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Basics of The ECN Trading Program

Published on 24th May 2019


The ECN, or Electronic Communications Network, is a computerized system that can allow investors to bypass the major stock exchanges and allow them to trade directly with each other.

This can allow them to reduce transaction costs as they’re not paying brokerage fees to conduct trades. It also gives them the freedom to trade outside of regular stock market trading hours.

While the ECN trading program might be relatively new for smaller investors, it has been around for many years and actively in use by larger players and companies.

While there are a few electronic networks that facilitate trading on the NASDAQ, there are also quite a few smaller ECNs too.

The small order execution system is becoming a favourite of smaller investors as it limits trades to less than 1,000 shares for any particular company. It also won’t allow any trades for stocks priced at higher than $250 per share.

This can help give smaller investors a chance to compete with the bigger companies and investors as it creates a more even playing field for orders and execution.

Companies offering ECN trading programs hope to change the way regular trading is conducted on the major stock exchanges. After all, with big investors trading millions of stocks at a time, this can give them the advantage, while smaller investors are laden with fees, transaction costs and smaller trade values.

Perhaps the best benefit to trading via an ECN trading program is the flexibility of being able to place trades at any time of the day or night from any internet connection.

An example of this could be while you’re away from your computer and you receive a text message on your cell phone, alerting you to the price change of a particular stock you’ve been watching. 

If you have internet access on your cell phone, you can place that trade immediately, securing the price you were notified about without waiting for regular trading hours to commence. The ECN matches the order for execution automatically.

In order to trade using an ECN trading program, you must have an account with a broker that will provide direct access trading or you must be a subscriber. This is considered an alternative trading system and you need to remember that you’re not dealing directly with the stock exchange, but trading directly with other investors.

ECN trading programs aren’t just for trading stocks, though. Trading on the Foreign Currency Exchange (forex) via an ECN can offer significant advantages. Forex traders can benefit enormously from the faster processing and higher availability of currencies in the market place, along with the reduction of trading fees. 

The orders are matched automatically through the computer system, which means the exchange looks instantaneous. This can offer traders a much higher level of liquidity.



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