How do you know whick brokers are real ECN brokers?

[jibby03]

Is there a way to actually tell if they are an ECN broker?

[fxvanilla]

it's very difficult to find real ECN.
If your broker guarantees a fixed spread without commissions, this is not an ECN.
In addition, usually, if a market maker thinks you're a good trader and he will lose monney taking positions against to you : he will put your account in STP mode (straight through pass), so you will enter the market with less risk than with an ECN.

A true ECN broker will charge commissions and not have a Dealing Desk. Those are the two main things to look for. If a broker doesn't charge commissions and makes their money "strictly" from the spread, then they're not an ECN.

As for this suggestion:

Originally Posted by fxvanilla

if a market maker thinks you're a good trader and he will lose monney taking positions against to you : he will put your account in STP mode (straight through pass), so you will enter the market with less risk than with an ECN.

I don't think so.

How could a Market Maker possibly let you enter the market with less risk than an ECN?

"STP mode" is an ECN. Your order is passed directly to the market. Market Makers do not do that. If they did, then they'd be ECN's.

The term Market Maker refers to the fact that they make their own market. In other words, their prices are artificial, created by them, and not the actual prices of the market that you would see through an ECN. That's why prices will vary from one Market Maker to another, because they're not actual market prices, but ones created by the broker for their clients.

If a Market Maker thinks you are too good a trader, then what they will do is put you on manual execution, which means that your orders do not get executed instantly via their computer system, but they go through a trader at their Dealing Desk who manually puts it through. This causes delays and makes sure that the Market Maker can take a position against you.

Terry

[tonymand]

Originally Posted by In2Blues

A true ECN broker will charge commissions and not have a Dealing Desk. Those are the two main things to look for. If a broker doesn't charge commissions and makes their money "strictly" from the spread, then they're not an ECN.

As for this suggestion:



I don't think so.

How could a Market Maker possibly let you enter the market with less risk than an ECN?

"STP mode" is an ECN. Your order is passed directly to the market. Market Makers do not do that. If they did, then they'd be ECN's.

The term Market Maker refers to the fact that they make their own market. In other words, their prices are artificial, created by them, and not the actual prices of the market that you would see through an ECN. That's why prices will vary from one Market Maker to another, because they're not actual market prices, but ones created by the broker for their clients.

If a Market Maker thinks you are too good a trader, then what they will do is put you on manual execution, which means that your orders do not get executed instantly via their computer system, but they go through a trader at their Dealing Desk who manually puts it through. This causes delays and makes sure that the Market Maker can take a position against you.

Terry

Yes Terry is right. With an ECN there will be commissions, variable spreads, no part lot trades and usually a high deposit requirement. Dukascopy is my ECN broker so check out their site which will give you an idea of the differences

[fxvanilla]

you're right.

also every market maker has a risk management business model. Generally they started the business with STP, taking spreads.

After which they allocated a part in risk activity, but this part is never 100%.

[JimmyMac]

Unlike an ECN type model, a deal desk doesn't have any banks in the quote to the customer. They are the quote.

They can quote wherever they want (within reason), as long as they are executing customers with stops and limits at the bids and offers that they hit.

Most deal desks usually observe one or more direct access feeds for cross reference. The general idea behind a deal desk operation is that they have equal buy and sell orders during each shift across their book, and to a large extent, they capture the spread or better.

But if a chunk of customers start buying Cable and the MM feel like they are getting too short, they need to buy it themselves. They do this by tapping into their suppliers/bank feeds. These are the prices they watch that inform them where the approx true market quote is, and they use this knowledge to move their own quote and execute customer trades.

Say they have a small selection of bank feeds that shows the Cable at 2.0640by 2.0642 & change.

They have their current quote sitting at 2.0640 by 2.0644. They see on their grid that a clutch of customers have stop orders to sell at 2.0637.

They can move their quote down to 2.0637 and trigger those sell orders, which they buy. They know they can hit their bank feeds at 2.0640 and make 3 easy, quick pips. This is the task of the deal desk trader. He/they decide whether to hit the 2.0640 bank bid or hold the long position for prices to move up.

If they then move their quote up a couple of pips, some customers think it's going up and they buy at the offer, which means they are selling at 2.0644, making good money. But the whole time, they had “flat to even” risk because they could hit the bank separately.

You, the customer don't see their suppliers feed on a deal desk system. And in fact, the real market never touched 2.0637 at all. Good hey?

This is where the major difference lies regards ECN v/s Deal Desk execution. You will directly hit bids, offers & actually trade inside the 2 from a variety of avenues (Banks & competing traders) within the price engine of an ECN. Whereas executing through a traditional FX broker, you're being shaded or shielded from the live price mechanism - therefore trading in via a middleman.

Fact is, some trade blocks will be ‘warehoused’ by the broker, whilst other positions will be instantly cleared. But as the vast percentage of retail trades are below 'normal market sized' amounts (i.e. below the minimum trade size threshold to clear) they are simply absorbed.

The broker isn’t necessarily always trading against you, the customer. Most of the time they are simply managing their order flows & percentage book so that they’re working & operating within their business model structure. Of course they run stops occasionally, but so does the rest of the market. Sometimes it's more in fear than greed.

You also have to appreciate most of the larger shops & firms see, or certainly have access/information to, the proper flows from hedge funds & CTA’s etc, in decent directional size. They're often more busy watching & assessing that business than anything else.

[jibby03]

Thanks alot guys, my question was definetly answered and I thank you's for that.

[tymen1]

To JimmyMac :

I like your explanation - it was nice and comprehensive. But you could have used round figures in your example, since you are only explaining a point.

2 decimal places with round figures would be sufficient.

I say this as a retired school teacher who, therefore, fully understands the importance of keeping things simple for your readers.

[Forex4fun]

I have been in the same position as you before, that was why I have spent weeks searching for the best FX broker on the net. It turns out that most FX companies on the net are total crap, but there are some good ones. The one that really sticks out is ACM which is a true ECN/STP broker which only makes money from the spreads. Although you do need some serious cash to open an account with them; US$ 2,000 for a mini and US$ 5,000 for standard. I cant tell you that this is the absolute truth, but I do know 3 other people on live accounts that have confirmed this. I will post back again when I open a live account with them too. I hope I have helped some.

[jibby03]

I have heard to completly avoid ACM because they claim to be an ECN broker but really are not. Dont know how true it is, forexbastards.com really grills them (but who doesnt it grill i guess). Another thing is that 2000-5000 really isnt alot of money to open an account and they also dont charge a commission, which kind of makes me believe they are not ECN. I was also speaking to them on the phone and the told me that they simply do not allow scalping (due to expired quotes) so that is another thing that makes me hesitant with them. If the were real ECN this wouldnt make a difference. They're site says that they are ISO 9001 and ISO 27001 certified, does anyone know what that means?