How to Identify a Counterfeit ECN Broker

Today, I describe the trend of some Forex brokers, particularly the Market Makers in passing themselves off as ECN brokers. But beware, they are not. I'll teach folks how to select, test, and filter brokers to make sure that you are getting what you expect.

I have had a lot of traders ask me questions regarding the market maker broker versus the ECN broker. So, I would like to give you some additional information.

The reason is there's a little phenomena going in the market, with a lot of market makers wanting to shift over to appearing to be the ECN brokers.

I say the word 'appearing', for a reason. There's a true difference between an ECN broker and what I call a counterfeit ECN broker.

A market maker takes the counter position trade against you. They trade through a dealing desk on the opposite side of your trade, and they are taking a risk. They are also in a conflict of interest, and because there are risks in a conflict of interest trading against you, their motivation is to make sure you don't succeed very well as a trader.

Because you are trading right from their liquidity pool, you are taking money right from their pocket when you win the trades.

So, this phenomenon because of getting more information out there about the differences between market makers and ECN brokers, we are seeing some of the market makers shift over to appearing as ECN and they are doing this by claiming that they no longer have a dealing desk.

I believe they are really getting rid of the dealing desk. The dealing desk means they don't place a person in the opposite side of the trade involved from that brokerage.

But does that make them a true ECN? NO, it doesn't! Just take a look at the true qualifications of a true trader and how you can test them, and also how you can tell the difference between a counterfeit.

The market maker who wants to look like an ECN, claim to be an ECN to draw more traffic from those looking for ECN brokers, but still reaps the benefits of a market maker, is really serving the interests of a counter serving bank or a liquidity providers in to whose hands, they place the control of their trade platform. Now, this is really what makes the difference between who are truly
ECN or not.
  • Who controls the trade platforms?
  • Who controls the manipulation of variable spread rates?
  • Who controls whether they can invisibly increase that spread rate mid stream of the trade or not?
  • Who controls the manipulation of the spike that they can give you in a data feed, a false spike that does some stop hunting or stop sweeping?
If you see any type of that activity going on in your trade platform, this is not a trade platform. Those are the tell tale signs of a counterfeit ECN broker. They may say that they are ECN, they may say they no longer have a dealing desk, but you want to know who controls the trade platform.
  • Is your liquidity provider in charge of that?
  • Is the counter trading bank in charge of that?
  • Can they see my trades?
  • Can they identify who I am still and do they have the ability to manipulate the spread rates in the variations s well as the interpretations if a market is fast moving or not?
If they have control over that, they are not the true ECN broker you are working with! They simply placed it in the hands of a 3rd party, so that they can now claim, "we no longer have a dealing desk" The 3rd party has become the dealing desk, the 3rd party is still doing the same thing as the market maker, so nothing's really changed for you as a trader.

Maybe they don't have a dealing desk as a broker, you as a trader, still have to deal with the tactical manoeuvre that manipulate and sabotage with your trade. Some of these counterfeit ECN brokers may be more or less, 3rd party who handles that the market makers did, more or less.

But you don't want to be in that position. That's not conducive to your situation. You want the true ECN broker. Here are the symptoms or the characteristics you want to look for in an ECN broker:
  • Their neutral position
  • They don't have a dealing desk
  • They provide rouse technology or a bridge or a basket technology. I prefer the rouse technology bridge.
  • It prevents a counter trading bank. There's always a bank offering trades to somewhere, but it prevents the bank to identify who you are as a trader, they don't see your trades or they see your trade strategies on the trade platform,
  • It's a true ECN broker that manages the trade platform in a neutral environment, so that you have the most levelled playing field.
They will also, let's just say, ECN brokers have also started using MT4 platforms. I think they are great, I am glad more ECNs are using that but if they don't turn off the virtual dealer that is dealing in side of that ECN broker, I am sorry, at the MT4 platform, it is still going to perform like a market makers platform, because Meta traders design the MT4 with the built in virtual dealer that acts in behalf of, and can be adjusted and modified by a market maker to act in their interest and to trade against you or to interfere in your trades, to give you the type of delays, that you don't want see when you try to close your trade. The last thing you want when you close your trade is to have to wait for 15 seconds, with "Please Wait" window that shows up on your screen, when you want to close trade now, at the optimal point, before the market can pull back in a negative position.

So, if want a true ECN broker, using a MT4 platform, you have to turn off the virtual dealer software functions. You have to make sure it is scripted out. Then, you can provide a level trading field, that's a very fair trading field with minimal types of delays.

The only delays that you ever, if you ever see there, will be the types of delays that are natural to the true interbank market system that you have because of liquidity issues that are actual not the contrived type that the market maker will pretend to have, and they will be minimal, almost zero.

You will find a very, very different environment. If you see that type of trading environment, you are probably working with an ECN broker. You just check out once again, do they provide the bridge technology that blinds or prevents the bank from identifying who you are, or interfere with the trade platform.

Are they neutral, do they no longer have a dealing desk; they are not taking counter opposite trade position? If you have no delays or minimal delays on the trades that you are trading on the platform, you are probably working with an ECN broker.

They are going to feel like it, they are going to smell like it, they are going to look like it; all of the symptoms will be like an ECN broker, that's how you identify them. But if you are still getting the same tactics, the same symptoms of the market maker, even though they are claiming to be an ECN, you are probably dealing with a counterfeit.

Quote of the Day: "The greatest disaster in life is not to prepare for a disaster."—Sam Awa