ECN is an abbreviation for electronic communication network, which is a computer-based system that automates the buy and sells orders when trading. The network allows direct access to traders within the currency market. You can trade directly without a third party and still have equal trading rights. Thus, ECN trading is ideal for investors who wish to conduct secure transactions quickly in geographically different locations. What’s more, investing with ECN brokers makes trading efficient. You can get multiple bids on orders and trade conveniently. Also, the market prices are transparent, and you can easily access your history. There are many other benefits that you will enjoy trading on ECN accounts. However, you will also encounter some challenges on the trading account. Read on to learn more about the pros and cons of ECN trading.
Privacy
Using an ECN trading account allows you to trade anonymously. The trading market has millions of investors with different needs. Most traders, particularly those conducting larger transactions, prefer utmost privacy. Traders do not have to disclose personal information when trading on ECNs. Consequently, clients’ data remains confidential, and the public cannot access it. In addition, ECM brokers act as middlemen; rather than market makers. So, when trading on the ECN network, you will remain anonymous as other investors in the market cannot trace your trades.
Flexibility
Another benefit that attracts traders to ECN is that they can trade outside the usual market hours. Some individuals are busy during normal trading hours. The good news is that you can trade outside business hours. Even better, ECN trading accounts allow users to choose convenient hours for executing orders. Furthermore, you can trade continuously, as ECNs do not allow breaks in between trades. Due to this, price volatility increases, potentially increasing your profit margin.
Low Spreads
Many individuals get stuck on choosing ECN Account vs. Standard Account. If you are one of those people, it is better to trade on ECNs because they offer tighter spreads than standard accounts. You will get price quotes from multiple market participants, and there are no middlemen.
Cons of ECN Trading Account
Despite the numerous benefits, ECN accounts have a few limitations that may discourage you from using them. Here are a few cons.
High Commissions
Among the biggest drawbacks of trading on ECN are the costly fees and commission charges. ECN networks impose high charges for every trade, significantly reducing the profits you can make. The feature is undesirable for many investors.
Lack of Integrity
Individuals can become market makers on ECN trading accounts, allowing loopholes for dishonest practices. Some investors can introduce high-volume trades that may greatly impact the market. Additionally, some individuals may present themselves as ECN brokers to fraud traders even though they are not.
Less User-friendliness
Lastly, unlike traditional accounts, ECN trading platforms are less user-friendly. You will find it difficult to navigate the site and facilitate trade. Plus, it lacks integrated charts that facilitate easier trading for beginners.
Conclusion
ECN is becoming a popular trading platform due to its several benefits. ECN accounts have great features, including enhanced trading execution, flexibility, and privacy. Plus, traders also enjoy tighter spreads. However, you may incur high fees and commissions or encounter dishonest brokers. Nonetheless, ECN is excellent for inexperienced investors wishing to enjoy long-term success.
