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Forex Trading through Real ECN/STP Brokers


Trading through ECN/STP brokers is the best option retail traders have. So far, we have published several articles about market maker and ECN/STP brokers, the differences they have and the reasons it is better to sign up for a live account with a true ECN/STP broker. You can refer to the Forex Brokers Category and read those articles.

As per Youness recommendation, in this article, I talking about the things you have to know about Forex trading through ECN/STP brokers:

Just occurred to me that you might consider writing an article about the disadvantages of ECN/STP brokers, so LuckScout members have a balanced view of what really they’re getting into if they choose ECN/STP broker.

Many of the traders don’t know that There is no guarantee of stop loss execution and if their trading balance goes into negative, they’ll be chased by their broker…etc.

I know this can be true with market makers too, but it’s less likely, while direct exposure to liquidity providers requires good trading experience and awareness of greater risks.

Thank you Youness!

Youness is right. Trading through an ECN/STP broker is not like demo trading. It is trading with the real world wide currency market. I am going to explain about the facts that you will be faced with when trading through ECN/STP brokers. Please note that by “ECN/STP broker” I mean “True ECN/STP broker”, not the false and fake ones: The Difference of True and False ECN/STP Brokers

ECN/STP brokers route the traders orders to interbanks, also known as liquidity providers. So, ECN/STP brokers are nothing but mediators. They charge a small fee for each transaction. This small fee is the only legal and legitimate source of income that ECN/STP brokers have.

Unlike ECN/STP brokers, market maker brokers don’t route or transfer the traders orders to any third party. Trading with a market maker broker is exactly like demo trading, but trading through ECN/STP brokers is completely different.

Under the Market Normal Condition

1. Entry Price:

An ECN/STP broker transfers your order to a liquidity provider when you click on the buy or sell button. That liquidity provider accepts and executes your order at its own price, not necessarily the price you had on the platform when you clicked on the buy/sell buttons.

That liquidity provider price is usually different from your platform price, for two reasons: 1) They are connected to different price resources. Although prices are usually so close to each other, still there is a difference. Under the normal market condition, this difference is not more than a few pips usually. 2) Although the process of transferring your orders to liquidity providers is done automatically and electronically, it still takes some time to be done. Prices change all the time, and so, the price can be different by the time the liquidity provider receives your order.

This entry price difference is something completely normal when you trade with the real currency market through an ECN/STP broker. Novice traders who don’t have any live trading experience, complain about this price difference, and sometimes they go ahead of themselves and file negative reviews on different sites.

Live and real trading through a true ECN/STP broker, is different from demo trading. You have to send a request, and your requests has to be received, approved and executed. You cannot expect this to be done with your requested price. This is impossible.

This entry price difference is still much better than the difference you will experience when trading through some market maker brokers. Although they don’t route your orders anywhere, and all orders stay on the their servers, exactly like demo trading, some of them slip the price to make you enter the market with a price which is a few pips against your requested price (for example, you click on the buy button when the buy price is 1.1176, but your position will be taken at 1.1179 which is 3 pips higher. Even if you win in this position, that 3 pips plus the spread and swap will go directly to the broker’s pocket).

However, the price difference you will experience with an ECN/STP broker is not always against you. It is sometimes in your favor and sometimes against you, because it is based on the normal price differences, not intentional manipulations.

2. Exit Price:

It is almost the same with the exit price when you click on the close button. Your exit price will be different from the price you see on the platform when you click on the close button. This difference is normal with ECN/STP brokers. It is not always against you. Sometimes it is in your favor. However, market maker brokers who slip the price when you want to get in, also slip the price when you want to get out. This slippage is always against you.

When you set a stop loss and target order for a position, then, under the normal condition and in most cases the positions will be closed with the price which is too close to the stop loss or target order prices, unless the market is too volatile because of the news release (I will talk about this condition later).

Some ECN/STP brokers don’t let the liquidity providers know the stop loss and target orders. They have it at their own side, and when the price reaches the stop loss or target level, they send a closing request to the liquidity provider. In this case, the close price difference can be larger compared to the case that the stop loss and target orders are placed with the position that the liquidity provider is handling. The reason is the market volatility and the time that it takes to send the closing request to the liquidity provider, and the time the liquidity provider needs to receive and execute the request.

3. Pending Orders:

Like stop loss and target orders, some brokers place the pending orders with the liquidity providers, and some brokers hold the orders on their own servers. When the price reaches the pending orders value, they send the request to the liquidity providers. For the reasons I already explained above, with the first method, the entry price will be closer to the pending order value, but with the second method the difference will be larger. In both cases, it cannot be exactly the same, like what you see with a demo account under the market’s normal condition.

This difference is absolutely normal and is not more than 1-2 pips under the market’s normal condition. Again, the good thing is that when you trade through an ECN/STP broker, the entry price difference is not always against you.

Many market maker brokers slip the price when you want to enter the market through a pending order. This slippage is always against you. If you complain, they will answer that it is impossible to enter the market exactly with the desired price in live and real trading, whereas this is a joke, because there is no real market when you trade through a market maker broker. It is just the broker at the other side of the line.

4. Negative Balance:

Sometimes when the price moves very fast and the market becomes too validate, and at the same time the liquidity providers get bombarded with too many orders, it becomes impossible to execute the stop loss and target orders. It also becomes impossible to close the positions of the accounts that reach the margin call and stop out levels. The broker sends the request to the liquidity provider, but they cannot process it. It is the same when the order is already placed with the liquidity provider.

Therefore, some accounts that have no enough money to handle the negative positions, will have a negative balance when the liquidity provider succeeds to close the positions finally. The broker will not receive any warning from the liquidity provider if it still has enough money in the account it has with the liquidity provider (read this). However, sometimes even the broker account reaches the stop out level and even gets a negative balance.

In both cases, the liquidity providers knows the broker as the responsible. It is the broker who has to pay the negative balance. But it is the trader who has to pay for his account’s negative balance to the broker. It is real trading after all, and each side is responsible for his own actions. You trade and you are responsible for the money you lose.

If the broker cannot pay for the losses, it can be prosecuted by the liquidity provider. And, it is the broker’s right to prosecute the client for the negative balance. The broker has to pay it to the liquidity provider, and you have to pay the broker.

Negative balance also occurs when you trade with market maker brokers. But to them, the negative balance is just a negative number. It doesn’t mean any money, and it has no value. Exactly like in demo accounts that $1,000,000 and $1 are the same and they both have no value. In spite of this, market maker brokers play a game and warn the traders to pay the negative balance, but when they see it can cause the traders to walk away and stop trading, they “generously” forgive the clients and recover the negative balances, to make the clients top up their accounts and keep on trading with them.

Some of them claim that they have something called “negative balance protection”. This has become more common since the 15th January CHF Tsunami. They claim that their “negative balance protection” works like an insurance for the traders. Whereas this is all nothing, but a dirty trick to attract the traders who don’t know what is behind the scene. People think that they are protected and nobody will prosecute them if something like 15th January CHF Tsunami happens again. So they sign up for a live account with that broker with peace of mind. The market maker broker attracts more money, whereas it is the ECN/STP broker who is the real participant of the Forex market. ECN/STP brokers cannot offer any “negative balance protection”, because it doesn’t make sense to do that.

Now the question is whether you will get into trouble because of a negative balance if you trade through an ECN/STP broker?

First of all, events like the 15th January CHF Tsunami are not going to happen even once every 10 or 20 years. It is possible that we never experience such an event again.

Second, although you will be responsible for your account negative balance, and the broker has the right to prosecute you because of it, I have never heard that they do this with the retail traders. They have to prosecute each trader who has a negative balance, take him to court and prove that he has to pay for it. It will be too hard and expensive for the broker. Even if they can do that and get the court order to take the money from the clients, they will not be able to do it, because in most cases it is somehow impossible. They have to hire a collection company to do it for them. This will cost more money for them. Besides, the collection companies don’t have enough authority to take the money from traders.

So, brokers prefer to take no action. Some of them will have to get out of this business because of the money they have lost. Many others will come to an agreement with the liquidity providers who also have lost money, but still need the brokers to make money: How Do the Liquidity Providers Make Money?

So there is nothing to be worried about.

In spite of this risk, professional traders still prefer to trade with ECN/STP, not market maker brokers, because ECN/STP brokers never cause them to lose money, but market maker brokers do. A market maker broker can never tolerate a consistently profitable trader. They want the losing traders only.

Under the Market Too Volatile Condition

What I explained above about the entry and exit prices and the differences you will experience, is true even under the market’s normal condition. However, sometimes markets become too volatile because of a big transaction or an important news release. It is when it becomes harder for the liquidity providers to execute the orders.

When you place a pending order and the price starts moving toward a special direction very strongly, reaches and goes beyond your order level very fast, then the liquidity provider cannot execute your order at the level it was set to. However, your orders will have to stay on a line, waiting for execution. Under such a condition, at any price that your order becomes executed, your entry will be the price which is in liquidity provider’s favor, not you.

For example, you set a buy pending order at 1.1187 while the price is below this level (buy stop order). Then the liquidity provider executes your order at 1.1500 which is about 325 pips above your pending order value, then your position entry will be 1.1500, not 1.1187.

Now, let’s say the price reaches 1.1187, but the liquidity provider cannot execute it there. However, instead of going up the price goes down after that while your order is on the line, waiting to be executed. Finally the liquidity provider executes your order when the price is at 1.1087 which is 100 pips better for you (it is 100 pips below your buy stop order level). In spite of this, your entry price will be considered at 1.1187 which is where you had set your buy pending order, not at 1.1087 which is the price the market had when your order was triggered.

It is the same with the stop loss and target orders.

There is the same problem when you click on the buy/sell buttons while the markets are too volatile and the price is moving too fast. However, in this case you usually get “off-quote” error and you will not enter the market. You will get this error even with a demo account when the price is moving too fast.

The Solution

The above events occur on the shorter time frames and for those who trade them using pending orders.

The solution is that you don’t set any pending orders and you don’t enter the markets when a strong news is about to be released. You wait for the strong time frames to form strong trade setups, and you enter the markets when they are calm and quiet.

When you take the too strong time frames signals, then they are usually agreeable to the direction that the strong news move the price. So, you will be at the safe side most of the time, and the strong price movements caused by the strong news, will make money for you.

The way that liquidity providers behave under the markets too volatile conditions may not look fair to you, but market maker brokers will be even more brutal to traders when the market condition is not normal. You can easily make money consistently with ECN/STP brokers without having to be worried about any of the problems I explained above, whereas a market maker broker doesn’t let you make profit consistently. When they see they cannot stop you from making money, they will email you that they are not able to offer their services  to you anymore, and so, you must withdraw your capital and close your account.

Good luck 🙂



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"Whether you think you can, or you think you cannot, you are right." - Henry Ford

62 thoughts on “Forex Trading through Real ECN/STP Brokers
  1. Very nice article Chris.

  2. Great article.. thank you chris.

  3. Chris I cannot express my gratitude of being able to benefit of your knowledge and those of your fellow traders. It is clearly explained and easy to understand.
    Thank you so much to be here for all of us. Your articles are priceless for me.

  4. Thank you so much Chris for another invaluable article.

  5. Thanks for the article.

  6. very good information thank you Chris.

  7. Thanks, a lot of info I was wondering about here.

  8. wow!. so much to learn….

  9. chris
    thank you chris for the wonderful and very important articles,as you know most of us warning about the brokers.

    thanks again

  10. Hi Chris
    With all the info about brokers I truly believe it is best to use true ecn/stp brokers, but you have to have money to trade with them.
    Now to MM brokers: Are they really that bad that they would not allow you to grow a small account from $1000 to $5000 or from $3000 to $10 000? I believe in this whole wide world there must at least one or two decent MM brokers who will let the 5% winners win and the 95% losers lose. In your view up to what amount will a good and reliable MM broker allow their clients accounts to grow before they will maybe kick them out.

    • Hi Nicolaas,

      Growing a $1000 to $5000 or even $10,000 is possible with many MM brokers. What is not possible with them is making a monthly profit consistently as a professional trader.

    • Hi Nicolaas,
      I have a demo account with Oanda who openly state they are a MM broker but claim they do not trade against traders, hunt stop losses because it would be “unethical” to do so. I have no way to prove this but one thing in their favor, their chart of the Swiss franc tsunami was identical to the ECN chart that Chris posted and not like another that Chris said was MM although they claimed to be ECN. A broker not hiding they are MM maybe can be trusted a little more. Compare broker charts maybe a good way.

  11. Thank you Younees and thank you Chris

  12. Brilliant! Thank You very much.
    Chris, you said, that such situation like CHF tsunami occurs once every 10 years or even rarely. I am not so sure about it. In 2008 credit crunch was only 7 years ago, and they are rumors, that USA economy has been creating another bubble which can burst anytime, and it really runs on credit and that crisis will happen again sooner or later. So after 2008 crisis, we had CHF drama, and it seems that nowadays the world economy is in lot of trouble ( like uncontrolled money printing by FED ). Its my concern. However that doesn’t stop us from trading because its not much we can do about. What we can do is to follow a good strategy, withdraw our money regularly and hope, that our open positions will go with the sudden drops or spikes. Thanks!

    • Marek,

      Thank you too.

      You are right. There is no guarantee with anything in this world. However, those are just possibilities that can never happen.

      The 2008 crisis is not comparable with the 15th Jan CHF Tsunami. Markets collapsed in 2008, but you could still buy and sell and close your positions while they were collapsing, because the movements were not sudden. Pending orders including stop loss and target, could be executed. In case of the US bubble burst, USD and US stocks value will collapse, but still it cannot be like the 15th Jan CHF Tsunami that prices moved for over 2000 pips within few minutes. That was really like a Tsunami. Markets did not move like that even on 11 sep 2001. I don’t think something like the 15th Jan CHF Tsunami will happen again.

      What you mentioned is really true. None of these can stop us from working. We cannot sit on the fence just because it is possible that markets collapse. Again, as you mentioned, we can always risk a small amount of money, grow it, and withdraw our money regularly. I have explained it in some of my articles:
      https://www.luckscout.com/the-swiss-franc-tsunami/
      https://www.luckscout.com/grow-your-small-forex-account-slowly-but-surely/

  13. M P

    I am so much reminded of the “bucket shops” in “reminscences of a stock operator”. He also had to go from mm to mm (shop to shop)! Probably the same background?

  14. Thanks Chris

  15. They are market maker.

  16. If I only have $1,000 of expendable capital …. from what I’ve read, I can only open a Market Maker account if I want to keep my Risk exposure to 2% per trade. After reading the above is it still worth doing?

    Should I continue to save until I have enough expendable capital to open a true ECN/STP account?

    I hate to open an account where the deck is stacked against me, but, I may not have a choice. It could be along time before I’ll have saved enough money to be able to open a ECN/STP account.

    Is there any advise you can provide to me and I am sure many others stuck in this position?

    Thank you in advance for your thoughts…:)

    • Steve,

      First you have to master your system and become a consistently profitable demo trader. After that, you can open a live account. If you had enough money to open an account with an ECN/STP broker, then good. If not, you have two options. You can save money to become able to open a live account finally. And/or, you can open a live account with a good MM broker, grow it to $5-10,000 and then open an account with an ECN/STP broker:
      https://www.luckscout.com/what-if-you-dont-have-money-to-open-a-reasonable-forex-live-account/

  17. Thanks a lot Chris.

    I didn’t think there are so many subtle actions behind a simple click to buy/sell.

    Knowing the procedures and processes between the broker and liquidity provider helps us to be mindful about the market condition when it is not normal.

  18. Thank you Chris, very clear article.

  19. Hi Chris,

    This article is as good as it gets.

    Cheers.

    • Hi Youness,

      Thank you. You are the founder of this article 🙂

  20. Great reminder, especially for those affected by the SNB drama.

  21. Thanks for the article. Very informative and I am now convinced and determined, when I do,I will go live with ECN/STP broker only.
    Differentiating a MM from true ECN/STP broker is hard enough. Now to identify good MM out of all the MM brokers is going to be a challenge. Also being MM how can we trust that they wouldn’t make us lose one day.

  22. Very informative article, Thank You.

  23. Thanks for the eye-opening article.

  24. Thanks Chris. Maybe have accounts with different MM so can withdraw when you are winning monthly spread between brokers. Also build capital for ECN. Only my thoughts.

  25. This article explains a lot about price slippage. Thanks Chris!

  26. Great education Chris, an excellent article.
    Thanks
    Adam

  27. Chris,

    Wow, this is a comprehensive article. This information is very worthy indeed.

    Just a quick question on your solution. You mentioned about getting in during a calmer period. On our daily trades, we look at our analysis at the close of NY time, i.e 5pm. The next major market opening is Australian at 5pm NY time. So if our analysis take about half hour to complete and we put orders shortly after that, we are in the beginning of Australian market. Just confirming that this thinking is correct?

    Another question is regarding “Pending Order”. Would you recommend using pending order or market order when getting in with too strong trade setups?

    Thank you

    • Angus,

      After the daily candlestick close, we usually have several hours to take action. Market don’t move that much during the Asian and Australian sessions.

      I don’t recommend pending orders.

      • Hi Chris,

        many times I read you saying that you don’t use pending orders, and I was always wondering the reason.

        So perhaps now may I ask you
        why you don’t recommend pending orders?

        (I thought that they should be better because they make you enter when the market fulfill the conditions of your analysis)

        Thank you.

        • Fabian,

          The conditions I need to enter the markets, don’t form when I am not at the computer. I have to be on time enough to see the setup and enter the market. Pending orders make work riskier.

          • Sorry for asking Chris,
            I am just too willing to understand and have it clear in my mind so that I don’t do more stupid things, but
            may you explain me in what sense pending orded make work riskier?

            1. In my simple novice mind they just execute the trade when conditions are fullfilled, so if I see that price is not yet where my analysis want it to be, I can set a pendind order there the order would be triggered in the same way that I would do if I was in front of the computer.

            2. Also I thought that they eliminate the emotions that are so harmful for novices, because they make you enter because of the analysis previously done, and not because of the impulse of clicking the order button.

            … why is it not like that?

            Sorry for being long, but I think that how to place orders is a very important thing to have clear.

            Thank you Chris for your patience in claryfing!

          • Fabian,

            You never know how the price should move or close to create the setup that you want. It has to form the setup, you see it and take it when it is a good one. When you are not at the computer and you set a pending order, just a candlestick shadow can trigger the order, and then the market changes the direction.

          • Many thanks Chris, I think I now have it clearer.

  28. thank you again Chris for another valuable article.

  29. Thank you Chris and Youness!

  30. Good read and learning for us. Cheers

  31. Thank you Chris for the article,

    A very informative and important article, that is some good knowladge to have.

    Like Linz H I too read someplace that some market makers side with the few traders that consistently win. But finding them, or if they exist might be close to impossible. Like many others you have always gave the right advice, and provided with good solutions too our problems.

    By the way Chris, moving to my third month demo trading, I hope this one might be profitable. 😉 Was so sad last month I ended even since I took too many setups on too many pairs (greed). Wish me luck everyone 🙂

  32. Chris I wasn’t sure where to ask this question. Can you explsin or point to a previous article that does, how much it costs to trade with an ECN broker that states the following:

    ‘Average commission is £2.80 per side/ per lot;’

    Thanks in advance.

    • Barbara,

      The charge £2.80 for each standard lot to enter, and £2.80 to exit.

  33. If any forex broker, who provide swap free forex trading account then are ECN or market maker ?

  34. Hi,Chris
    Do you know Valbury Capital?
    http://www.valburycapital.com/
    max. leverage is 100:1
    min. contract size 0.1
    DMA/STP broker.
    min.Deposit 10,000usd for open live account.
    But I received reply from their staff james.
    “The company policy is a minimum of $10,000 but I have the authority to allow a smaller investment on a test basis.”
    so he allowed deposit of $5000usd for me.

    • True,

      Unfortunately I don’t know them. Hope others can help you out with this broker.

      • Hi,Chris
        I have question about valbury capital.
        they are DMA broker.
        I asked them about commission.
        this is their answer.
        “please let me know if you would prefer the commission built into the spread or kept separately. It will either be $3 per lot or 0.3 spread mark-up, it’s your choice.”
        How do you think about this system?
        commission built into the spread or kept separately…
        It is no problem?
        If they are true DMA broker, the system is correct?
        Thank you .
        Have a nice weekend.

        • True,

          What they’ve answered is not against being a true ECN/STP broker.

  35. Hi Chris

    I was searching for more information about brokers and I read the following article in a website.

    Would you please read it and tell us if it is true or not.

    Thanks a lot

  36. Chris,

    I still struggle to find a good ECN/STP broker that is reliable, uses MT4 and closes day GMT+2.

    Some appear to be solid but don’t support MT4. Do you personally use those who don’t support MT4 but have their own platform?

    Thanks

    • Angus,

      You can use another broker’s MT4 platform to analyze the market, and then you can take your positions with the broker you have your live account with. So it doesn’t matter if the broker you choose doesn’t support MT4.

  37. Hi Nadi I also want to know if its true, and if it is true it will be very bad for business

  38. It’s really a nice article, indeed. I simply said, “WOOOOW”

  39. Hi,Chris
    off-quotes can happen in the case of
    true DMA/ECN/STP Brokers?

  40. I believe there are simply no retail ecn. The best bet is a good market maker with STP to the external LPs. Some order flows are matched internally and some other orders are sent to external LPs for execution because there are no opposite orders in the closed system. The major difference between different MM/STP is liquidity that retail traders can access to without too much slippage.

    Trading with a market maker is different from playing with a demo account. Market makers keep book A ans book B. Not all orders are kept inside the house. So it is not correct to say that an account with a market maker is the same with a demo account.

    However ECN technology can be used at the retail level. One way to find out is to sent an order between the bid and ask. If it is rejected, then it is not ECN technology. Using ECN technology does not mean it is a ECN broker. ECN business only exist at the institution level and it is a business to business solution.

    Here is what fxopen describe its “ECN” concept:

    https://blog.fxopen.com/ecnstp-how-it-fits-in-forex/


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