It's like a middleman between two larger financial institutions. The inter-dealer broker fills in the space when two organizations (like investment banks) want to trade something that doesn't have a structured market.
Global Bankers Mart, LLC wants to buy a cache of rare dinosaur egg fossils from Capital Investment Corp. GBM sees big upside in the fossilized egg market, and their Dino Long Fund has been looking for investments. However, the transaction is tricky, because unlike a stock, there's no current exchange where dino eggs get traded (apparently, the CME hasn't gotten in on that action yet).
So you step in as the inter-dealer broker. You become the intermediary in the deal, creating the bridge for the companies to close the transaction. The eggs get sent to GBM, and Capital Investment Corp. gets a wad of cash. You take a small commission for facilitating the deal.
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Finance: What is Electronic Communicatio...12 Views
Finance a la shmoop what is the electronic communication network or ECN?
all right it's the computerized and wired version of this for a small fee [Large computer network]
traders can plug in to a network to trade stocks you know think about it
like Facebook for stock traders only with less political ranting and fewer
photographs of babies and freshly cooked meat generally well generally speaking [A pan of meat and potato's appear]
ECNs are "off-market" that is they aren't really directly part of
an established trading system like the New York Stock Exchange or Nasdaq or one
of the other blessed exchanges they connect market makers directly to third
parties allowing them to trade to their heart's content there aren't a lot of
actual physical hands at work here most of the limit orders are matched
electronically the network charges its fee the transaction is processed and [Company share price appears]
life moves on so think about it like it's 2:00 a.m. on a Saturday and Joe who
likes to trade in his underwear don't ask us why it's just dying to sell a [Joe sits down at PC]
hundred shares of coke to Betty who likes to trade while head-banging to Led
Zep and you know likes to trade with Achmed who's saving money for an air
conditioner yeah well no sweat so this is perfect for anyone who wants to
become active in the trading of stocks but hates any kind of physical human [Man waving to woman and woman walks by]
interaction yeah don't worry the robot rebellion will soon be upon us and ECNs
will rule the roost
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