An Electronic Communication Network (ECN) is an electronic trading venue that automatically matches orders and displays liquidity by publishing bid and offer quotes via a centralized network. ECNs are typically operated as a type of trading venue that connects multiple market centers and participants, enabling fast, automated execution.
Traders route orders to an ECN using direct market access or through brokers. The ECN electronic system matches orders against others and, when compatibility occurs, the trade is executed and reported. Some ECNs display quotes, providing visibility into available liquidity; others route to other venues if more favorable prices appear. ECNs can contribute to pre-trade transparency by showing best bid/offer and improving the speed and efficiency of executions.
In U.S. equity markets, ECNs compete with traditional stock exchanges and can operate as alternative trading systems (ATS). ECNs reduced the need for manual trade matching, enabling after-hours or time-priority trading in some cases.
An ECN routes a retail investor's limit order to multiple venues and, when a match appears, the order is executed through the ECN and trade reports are published.
Alternative Trading System (ATS) · Limit Order · Order Routing · Liquidity · Pre-trade Transparency