What does ecn stands for Electronic Communication Network, and it is a trading network that links brokers directly to other traders and market participants. The ECN system consolidates bids and offers from several market participants and clients and then automatically matches them on a real-time basis. ECN brokers offer tighter bid/ask spreads than market makers and also guarantee that both buyers and sellers are anonymous in trade execution reports.
Demystifying ECN: Exploring the Meaning of ECN in Trading
The first ECN, Instinet, was created in 1969 and is now used by small brokerage firms as well as NASDAQ market makers. SelectNet and NYSE Arca are also ECNs that facilitate trades between large brokerage firms and institutional investors. ECNs increase competition among trading firms by lowering transaction costs and offering order matching outside traditional exchange hours.
In addition to providing direct access to the underlying market, ECNs offer high speed and low latency. This allows clients to get the best possible price on every trade. ECNs also allow buy-side FX market participants, who were traditionally “price takers”, to become their own price makers.
Traders can use an ECN account to trade a wide range of assets including stocks, bonds and currency pairs. However, traders should be aware that ECN accounts have different risk profiles than traditional brokerage accounts. In addition to the normal brokerage fees, ECN accounts may carry additional transaction costs such as liquidity fees. This means that traders should fully understand the terms of their ECN accounts before opening one.