MT4 is a popular Forex trading platform that is adopted by a majority of Forex traders from across the globe. The significant penetration of the MT4 in the retail trading industry has resulted in a majority of traders being familiar with the trading platform from their early days of trading. In fact, traders who are comfortable with the MT4 will always look to trade on the MT4, even while switching to a new broker. Some mainstream brokers may offer better in-house alternatives that have an improved user interface and advanced features, but MT4 continues to dominate the market. Even professional traders find it hard to switch over to MT4 rivaling platforms, which make MT4 an attractive proposition for traders of different categories and varying levels of expertise.
How Does The Standard MT4 Terminal Work?
MetaQuotes primarily designed MT4 as a dealing desk platform for the FX market. A dealing desk model, or also known as a market maker model, is a system that allows a broker to accept orders from a trader and then pass it on to another trader that takes the opposite end of the trade. Essentially, a dealing desk broker works by filling positions in the market according to the demand and supply of the underlying asset. In case the broker does not have the liquidity in the market to pass on positions to their traders, the broker has the discretion to either take the other side of the trade or choose to refuse the order altogether. This is the main reason why regular MT4 traders experience a significant amount of requotes and slippages while trying to open a position in the standard MT4 trading platform.
Most ‘Micro’ and ‘Standard’ accounts offered by MT4 brokers follow the dealing desk model, which gives the broker the power to control the markets by choosing to accept or deny a trader’s order according to the market’s liquidity. Since such types of brokers have the power to interfere with a trader’s position, sometimes even taking the opposite side of a trader’s position, market maker brokers have a significant amount of conflict of interest with their clients. Some market maker brokers are also known to indulge in dishonest trading practices by manipulating the price feeds, by tampering with the trading terminal, or by modifying client orders in a way that is unfavorable for the trader.
The Relevance of MT4 ECN or STP/DMA Bridge
To counter the problems of market maker brokers, and to pass on the trades to a global liquidity pool, third party providers started developing technologies known as an ECN or STP/DMA bridge, which essentially allows the standard MT4 terminal to connect to a global liquidity pool without the help of a middleman. Therefore, with the support of an ECN or STP/DMA bridge, the broker does not need to worry about filling orders at the broker level, as the orders can be filled at market price through a global exchange.
ECN (Electronic Communications Network), STP (Straight Through Processing), and DMA (Direct Market Access) are technologies that connect a trader to the interbank foreign exchange market, which provides accurate price feeds and high-speed trading without the problem of requotes. There are significant differences between the ECN bridge and an STP/DMA bridge, which varies according to the features and functionalities. An ECN bridge offers access to vital data such as the market depth, the trades being processed in the marketplace, and the ability to implement partial execution of orders without fail. An STP/DMA bridge, on the other hand, does not provide access to the market depth or allow clients to view other orders in the market.
An ECN account also involves the tightest spreads but is often associated with commissions per trade. ECN accounts enjoy better trading conditions and are preferred by professional traders due to the lack of involvement from the broker. An STP account is also relatively safe from broker interference, but the spreads are higher, and the orders do take relatively more time to fill when compared to ECN accounts. One of the main advantages of an STP account is the lack of a commission per trade, but the cost is accumulated by the wide spreads that are often magnified during times of extremely low or high volatility.
How To Ensure Whether ECN MT4 Forex Brokers Offer An Authentic ECN Trading Platform?
There are many ways by which traders can guarantee whether ECN MT4 Forex brokers are indeed providing a genuine ECN bridge for their MT4 platform. First of all, ECN trading involves the tightest spreads, highly precise price feeds, and super-fast execution speeds. ECN trading should offer spreads that are lower than the regular price feed, and should always hover around 0 to 1 pip under normal market conditions for most major currency pairs. Also, a majority ECN brokers charge a commission per trade that can vary from $1 to $25 per round lot.
ECN MT4 platforms also offer information related to market depth and existing orders in the market. Since ECN connects a trader directly to the liquidity provider or the interbank exchange, orders are filled instantly without any requote or slippage. Of course, in case there isn’t enough liquidity in the market, ECN platforms will fill a partial order, which is not seen on regular STP or standard accounts where orders are either filled entirely or not filled at all.
What Are The Drawbacks of ECN MT4 Trading Platforms?
ECN terminals are susceptible to high market volatility, which can result in large gaps in pricing. The live and direct market access can induce slippage, which can both be negative or positive according to the incoming and outgoing orders at market price. The interbank rates change violently during regular market hours, and it can be difficult for retail traders to open a position at an exact price point. Brokers that offer a standard trading account usually filters the price feed to ensure a more smooth action, which can provide a steady market for traders. On the contrary, ECN tick charts are highly choppy in nature, which should induce substantial slippages.
True ECN accounts involve commissions and other trading restrictions, which typically prevent traders from opening micro lots or using a high leverage. Some brokers do support a high leverage on ECN accounts, but the amount of leverage for ECN accounts are considerably lower than standard or micro Forex trading accounts. Therefore, traders will require a larger trading capital to trade using true ECN conditions.
MT4 ECN Forex brokers are highly preferred by professional traders with a significant amount of trading capital due to the obvious benefits of direct access to the markets. ECN bridges are becoming hugely popular in the retail trading industry, and if you have access to a higher trading capital, you are better off with an ECN account rather than a standard or a micro account.