MT4 ECN Bridge is a technology that allows a user to access the

interbank foreign exchange market The interbank market is the top-level foreign exchange market where banks exchange different currencies. The banks can either deal with one another directly, or through electronic brokering platforms. The Electronic Broking Services (EBS) and Th ...

through the

MetaTrader 4 MetaTrader 4, also known as MT4, is an electronic trading platform widely used by online retail foreign exchange speculative traders. It was developed by MetaQuotes Software and released in 2005. The software is licensed to foreign exchange brok ...

(MT4)

electronic trading platform In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products ...

. MT4 was designed to allow trading between a broker and its clients, so it did not provide for passing orders through to wholesale forex market via

electronic communication network An electronic communication network (ECN) is a type of computerized forum or network that facilitates the trading of financial products outside traditional stock exchanges. An ECN is generally an electronic system that widely disseminates orders e ...

s (ECNs). In response, a number of third-party software companies developed

Straight-through processing Straight-through processing (STP) is a method used by financial companies to speed up financial transactions by processing without manual intervention (straight-through). It was developed for equities trading in the early 1990s in London for auto ...

bridging softwareMichael Gorham, Nidhi Signh. Electronic Exchanges: The Global trandformation from Pits to Bids. – Elsevier Inc. – 2009. – . – p.18. to allow the MT4 server to pass orders placed by clients directly to an ECN and feed trade confirmations back automatically.

Background

Retail

foreign exchange brokers The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...

in general are divided into two categories: * Dealing desk brokers or

market maker A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the ''bid–ask spread'', or ''turn.'' The benefit to the firm is that i ...

s that execute orders and keep the position in that broker's inner

liquidity pool In finance, a dark pool (also black pool) is a private forum (alternative trading system or ATS) for trading securities, derivatives, and other financial instruments.direct market access where the broker simply passes the order to the

. The MetaTrader4 trading platform was designed for dealing desk brokers, but the popularity of the trading platform meant that retail forex traders as well as brokers wanted to provide a way to trade directly on the interbank foreign exchange market via MT4.

Bridge software

A number of software companies attempted to develop bridging technology that allowed the broker to connect the MT4 server to an ECN. The first practical solution to bridging MT4 and ECN appeared in 2006. There are two main types of bridge technology which effects the way orders are processed: the

STP STP may refer to: Places * São Tomé and Príncipe (ISO 3166-1 alpha-3 code, IOC country code, and FIFA country code STP) * St Pancras railway station, London St Pancras (Domestic) railway station (National Rail code STP) * St. Paul Downtown Air ...

and ECN models. The table below shows the main differences. 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.

Main benefits

* 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 Offer or offers may refer to: People * Ofer Eshed or Offer Eshed (1942-2007), Israeli basketball player * Offer Nissim (born 1964), Israeli house DJ * Avner Offer, economic historian * Dick Offer, English rower * Jack Offer, English rower * Steve ...

prices, if a client places an order with a better price, it changes the

spread Spread may refer to: Places * Spread, West Virginia Arts, entertainment, and media * ''Spread'' (film), a 2009 film. * ''$pread'', a quarterly magazine by and for sex workers * "Spread", a song by OutKast from their 2003 album ''Speakerboxxx/T ...

; * Relatively fast execution – orders are typically executed within 0.3 sec on the server side; * 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; * Market depth can be provided via a special add-in module to show the depth of the market also known as ''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 and the deal is registered in the trade history.

Difficulties of true ECN trading for retail traders

* Price volatility can be greater in comparison to quotes of

s who may use fluctuations filtering while the NDD model provides direct access to the

. * Market makers' quotes are not related to the volume, i.e. orders may be filled at the offered price without any relation to the deal volume. While using the ECN the market presents the

liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity, the ease with which an asset can be sold * Accounting liquidity, the ability to meet cash obligations when due * Liq ...

that is currently available, i.e. orders will be executed in the volume available at this certain price. * Bid–offer spread can vary significantly with market conditions reflecting actual interbank market prices which can cause problems with stops. Market Makers will typically hold spreads at a fixed level to avoid confusion for retail traders and avoid stops and limits being hit when prices are unstable. * Additional order execution latency is introduced due to the necessity of executing the trade with a liquidity provider.

References

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External links