Currenex Brokers – are they true ECN?

Posted by Deb | Forex,Guest Post | Wednesday 10 October 2012 9:28 pm

The concept of ECN trading has been widely discussed over the last years. There are so many traders who put the conflict of interest question at a discussion that many brokers started to apply the ECN model. But what is the ECN actually? Many traders do not understand this concept and accept all that the brokers tell them. One of the most famous ECN platforms is Currenex and there are a handful of Currenex Forex brokers that might proudly call themselves ECNs.

After you read this article tell me how it contributed to your trading experience. Was it useful for you and will you recommend it to a friend?

Trading on the Forex Market is certainly not an easy task and everyone should carefully understand the models of trading to choose the best for his or her trading style. Let’s see the most widely used trading models.

ECN Forex Trading

ECN stands for electronic communication network and it plays the role of a place where buyers and sellers meet to execute their orders. An ECN comprises of an order book with two opposite sides of the deal – buyer and seller. On each side buyer and sellers place their offerings with quantity and price. It actually looks like an auction but of course everything happens quickly and is managed by automated systems.

The best advantage of this model is the high level of transparency. The Currenex platform, for instance, shows each counterparty name and quantity. Like this you can see with whom you are going to execute the order. The spread is narrowed down to 0.4-0.5 pips depending on the current liquidity – that is to say how many orders are taken in a certain moment.

For example the most traded currency pair EUR/USD can produce a spread on 0.2 pips because there are so many counterparties that currently place an order for EUR/USD. However, the ECN execution is ensured by a provider and it also has to earn some fee for that service. So Currenex brokers usually charge a fixed fee in the form of % of the executed volume. In this case the total spread you might be required to pay will be around 0.6-0.7 pips but it still will save you a lot of costs since the usual target spread of dealing desk brokers is 1.5 pips.

Market Makers

As opposed to ECNs, Market Makers do not offer this level of transparency by simply giving you a quote coming from them. They do not combine many counterparties but narrow down the process to two counterparties – you and the broker. Thus there is a conflict of interest between you and your broker because each losing trade will be a winning one for it and vice versa. However, there is a widely spread misunderstanding that each losing trade of yours ends up in your broker’s pocket. Actually brokers net all clients positions into a single position and then what is left is being hedged fully or partially. In this sense we can conclude that everybody in the market is a market maker even you. If you have a long position on EUR/USD you might hedge it by betting against your friend. The main point is that it is your decision whether to hedge or not.

Which model is the best?

There is no such thing as best trading model. The most important factor is and always be the broker execution no matter if it is a market maker or ECN. Just choose the broker that fits your trading style and that is how you will be successful in the market. Also you should be advised that demo trading is not in any way the same as live. During your journey towards trading perfection you will find out that many obstacles will arise especially during news releases and major economic events. The trading model itself will not help you to be more successful but will help you to understand the mechanism behind trading.


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4 Comments »

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