A CFD (Contract for Difference) is in fact a derivative trading instrument. There are multiple markets to trade CFDs including currency pairs, equities, indices, commodities and bonds. ECN/STP brokerages are the choice of many traders as they mean prompt execution, accurate pricing and more liquidity. It is a broker's business model in which clients` orders are sent directly to one or several liquidity providers to be executed on their end. Liquidity providers include companies, banks or financial institutions that quote both buy and sell price in a financial instrument or commodity. The more liquidity providers a broker has in general, the better execution for its clients will be (more liquidity available generally means less price slippage).
What makes a true ECN/STP (Straight through processing) broker is that the STP broker doesn’t internalise the orders, but sends them to liquidity providers, acting as an intermediary between their client and the real market.
Even today the meaning of ECN (Electronic Communication network) still remains not quite clear to many traders, although this technology has proven to have distinctive advantages over the traditional Market-Maker type. Now ECN commands a large part of the forex market, so it is important to highlight the key points of it. The main characteristic of ECN broker that makes it a class of its own is that this technology allows direct processing execution: open orders are processed by STP forex brokers, no intermediary party is involved. This procedure is known as STP (Straight-Through Processing). The advantage of the ECN / STP method is that it allows trader access the liquidity market directly. The liquidity providers are STP business connections (first-class banks, financial companies, etc.). Basically, the strong points of best ECN broker are lower spreads and commissions and easy access to the market. What is more, ECN/STP forex brokers should be noted for market execution, no slippage and no requotes.
ECN /STP technology purports transparency, but traders are strongly recommended not to start ECN trading unless they feel prepared having gained sufficient knowledge about it. When choosing the best ECN broker one should evaluate various reliable sources of information and seek expert advisory to every possible extent.
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