One of the most basic questions regarding trade is what kind of broker to use. The conclusion will depend on your situation, but let’s look at the main difference between an ECN account and a standard account. ECN means Electronic Communication Network, or what is the same, that computers are connected to each other. It’s a bit of a broad term, but when it comes to business, it can be advantageous.
The main reason why using an ECN account can help you is that it offers liquidity across a network. In other words, there are numerous options that differentiate between an ECN account and a Standardized account and offers that are available for trade, which means that the margin between ordering and bidding can be quite tight. For example, you can see differentials as tight as the equilibrium point. You can sell or buy at the same price, but there is usually some sort of commission involved.
That is why you have to pay attention to the commissions because they can be a little expensive if you’re not paying attention. In general, the commission amounts to approximately half of an MIP. In summary, it is more beneficial if you are a short-term trader and have many trading positions. But, you might be thinking that even a long-term trader can take advantage of this, and while this is relatively true, the reality is that it is not as advantageous for a long-term operator as a short-term trader. This is because a long-term trader does not have to worry so much about the cost of transactions.
Another issue that we need to take into account is that liquidity can dry up from time to time. For example, if you have non-agricultural payroll numbers available, many traders will choose not to be on the market. While your typical network spread could be 0.2 pips in the EUR/USD pair, around the ad you can see something closer to the 15 pips. Actually, that can strongly alter your profitability if you’re not careful.
However, as a general rule, the network will keep spreads relatively tight most of the time, especially if it is a huge network because there are many operators involved. Finally, a trader who is profitable can have an advantage in any type of broker, be it a standard broker or an ECN.
As a rule, normally, a standard account is considered as one with a fixed margin. The Broker is the counterpart of any position you set up. It is not always so, but in general, it is so. The EUR/USD pair could offer an extension of something like two pips, and although most of the time it is more expensive than an ECN when it comes to news-related events, it can save you a little trouble.
The disadvantage, of course, is that if you are a frequent trader you could be paying something like 1.5 pips extra per operation. People don’t pay attention to the cost of execution, which is a long-term killer if you’re not careful. However, if you are more likely to have a position for days or weeks, at this point, neither will make a big difference as there are not many costs involved.
Pay Attention to the Costs
Find out what agent you need based on costs. At the end of a session, what we need to worry about is whether the broker can provide us with good and reliable service, and of course whether the costs are fair or not. Foreign exchange brokers have come a long way in the last 10 or 15 years and have much more reputation. The Wild West days are gone, so really at this point, most traders will discover that they can use an ECN or a standard account and earn money.
If you’re worried about the type of broker, the only time you should really care is if you’re a reseller. Otherwise, any difficulty you encounter should have nothing to do with the type of runner.