It’s meant to make a retail FX dealer or CFD issuer sound fancy.
Even though forex brokers aren’t really “brokers”, using the phrase “ECN broker” makes it sound las if the forex broker gives its customers access to an ECN(s) and allows them to trade directly with other participants of that ECN(s).
But that’s false. Retail traders can’t trade on institutional ECNs. They don’t have the necessary credit relationships and they trade too small.
Even retail FX brokers can’t even access these ECNs by themselves without the help of a prime broker (PB) or prime of prime (PoP).
When trading on an ECN, you have access to the DOM and can view multiple levels of both sides of the order book. You can also “split the spread”, where you can enter a limit order that is priced within the spread between the bid price and ask price.
Your retail forex broker is not acting as an intermediary or agent who is simply matching buy and sell orders made by traders (which is what happens on an ECN).
When you buy, your forex broker sells to you. And vice versa. It doesn’t match your trade with another counterparty. It is your counterparty.
Your order is not “passed directly” to the ECN and out into the “market”.
Now when a broker uses the phrase “ECN broker”, what this usually means is that it’s receiving price quotes from one or more liquidity providers (LPs).
And then the bid and ask quotes are cherry-picked (based on the broker’s pricing engine rules) and shown on your trading platform.
How many LPs exactly? You’d have to ask your broker.
If you decide to “lift the ask” (buy), your broker will still take the opposite side of your trade.
You want to go long 1,000 units of EUR/USD? Your “broker” (who is really a dealer or CFD issuer) will fill your order and will now be short 1,000 units of EUR/USD.
Your broker is always your market maker. In this case, it is “making a market” for you (quoting you bid and ask prices) based on prices from third-party sources, but in the end, you can still only trade with it (and nobody else).
As your counterparty, it’s now exposed itself to risk. If you win, it will lose, so it can (choose to) protect itself partially or entirely by hedging.
(While the primary purpose of hedging is to mitigate losses, it can also be used to generate profits for the broker.)
So when it comes to order execution, the broker can decide to pre-hedge, post-hedge, or internalize this risk (assuming the risk can’t be offset by another customer’s order).
That said, assuming it wants to hedge, most retail FX trade sizes are small and don’t reach 100K units so the “broker” has to aggregate these “tiny” trades before it can hedge to an LP on a volume-weighted average price (VWAP) basis.