Opening an ECN Account
An Account ECN is a technology platform provided by financial institutions for customers that allows them to execute their trades via online banking. An account holder will open an account with an ECN broker and use this broker’s tools to access trading markets, execute trades and keep track of financial transactions. The concept behind the ECN is that a bank, which is the ECN broker, holds an account of a customer’s funds and acts as the intermediary between the customer and external trading venues. Since the broker holds the customer’s money, any activity in the market involving such funds will be reported to the broker by the customer’s banking system. This transaction is then relayed to the customer’s reputed financial institution, where the funds are withdrawn.
There are two main types of ECN broker systems. The first is managed account. With a managed account, a bank provides the application programming interface (API) to the ECN broker through a web portal. This interface facilitates navigation of the web based system, viewing of real time data streaming from the market and analysis of the same. The second type of ECN broker is internet-based.
In an internet-based system, a third party – referred to as the servicer – accesses the banking system and provides the client with internet-based access to the ECN broker’s proprietary trading platform. The servicer provides a login and password to the account holder and access to his/her account. The account holder can then log into the broker’s system, use its tools to enter the buying and selling information and enter order details. The internet-based system is secure and free from any third party intervention.
It is important that an account ECN broker’s system is compatible with the client’s banking system. This ensures secure online transactions for both the account holder and the broker. Compatibility of the system must be managed on a case by case basis and a comprehensive compatibility test should be carried out before commencing trading. The test should cover all functional areas such as speed of execution, the number of account holders, interface and security features.
A third type of ECN broker is telephonic or voice over IP (VOIP). In this system a call is made to the ECN broker by the client with a microphone or phone. The broker’s server, instead of accessing the internet for data, verifies the presence of the client’s telephone number in the system. Once it is verified, the broker searches for a telephone connection to that particular number. Once a successful connection is established, data is transmitted to the account holder’s computer.
The telephonic system is often used as an alternative to the more expensive and long distance phone calls. Traders may easily place orders to sell or buy a stock, currency or futures contract. These services are offered by almost all ECN brokers today. However, as with all types of trading, it is important to ensure that you get good value for money. Some ECN brokers charge excessive fees for their services, while others provide a reasonably priced trading service.
In order to determine which ECN platform is best for your specific trading requirements, you need to assess your own needs. If you are a beginner and just learning about the market, then an account managed by a standard bank is a good option. If you have a large amount of capital to invest or you are a professional trader looking to reduce your risk factors, then you may need to employ a more sophisticated system. For most beginners, a managed account offers the necessary services to start trading. If you are a beginner, you can choose a platform that suits your level of experience.
Once you have chosen an ECN broker for your account, you need to open an account with them. This usually takes only a few hours with most providers. The first step is to enter your credit card details and the relevant information into your trading platform. Then the ECN broker will confirm your account details and confirm your new trading platform. You will then be able to access your funds in real time via the internet.