but also provide off-the-floor trading. ECN trading system is also known as Alternative Trading System (ATS) by the U.S. Securities and Exchange Commission. Traders need to pay a nominal fee in order to use the ECN trading system that provides a platform to both liquidity removers and providers. According to a study conducted by professor Terrence Hendershott, a reputed economist at the New York Stock Exchange, around 40% volume in NASDAQ securities are captured by the ECN trading system.
Tips To Start Your ECN Trading Journey Smoothly
ECN trading can be a little tricky especially for new traders or for those who have never tried it before. Because there are many brokers available in the trading market that offer ECN trading to its clients, it can be a little confusing as to which one to choose for maximum returns. Here are a few tips to guide you through the process of ECN trading:
Checking the Trading Cost of the Broker:
Trading costs basically include a broker’s commission and spreads. Choosing a broker that provides comparatively lower spreads and lower rate of commission can be beneficial for a trader involved in the process of ECN trading.
Consider Payment Systems:
ECN traders should always go for brokers who offer multiple methods of payments and require a minimum deposit to start with.
An ECN trader should check the credibility of the broker before choosing their services. Make sure to check their license and mandatory requirements before you start using them for your trading strategy.
Checking Customer Support Services:
ECN traders need a 24/5 customer support to assist and guide them through the process, so they should choose a broker who is always available to assist them through live chats, e-mails or phone calls.
Checking for Discounts and Bonuses:
There are some ECN traders who consider attractive discounts and offers offered by their brokers. A good price or discount might help in maximizing profit and cutting down pocket burden.
ECN trading is considered as a suitable form of trading due to low cost and high transparency among buyers and sellers. There are a lot of benefits that come along and a trader should consider all the important facts before getting involved in ECN trading, in order to maximize benefits and returns. Choosing the right broker will help a trader to magnify profits and minimize the chance of loss. ECN trading eliminates the chance of bias by removing the middleman or third parties, hence ensuring a smoother trade. ECN trading is considered the purest form of currency trading because an ECN broker charges commission on a trader’s trading volume which implies that, in order for them to earn more they want their trader to win. ECN trading can be successfully used by both experienced and novice traders.