What is an Electronic Communication Network or ECN?

 

I recently read about an Electronic Communication Network. But what is it anyway?

An electronic communication network, or ECN, is a computerized system used for buying and selling securities, and is an alternative to stock exchanges. It is where buy and sell orders from different market participants are directly matched, eliminating middlemen like brokers.

What securities are traded on ECNs?

ECNs mainly deal with stocks and currencies.

What are the advantages of Electronic Communication Networks?

As alternative trading systems, ECNs offer more flexibility by allowing trading outside the traditional market hours. They also charge lower commissions and fees for trading compared to traditional brokerages. They can also provide anonymity to people placing large buy or sell orders.

Are there any disadvantages of ECNs?

While their per-trade commissions may be lower, the one-time access fee to be paid before you can start using an ECN can be very high.

Are Electronic Communication Networks meant for investors with a lot of money, or investors like you and me?

There are many ECNs in existence today. Some of these are meant for institutional investors, who are investors with a large sum to invest, while others cater to retail investors, who are people like us.

Can you give me some examples of ECNs?

Some examples of ECNs are NYSE Arca, SelectNet and Instinet.

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