Electronic Communication Network (ECN)

Categories: Index Funds, Trading, Tech

For a small fee, traders can plug into a network to trade stocks. Think of it as Facebook for stock traders. Only with less nudity and political ranting...and fewer photographs of babies and freshly cooked meat.

Generally speaking, ECNs are “off market.” That is, they aren’t 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 life moves on. So it’s 2 am on a Saturday, and Joe, who likes to trade in his underwear, is just dying to sell 100 shares of Coke to Betty, who likes to trade while head-banging to Led Zep, who likes to trade with Achmed...who’s saving money for an air conditioner.

So...this is perfect for anyone who wants to become active in the trading of stocks, but hates any kind of physical human interaction.

Don’t worry. The Robot Rebellion will soon be upon us.

Related or Semi-related Video

Finance: What is Electronic Communicatio...12 Views

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Finance a la shmoop what is the electronic communication network or ECN?

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all right it's the computerized and wired version of this for a small fee [Large computer network]

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traders can plug in to a network to trade stocks you know think about it

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like Facebook for stock traders only with less political ranting and fewer

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photographs of babies and freshly cooked meat generally well generally speaking [A pan of meat and potato's appear]

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ECNs are "off-market" that is they aren't really directly part of

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an established trading system like the New York Stock Exchange or Nasdaq or one

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of the other blessed exchanges they connect market makers directly to third

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parties allowing them to trade to their heart's content there aren't a lot of

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actual physical hands at work here most of the limit orders are matched

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electronically the network charges its fee the transaction is processed and [Company share price appears]

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life moves on so think about it like it's 2:00 a.m. on a Saturday and Joe who

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likes to trade in his underwear don't ask us why it's just dying to sell a [Joe sits down at PC]

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hundred shares of coke to Betty who likes to trade while head-banging to Led

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Zep and you know likes to trade with Achmed who's saving money for an air

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conditioner yeah well no sweat so this is perfect for anyone who wants to

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become active in the trading of stocks but hates any kind of physical human [Man waving to woman and woman walks by]

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interaction yeah don't worry the robot rebellion will soon be upon us and ECNs

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will rule the roost

Find other enlightening terms in Shmoop Finance Genius Bar(f)