Good morning traders. Today we were asked a question about whether we are ECN and whether we have a dealing desk. There’s a short answer to that question and then there’s a meaningful answer!
The financial services industry is sometimes guilty of treating it’s customers as simpletons. The pervading view seems to be that if customers are given all the relevant information they’ll only be confused. I disagree. Having spent ten years in advertising I’m inclined to rely on the infamous quote of David Ogilvy: “The consumer is not a moron – she’s your wife.” So I’d like to take a moment to describe what some of the current industry buzz words actually mean and how to determine whether a broker offers real bang for your buck.
First of all, is “ECN” a meaningful proposition or a marketing proposition?
ECN, True ECN and ECN-style have taken over from STP as marketing hot words right now. (For those who aren’t familiar, ECN stands for Electronic Currency Network or Electronic Communications Network and STP for Straight Through Processing). Insitutional grade spreads is another term used. All refer to technology that puts the client’s trade straight through to the interbank market, and usually denotes a fixed commission and tighter spreads.
As Forex Nation’s trading platform for retail clients is MT4 it’s more accurate to say we provide “ECN-style” pricing. Why? Because in order to have a true ECN you need BID and ASK offers that include not only price, but volume as well, and as such true ECN is not possible through MT4.
To clarify, ECN and STP have the same effect, they both enter into the underlying market, meaning that we connect our customer trades with the best price from our 14 liquidity providers, in a non-conflict, “Straight Through Processing” model. And while Forex Nation MT4 does operate under the industry-standard market maker licence, as stated in the Forex Nation PDS, we don’t manipulate the prices that we receive from our 14 different tier one banks.
[B]Forex Nation is a “Price Taker”, not a “price maker” [/B]– and has no intervention in the prices that we receive and offer to clients apart from the small mark up that provides our margin. This is why you will see the spreads on our Pro Account as low as 0.1. (On average our Pro spreads are 0.3 on majors. On our Standard account they’re higher as spread includes the small markup that covers brokerage).
This gives retail traders the benefits of interbank or ECN pricing except with retail leverage and position sizes. Under this model we do not provide a trade receipt showing the order book.
Now, ECN/STP is only part of the equation in terms of the value proposition for retail traders. Execution speed, quality and number of liquidity providers are the other critical factors.
With our servers located in the Equinix NY4 and liquidity from the 14 Tier 1 banks shown on our website, the STP or ECN-style processing provided from Forex Nation MT4 provides deep liquidity, tight spreads, and fast, seamless STP for fast trade execution and less slippage. Add to that the fact that we are Price Takers (not price makers) and you’ve got access to fast, fluid, unmanipulated price.
So the pertinent questions to ask when considering a forex broker are:
- is the broker an active market maker or an STP/ECN Price Taker?
- where are their servers housed; do they provide fast execution for best price and minimal slippage?
- what quality of liquidity is provided ie. are their banking partners top tier or tier 1? and
- how much depth is provided ie. how many banking partners’ prices are available in the price feed?
The questions around broker choice then become about regulation/security, service, operational transparency and whether you like what we stand for.
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