What is the difference between trading through ECN from trading through Dealing Centre?
- What are ECN and DC (Dealing Center)?
- Differences in the trading process between ECN and DC
- Which is better – ECN or DC?
What are ECN and DC (Dealing Center)?
Unlike DC, a company that provides you with the access to ECN (hereinafter: ECN broker) is not in a conflict of interest with the client.
Unlike DC, ECN broker earns solely by the commission it receives for each transaction carried out by the client.
Unlike DC, ECN broker automatically directs every transaction to the counterparty (bank), which has exposed the best quote at the moment.
At that, opening and closing of the position can fall on different counterparties.
Certain ECNs even allow selecting counterparties for a transaction regardless of whether they have the best quote or not.
Thus, the profit of the broker does not depend on whether the client wins or loses.
This eliminates a major conflict of interest which is common for working with DC.
Differences in the trading process between ECN and DC
- Typically, the spread on ECN is much narrower than in DC. Broker receives fixed fees.
- There are no restrictions on scalping or pipsing.
- It should be noted that despite the narrower spread in ECN, quotes jump very quickly. In the absence of a dealer who soothes the feed, for an unaccustomed person it may seem that the ECN is more volatile. This is not the case. ECN is just a market as it is. No re-quotes. At all. But it is better to use the limits 0.1 pips higher or lower than the best quote in the order book. Good performance is guaranteed.
- No guaranteed orders. Guaranteed order is, de facto, an option that can only exist in DC conditions.
Which is better – ECN or DC?
Depends on the trader.
If a trader is ready to put up with the possibility of off-market quotations, with the fact that the dealer can move the price, that the positive slippage will never be as frequent as negative (if at all) and longs for the comfort of guaranteed stops and fixed (not always) spreads, then he doesn’t need ECN.
If the trader prefers to gain access to the market through a company that will not complicate the difficult in itself process of profit-making, then perhaps ECN is better in this case.