MT4 ECN Bridge is a technology that enables users to access the interbank foreign exchange market via the MetaTrader 4 (MT4) electronic trading platform. MT4 is designed to allow trading between brokers and clients so as not to give orders through through the wholesale foreign exchange market via electronic communication networks (ECN). In response a number of third-party software companies developed the Straight-through processing interface software to allow the MT4 server to pass commands placed by the client directly to the ECN and provide automatic trading feedback confirmation.
Video MT4 ECN Bridge
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Retail foreign exchange brokers are generally divided into two categories:
- Handles a table broker or market maker that executes an order and maintains a position in the broker's liquidity pool. DD Brokers are specialized brokers that hire dealers who can accept or refuse an order from a retailer (re-quotes) depending on whether the broker is interested in receiving a particular order or not.
- Non-Dealing Desk (NDD) broker or direct market access where the broker only gives orders to the interbank foreign exchange market.
The MetaTrader4 trading platform is designed for dealing desk brokers, but the popularity of the trading platform means that retail forex traders as well as brokers want to provide a way to trade directly on the interbank foreign exchange market via MT4.
Maps MT4 ECN Bridge
Bridge software
A number of software companies are trying to develop a connecting technology that allows brokers to connect the MT4 server to the ECN. The first practical solution for bridging MT4 and ECN appeared in 2006. There are two main types of bridge technologies that affect the way orders are processed: STP and ECN models. The table below shows the main differences.
ECN means direct access to a market where you can trade with other merchants. Your order is actually displayed in the market and viewed by others, who can in turn introduce their own orders and if the price matches, the transaction is completed.
Key features
- Real ECN execution - clients trade with other merchants, orders displayed and viewed by others in the market;
- Strict spreads - there's only the difference between the best bid and the offer price, if the client places the order at a better price, it changes the spread;
- Relatively Fast Execution - commands are usually executed within 0.3 seconds on the server side;
- Possible partial execution - in case of insufficient liquidity of an order may be partially performed while the remainder will be displayed and viewed on the market;
- Market depth can be provided through a special additional module to show the depth of the market also known as Level 2 - the volume size measure available for the purpose of transactions for a particular instrument at a given point in time. Best Offers (ASKs) and best deals are displayed in a table with sizes available for purchase or sale. The depth of the market displays the orders that currently exist in the market. When two orders match (buy and sell orders for the same price), they are filled and missing from the depth of the market and registered transactions in trade history.
The real ECN trading difficulties for retail traders
- Price volatility may be greater than quotes from market makers who may use filtering fluctuations while the NDD model provides direct access to the interbank foreign exchange market.
- Quotations of market makers are not related to volume, that is, an order can be filled with the offered price without any connection to the volume of the transaction. When using the ECN, the market presents the liquidity currently available, ie orders will be executed in volumes available at this price.
- Offer bid spread may vary significantly with market conditions that reflect actual interbank market prices that may cause issues with termination. Market Makers will usually keep the spreads at a fixed level to avoid confusion for retailers and avoid stalls and batting constraints when prices are unstable.
See also
- The foreign exchange market
- Direct access trading
References
External links
- US Securities and Exchange Commission
- Investopedia
Source of the article : Wikipedia
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