Finance: What is Electronic Communication Network (ECN)?

What is Electronic Communication Network (ECN)? In order to facilitate the exponential increase of trading volume in the markets, any financial institution seeking to conduct its own trades or trades on behalf of clients is required by the SEC to have a connection to Instinet, SelectNet, Archipelago, or one of the other established systems, which are called Electronic Communication Networks. ECNs match trades and display best bid and offer in real time from whoever is on the system from all over the world.

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Transcript

00:29

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

00:35

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

00:39

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

00:44

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

00:48

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

00:53

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

00:58

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

01:03

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

01:07

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

01:12

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

01:17

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

01:21

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

01:26

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

01:31

will rule the roost