Electronic Communication Networks (ECN): What Are They?

Moment everyone who is involved in operations on the US stock request knows about ECNs. But there aren't numerous people who really understand the introductory principles of ECNs. This composition explains the most important effects about ECN systems.

ECN is an automated computer trading system. american dynamics video management system The first ECN was INSTINET- a trading network established in 1969, long before the term ECN appeared in wordbooks. utmost of the other ECNs( ISLAND, REDI, ARCHIPELAGO, BLOOMBERG, BRUT) have been erected on the principles of the first ECN- INSTINET. New rules of order prosecution came a catalyst for the ferocious ECN's development. New rules were approved after a long discussion in the investors' community, as well as in brokerage houses. The main thing of the new rules was the revision of the being order prosecution algorithms so that every investor could get the stylish possible price by an order submission, whether he buys or sells shares. New rules were to terminate all request- makers' openings to gain redundant profit from illegal order prosecution. ECNs manage this task in the stylish possible way. By the way, ECNs allow working on the stock request without request- makers more efficiently.

The first task of ECN systems is to execute steal orders by sell orders of equal volume.american dynamics network Camera This process goes automatically, for illustration, if the system receives a sell order for 1000 shares of XYZInc. at$ 10 per share, it'll look for the same steal order( i.e., the same quantum of shares at a particular price).

Automated hunt of two equal orders is the fastest and the most effective way of fulfilling orders. By the way, FIFO prosecution principle( First In First Out) guarantees individual investors a fair prosecution not depending on particular trading volumes.

So, moment ECNs work as aquasi-stockexchange.However, an ECN uses the same algorithm as the NASDAQ does it transfers the stylish available shot and offer to the NASDAQ, If an contrary order isn't set up in the system. NASDAQ's position 2 information defenses show this quotes under the name of the ECN. When the shot or offer of the ECN becomes the stylish among available on the NASDAQ, anyone who's following NASDAQ quotations, enters his contrary order at the same price which leads to the prosecution of the order, firstly entered in the ECN.

therefore, ECN fulfills two functions it's an electronicquasi-exchange and a request maker in the trading system NASDAQ. Under the rules of the Securities Commission( SEC), ECNs can be registered as an electronic stock exchange, i.e., they're officially honored as stock exchanges.

ECNs' advantages

The main advantages are obscurity, automated order prosecution and low costs. Buyers and merchandisers can put their orders into ECN and not worry that information about their exertion will affect the request. There's fully no mortal factor in order prosecution, so far the electronic system accepts and executes all orders. ECNs not only speed up the trading process, but also spare investors plutocrat they don't try to make redundant cash on the difference between the price in order and the factual request price just like it happens on the way" broker- NASDAQ request- maker".

moment numerous ECNs expand trading time by adding several trading hours ahead and after an open request session. It's egregious that in the near unborn trading through ECN will be available round the timepiece.

ECN's disadvantages

Trading in ECNs is extremely effective if you trade largely liquid stocks that have a lot of one- time buy and vend orders. That increases the probability of the presence of two active contrary equal orders in the system. It may be not a veritably good idea to trade less liquid stocks in ECNs. In this situation it's better to shoot your orders to traditional request- makers of the NASDAQ.