ECN and True Prime of Prime Comparison for block trading

Many traders are hesitant about large market orders execution. This ECN and True Prime of Prime Comparison for block trading will clarify this issue.

AtoZForex If you are not new in the Forex market, it is not a secret that execution of trades of a high volume can cost you a fortune if not implemented in the adequate liquidity setting.

ECN and True Prime of Prime Comparison for block trading

Today, we will go over two most common venues that clients in the Forex market usually use to implement a large market order. I am talking about an electronic communication network brokers and an individual Prime of Prime brokers. We have discussed other various types of brokers in our Comparison of Forex Broker Types article for your convenience.

ECN for block trading

The electronic communication network (ECN) is a technology-based platform that includes a number of liquidity providers (LPs). The LPs are normally both bank and non-bank type, and they are streaming their pricing to the ECN in a nonstop regime.

ECN  brokers, such as FxPro, are averaging the pricing. When you are looking at the aggregated price feed of an ECN, you can notice that it involves many levels of liquidity. Moreover, LPs commonly prefer to stream small ticket size pricing to the ECNs. This is due to the fact that such approach allows for the tighter spreads. This way, the LPs are ensuring that they are not exposed to the risk of getting it with large tickets on those spreads.

Moreover, the liquidity providers are trying to price aggressively to have an opportunity to become "Top of Book” (ToB). This implies that they can win the clients from the competitors. All in all, LPs are not pricing the ECNs in the larger amounts. They reserve the larger type of pricing for their own direct API/GUI clients.

True Prime of Prime for block trading

The individual Prime of Prime (PoP) is a broker that leverages its own credit lines via global banking institutions. This is done through a top tiered Prime Broker (PB). The true PoP is passing all client trades directly for execution. For instance, Prime of Prime broker ADS Securities provides an opportunity to trade directly on the market with their liquidity providers.

The PoP aggregates the myriad of bank price feeds. Like that, it creates a single unique stream of liquidity, which is available for the institutional client to trade on. Moreover, these large PoPs are normally streaming pricing that is suitable for larger ticket sizes. This creates so-called Depth of Market (DoM).

It is worth to note that the PoP's Top of Book pricing might not be as tight as the one of the ECN due to the large size of ticket price streams.

The best way to execute large market order

Now, when you got yourself familiarized with the two most popular venues that are utilized for large market order, it is high time to look at ECN and True Prime of Prime Comparison for block trading. Specifically, we will analyze how a large order is processed by the market.

At the time of order trigger, the first layer of pricing hit always becomes the Top of Book. The next layers of quotes are following the first one in the aggregator stream. This process goes on until the order is filled. Next, a number of transactions might be required, depending on the size of the trade and market environment. The longer the process of order filling, the more time the LPs have to adjust their pricing. There is a possibility of potential slippage in case a really large order is being processed.

The execution of the large market order is depending on the liquidity that is available in the aggregated price pool.

The aggregated price stream on an ECN might indicate tighter spreads on the ToB than those of the Prime of Prime. As we mentioned before, this is happening mainly due to the presence of small ticket quotes. The smaller tickets might appear more appealing to you. However, they also carry an underlying risk. While processing a large order, these small ticket quotes might act as an obstacle. The small ticket transactions are creating extra legs on the order, thus adding more execution time.

Processing a large market order with PoP provides you with a different experience. Even though the ToB will be slightly wider for this venue, the order can deliver a different result. A real PoP would be cooperating with large international banks in their aggregating liquidity feed. The feed is featuring the pre-agreed price streams that are linked to the ticket size.

To conclude

To conclude our ECN and True Prime of Prime Comparison for block trading:

  • If you are seeking to execute a very large market order through a not true Prime of Prime or ECN, it will most likely result in a number of issues. It is possible to do so, but it will take a lot of time.
  • The real Prime of Prime is what you need. When executing large market orders, these venues are capable of creating a stream of liquidity that corresponds to the size of your trade.

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