MT4 ECN Bridge

MT4 ECN Bridge is technology allowing user to access ECN marketplace through MetaTrader 4 trading platform.

1 Background
2 Main features
3 Difficulties of true ECN trading for retail traders
4 See also
5 External links

Background

Retail foreign exchange brokers in general are divided into two categories: Dealing desk brokers (market makers) and Non-Dealing Desk (NDD) brokers.

Dealing desk

In the dealing desk model almost none of the orders executed through this broker ever reach the actual market but rather stay in that broker’s inner liquidity pool. Spreads and quotes are decided by the broker. A DD broker is a specific broker who employs dealers that may either accept or reject orders from retail traders (re-quotes) depending on whether or not the broker is interested in accepting the specific order or not.

Non-dealing desk

Non-dealing desk broker doesn't interfere in the dealing process providing his clients direct access to the interbank foreign exchange market. In the past this kind of brokerage was the privilege of institutional clients with large sums and huge trading turnover. With recent technological developments it has become available even for the retail trader.

MetaTrader 4 trading platform

MetaTrader 4 (MT4) is world’s preferred Forex trading platform due to its user-friendly interface and easily comprehensible programming features. More than 60% of all brokers offer this platform and more than 90% of the total retail forex trading volume is executed through it.[citation needed] Unfortunately MT4 wasn’t designed to be used by NDD Brokers.

MT4 ECN bridge technology

There were several attempts at creating a bridge from MT4 to the interbank market but they provided an STP rather than ECN environment (see table below).

	MT4 ECN bridge	MT4 STP bridge
Client’s orders go directly to the marketplace and are displayed there as they are	Yes	No
Clients can see and use market depth (Level 2)	Yes	No
Partial execution is implemented	Yes	No
Stability of work	Yes	No

ECN means direct access to the market where you can trade with other traders. Your orders are actually displayed in the market and are seen by others, who in turn can introduce their own orders and if the prices match, a deal is complete. A solution of bridging MT4 and ECN option appeared in 2006 through some mutual relationships in Boston, MA, developers worldwide quickly capitalized on the concepts as it quickly gained popularity from FX dealers globally. (see Pic.1).

MT4 Bridges are now offered by several firms globally as a solution to enable

Main features

True ECN execution - clients trade with other traders, orders are displayed and seen by others on the market;
Tight spreads - there is only a difference between best bid and offer prices, if a client places an order with a better price, it changes the spread;
Fast execution - orders are executed within 0.3 sec on the server side;
No conflict of interest - traders earn profit and dealers earn commission (see Background – Non-Dealing Desk);
No re-quotes - a market order will be filled by the best price available (see Background – Dealing Desk);
Possibility of partial execution - in case of insufficient liquidity the order can be partially executed while the rest will be displayed and seen on the marketplace;
EA availability - clients can use all Expert Advisors without any limitations;
Market depth - via special Add-in or MQL clients have access to the depth of the market (Level 2) - a measure of the size of volume available for transaction purposes for a particular instrument at a particular point of time. The best Offer (ASK) and the best BID are displayed in a table with the size available to buy or sell. Market depth displays orders that are currently in the market. When two orders match (buy and sell orders at the same price), they are filled and disappear from the market depth, the deal is registered in the trade history.

Difficulties of true ECN trading for retail traders

Price volatility is much greater in comparison to quotes of market makers who use fluctuations filtering while the NDD model provides direct access to the interbank foreign exchange market - the most volatile one;
Market makers’ quotes are not related to the volume, i.e. orders will be filled at the offered price without any relation to the deal volume. While the market presents the liquidity that is currently available, i.e. orders will be executed in the volume available at this certain price. That’s why traders have to be aware of the volume at the market and take this into account while trading.