What is Forex Trading?
What is forex? To be specific, what is ECN forex trading? We have said a lot about it on this website, and we feel like a summary to recap everything would be an excellent way to answer all the general questions you may have concerning true ECN brokers.
In answering what forex is, we will be getting into this specifically from a purely ECN angle. It is our understanding that, should you be able to afford it, ECN forex trading can be a moneymaker like no other. The forex industry is complicated and extensive.
The regular Forex market is a different animal when compared to the ECN market. Before we answer your question, 'what is forex trading?', we will distinguish the regular forex market and what ECN forex offers.
After you can see the difference, it will be much easier to know what the fuss is all about concerning ECN trading.
Distinguishing What is Forex Trading by Comparing ECN Forex and Regular Forex?
The details of the two types will make it clear who you are dealing with here:
Market Maker/Dealing Desk Types
With a market maker (regular forex broker), you will get offered two-sided markets from a specialist broker who is a part of the in-house dealing desk. If the price is agreed upon, the broker will take the other side of any of the transactions from the client.
They will buy their bid side or selling on the offer side of the price that was quoted at the beginning of the deal.
In simple terms, the goal here is to cover the spread and to get substantial volume on both sides of the market and, in that way, avoid being forced to lay off the risk accumulated with a professional counterparty.
If the trade is large, the market maker could choose to offset the business instantaneously, more so if the market maker thinks that the market might move against it. They could also include it in their trading book, depending on the outlook of the market and the transaction size.
The ECN broker is an expert in the financial markets who uses a network to give you the clients direct access to the other participants of the market. In answering what is forex, the job description is an important part.
The work of an ECN broker is to bring together the quotes from several of the participants in the market and give you tighter bid/ask spreads from the available options.
If you ask most people what is forex in ECN trading, they will tell you that it is the future of the forex market. It is best described as a bridge that links the small participants of the market to the liquidity providers.
The work of the ECN is to match and execute the requested orders that are filled automatically. They do this at the best prices available in the market at the time. One of the best things about the ECNs is that one can access the networks any time, and they are most efficient 'after hours' when trading has cooled down.
What is Forex Trading in ECN Systems?
The Commissions Trading Model
When a broker makes money regardless of whether you make losses or not, your best interests may not be what they have at heart. At the beginning of 'what is forex,' we mentioned that the ECN forex brokers do not take money from spreads but rely on commission.
This trading model is unique in that the ECN brokers will never trade against you as a client and that their spreads are much tighter than the ones you will get from standard brokers.
Every transaction has a transparency that is in the form of the commission that they charge. As part of this, trading with us is a massive part of the efficiency that you get from the ECN brokers.
You do not want to put your money in the hands of a dishonest broker. That is the reason why ECN brokers are more trustworthy. They use the latest tech to make sure that the execution is quick and without lags. In answering ‘what is forex trading’ from ECN’s side, we get more transparency.
They will make sure that you have direct access to the interbank market to make sure that you have the actual market price. This kind of honesty and transparency is what you get for spending a lot of money on commissions.
With the rise of privacy-based transactions when talking about 'what is trading,' it is only natural that people would want to trade with complete anonymity. The degree of anonymity you will find here is higher than anywhere else in the forex market.
You can take advantage of a neutral price and the actual market conditions. Not only will you be able to enjoy no bias on unbiased estimates using your strategies or current market positions, but you will also be able to use several techniques like the effectiveness of tight spreads and the blazing speeds.
What Are The Forex Trading Downsides When Using ECN Brokers?
As with anything, there is always the other side that we have to look at when answering the question 'what is forex?'. These two reasons are the only thing that might dissuade you from using ECNs to trade.
- The Spreads Vary
To answer ‘what is forex trading' in any context, the spreads are an essential part of that, and that is why we will have to find out how that happens when using ECNs. The current market conditions usually dictate them.
They can sometimes change in dramatic ways that might catch you by surprise. It is essential to know in your search for answers to 'what is forex,' that the high volatility might affect the trading strategy you use.
- Transaction Costs are Higher
With the benefits that come with having the unbridled access you get from using ECNs, you will need to trade with more money and pay a high commission. The commission can be as high as $3.50 per transaction, and this might not be sustainable for some of the retail forex traders.
The transaction costs are not the only thing that you will need a lot of; you will also need a high initial investment amount that most people would have trouble acquiring.
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