Many highly successful affiliates choose to promote offers in the forex verticals, as the CPA and rev-share programs on offer make for some very attractive payouts and revenue opportunities. Matching the right offer to the right trader is a must, though, and successful affiliates in the forex niches know the value of funneling their leads to the right broker. This funneling goes for the broker’s trade execution model as well.
The forex market as a whole has seen a shift towards what is seen as more open trade execution models, so here’s our breakdown of these models.
ECN – Electronic Communication Network
ECN trade execution came to the forefront around ten years ago with the introduction of price aggregators. An Electronic Communication Network is a no dealing desk model. ECN brokers are connected to various liquidity sources and aggregate the prices from these to make up pricing pairs comprising the Best Buy and best SEll price.
This aggregation ensures the broker’s spreads are kept as low as possible, and since prices are aggregated automatically, re-quotes are kept to significantly lower levels.
ECN brokers typically charge a commission per round-trip lot. That is a commission based on opening and closing (round-trip) one standard lot (100,000 units of base currency for forex currency pairs). This is the base commission calculation with a pro-rata calculation of commissions for smaller or bigger trade volumes.
As mentioned above, re-quotes on ECN brokers are virtually eliminated, making this kind of trade execution particularly attractive to news traders looking to trade opportunities on the economic calendars. ECN brokers have more appeal to traders contracting higher volumes.
Since the commission per trade on ECN brokers is added outside the actual price, this type of trade execution is not recommended for traders using EAs (Expert Advisors). This commission element cannot usually be factored into the price structure of the EA, meaning the software could be closing what it thinks are profitable trades, but the external commission element makes these trades unprofitable.
STP – Straight Through Processing
STP trade execution is technically very similar to ECN with some significant differences, however.
While STP also uses a price aggregation engine, formulating the best Buy and Sell price combinations from the prices coming into the price system, STP lumps all Buy and Sell orders together. This means the various liquidity providers only see the broker as a counter-part. This eliminates the human error element and makes for faster trade execution as everything is done automatically.
The pricing structure of Straight Through Processing execution also differs from Electronic Communication Network pricing in so much as STP does not have the external commission element. The broker’s fee is included in the spread (the difference between the Buy and Sell prices). This makes STP brokers an attractive option for traders using expert advisers. STP is also an attractive trade execution option for traders opening and closing multiple small-volume trades.
DMA – Direct Market Access
Direct Market Access is a form of trade execution where the broker matches all client orders with quoted prices offered by liquidity providers and other market participants. With this DMA execution, client orders are passed directly from the broker to liquidity providers. While DMA is classed as a no dealing-desk trade environment, the broker may choose to keep specific trades in-house and fill these on their own. This can bring transparency into question, however.
Matching the right lead to the right broker is a crucial consideration for successful affiliates. There’s no real point in sending EA users to an ECN broker, for example, as in most cases, these brokers won’t support the use of the EA. If your referrals rely on EAs to trade, then ECN brokers won’t be the best choice for them.
Take the time to engage with your leads wherever possible. Survey-style marketing funnels work well for this. Depending on the answers, send the leads to the most appropriate broker. Trade execution is a crucial consideration for your leads. Learn to use this to your advantage!
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