User:Vadimurazaev/MT4 ECN Bridge

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

Background
Retail Forex brokers in general are divided in two: Dealing Desk (DD) brokers (market makers) and Non-Dealing Desk (NDD) brokers.

Dealing Desk
In 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. DD broker means that specific broker employs dealers who either accept or reject orders from retail traders (re-quotes) depending if the broker is interested in accepting that 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 Forex 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 for 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 volume is executed through it. 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 at best (see table below).

ECN means direct access to the Marketplace where you can trade with other traders and 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 bridging MT4 and ECN options appeared only in 2009, developed by FXOpen, and quickly gained popularity (see Pic.1).

Main features

 * True ECN execution - clients trade with other traders, orders are displayed and seen by others on the marketplace;
 * Tight spreads - there is only a difference between best bid and offer prices, if a client places an order with 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 - 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 bigger in comparison with quotes of market makers who use fluctuations filtering while NDD model provides direct access to interbank Forex 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 marketplace 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 it into account while trading.