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Electronic Communication Network (ECN)

Updated on March 2, 2023

An ECN or Electronic Communication Network is a computerized system which matches ‘buy’ and ‘sell’ orders automatically for the same securities. This is useful for big traders who do not want to go through brokers or third parties for large orders and thus can trade directly. Traders connect through an ECN for completing transactions for the same security. An ECN displays the best available ‘ask’ and ‘bid’ quotes from market participants. The ECN then automatically matches traders and once matched, the order gets executed.

Features of ECN

Features of ECN are:
1. ECNs are used on large exchanges, for foreign currency trading and after-hour orders.
2. ECN makes money by charging a fee for transactions executed on its system.
3. It offers security and privacy to traders while executing large orders.

Benefits of Using an ECN

Benefits of Using an ECN are:
1. It provides quicker and smooth trading across markets.
2. ECN provides flexibility to traders by providing anonymity and after hours trading facility, when prices are more stable.