Electronic Communications Network (ECN)

An electronic communication network (ECN) is an electronic matchmaking system which connects buy orders and sell orders to facilitate direct over the counter (OTC) trading between investors outside of stock exchanges.

ECNs provide an alternative to managed OTC exchanges by automating the process of matchmaking between sellers and buyers. Rather than making use of a stock exchange to connect seller and buyers and manage trades, ECNs make it possible for traders to trade directly between each other.

Typically, ECNs are provided and maintained by third-party operators which are not official stock exchanges. ECNs may be connected to OTC exchanges operated by registered stock exchanges, but this is not always the case.

Due to the high level of automation used by ECNs, trading on ECNs can be more cost-effective than trading through securities exchanges. However, access to ECNs is often limited to customers of the companies which operate them, and few brokers (including affordable online brokers) are able to access them.

More on this topic:
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