ECN and Standard accounts are two of the most common account types that Forex brokers offer, but what are they, how do they differ, and which should you choose? Read my ECN and Standard account review for the pros and cons of each to make an informed decision before you open your Forex trading account.
What Is an ECN Account?
An ECN account is a no-dealing desk (NDD) account that routes orders only through the central interbank market. Traders get the best available prices with no broker intervention. An ECN broker does not hold positions, meaning they will never take a position against you. They offer raw spread trading and charge a commission per transaction.
ECN is short for Electronic Communications Network, a computerized network that facilitates trading financial products outside traditional exchanges. ECNs are automated, meaning no manual decisions occur to fill trades. The first ECN, Instinet, was created in 1969, and the first ECN for online currency trading was New York-based Matchbook FX, formed in 1999.
Top Forex Brokers
How Do ECN Accounts Work?
ECN brokers offer raw interbank spreads that vary based on market conditions and charge a commission for their service. Traders can trade with the underlying interbank market spreads. ECN accounts are the most transparent and purest access to the market. Traders are directly accessing top-tier banks as liquidity providers. By trading through an ECN, Forex traders benefit from greater price transparency and increased liquidity.
Some brokers label their ECN accounts as Raw ECN to differentiate them from other STP/NDD account types. The former grants access to raw market spreads for a commission, while the latter may include small mark-ups and commissions.
Benefits of ECN Accounts
Traders can evaluate the benefits of ECN accounts and compare them to other account types before deciding which one to open.
The core benefits of ECN accounts include the following:
- Raw spread trading
- Competitive commissions with volume-based rebates
- Complete price transparency
- Order routing directly via central interbank markets of top-tier banks as liquidity providers
- Ultra-fast order execution
- Little chance of re-quotes or slippage
Noteworthy:
- Competitively priced ECN accounts offer raw spreads from 0.0 pips on major currency pairs
- Commissions should not exceed $6.00 per 1.0 standard round lot and can drop below $1.00 with volume-based rebates
ECN Account Details
ECN accounts may differ from broker to broker, but all ECN accounts share core similarities.
Here is what every ECN broker must offer traders:
- Raw spread trading from 0.0 pips on major currency pairs
- Competitive commissions not exceeding $6.00 per 1.0 standard round lot
- A volume-based rebate program
- An algorithmic trading platform like MT4, MT5, and cTrader
- A choice of liquidity providers
- Trading server collocation with Equinix servers located in New York (NY4), London (LD5), and Tokyo (TY3)
- An average order execution speed of less than 75 milliseconds, ideally below 30 milliseconds
What Is a Standard Forex Account?
Unless otherwise specified, a Standard Forex account is a commission-free dealing desk with fixed or variable spreads. It is more expensive but has a smaller minimum deposit requirement than an ECN/NDD/STP alternative. Traders deal directly with the internal order book of the broker, who becomes the counterparty to transactions. Standard Forex accounts can experience smoother price fluctuations as the broker sets the price, which does not reflect raw interbank pricing, while fixed-spread accounts have no price fluctuations.
How Standard Accounts Work
Dealing desk brokers with a Standard Forex account sets the spread, and traders trade against the internal order book of brokers. Therefore, their orders never reach the open market. A broker offering Standard accounts offsets client positions internally and hedges the remaining volume by taking the other side of the trade. Therefore, the broker can become the direct counterparty to a trade and profit from client losses. With retail trader loss rates ranging between 70% and 90%+, it is a lucrative revenue stream for brokers.
Benefits of Standard Accounts
There are no significant benefits to trading in a Standard account. Order execution speed may be faster, as the broker fills trades internally, but it is often negligible, while the most competitive ECN brokers trump order execution at Standard account brokers. Pricing in Standard accounts does not reflect actual pricing, and orders remain in-house. The high costs and quasi-simulated trading environment negate the benefits on paper, like a smaller minimum deposit requirement and fewer price fluctuations.
Key Differences Between ECN and Standard Accounts
Below is an overview of the core differences between ECN and Standard accounts for traders to evaluate.
ECN Account | Standard Account | |
Execution | Trades are matched within a network - no risk for the broker | Brokers may cover orders fully or partially with liquidity providers to limit their own risk |
Spreads | Variable, often relatively tight, can even be inverted sometimes - can widen dramatically around major news events | Less variable, but often relatively high as broker adds a mark-up |
Commissions | Fixed commission is typical. | Spread markup usually provides profit for broker instead of a commission |
Transparency | Higher (if at all) | Lower |
Market Impact | Minimal, as orders are matched within the network | Serious, as broker may need to manage risk |
Counterparty | None: traders deal directly with market participants | Broker acts with liquidity providers |
Minimum Deposit | Typically higher | Typically lower, more accessible to small traders |
Suitability | Most suitable for high volume and professional traders | Most suitable for beginners and those trading smaller volumes |
Slippage | Less likely due to direct market access | More likely but depends on the broker’s specific execution methods |
Pros and Cons of ECN and Standard Accounts
Traders should consider the pros and cons of ECN and Standard accounts before opening an account.
ECN Account Pros | ECN Account Cons |
Direct access to market without intermediary | Commission as well as spread charged |
Spreads are frequently tight or even inverted | Usually requires higher minimum deposit |
Transparent pricing | No fixed spreads |
May remove conflict of interest between trader and broker | Slippage in volatile markets can be extreme |
Standard Account Pros | Standard Account Cons |
Typically no commission or very low commission | No direct access to market and potential price manipulation |
Pricing might be better during volatile periods | Potential conflict of interest due to dealing desk |
Usually requires lower minimum deposit | Less transparency in pricing |
May offer fixed spreads | Rarely allows scalping or HFT |
How to Choose the Right Account for You
While the best account choice depends on individual preferences, an ECN/NDD/STP will always offer more competitive trading conditions than a Standard dealing desk account.
Traders should consider the following:
- Trading fees are the most defining aspect of a broker, as they directly impact profitability
- Trading fees determine the competitiveness of the trading environment and reveal which strategies a broker actively supports and discourages passively
- ECN/NDD/STP have lower trading fees than Standard dealing desk accounts
Therefore:
- Trading with an ECN/NDD/STP is the only choice for genuine Forex traders
Noteworthy:
- Standard Forex accounts are available for smaller deposits, which sucks in beginner traders, and the losses are direct profits for brokers
Tips for Trading with an ECN Account
Irrelevant to your requirements and preferences, my tips below will help you make the most of trading with an ECN account.
Consider my ECN trading tips below for improved trading results:
- Trade with sufficient capital
- Understand the relationship between risk management and trading leverage
- Consider how higher lot sizes impact risk management
- Code your strategy and execute it with an algorithmic trading platform
- Ensure your broker offers deep liquidity pools, reflected in their average spreads at various trading times, including less liquid ones
- Avoid ECN brokers that do not offer raw spreads
- Avoid ECN brokers with commissions above $6.00 per 1.0 standard round lot
- Avoid ECN brokers with order execution speeds exceeding 75 milliseconds
- Avoid ECN brokers that do not have a volume-based rebate program
- Avoid unregulated ECN brokers, those with less than ten years of operational history, and those with a history of regulatory fines
Conclusion
Some brokers offer exclusively ECN/NDD/STP or Standard dealing desk accounts, while some offer both. While the latter requires a lower minimum deposit requirement and features smoother price fluctuations, it is due to the market interference by brokers, who become the direct counterparty to traders and profit from losses.
Therefore, ECN/NDD/STP represents the only choice for genuine Forex traders. They get access to the interbank market with the tightest spreads possible without interference from brokers, who do not keep positions and only profit from commissions charged for their services. Choosing between ECN/NDD/STP and Standard dealing desk accounts is one decision each trader must weigh against their preferences.
