A Short Essay on the Electronic Communications Network

E.C.N. when expanded stands for Electronic Communication Network, which is a kind of brokerage. Rather, one of the two kinds of brokerages that exist on the planet. This is the kind of brokerage where the trader using the brokerage is directly connected to the real liquidity market in an electronic manner (the liquidity market here consists of all the big banks and various other kinds of financial institutions such as loan banks of the industry). Here all those systems would freely interact amongst themselves, and those aforementioned institutions (banks and others) place trading orders from their systems. (Information credit: https://www.cornertrader.ch/ ).

To speak clearly about the ECN brokerage system, there exists an “order matching system”. What it does is that it completely puts the orders to task whenever particular parameters are satisfied (for example price, quantity, financial instrument etc.).

Here, the total number of “pure” ECN brokers that exist in the retail Forex Market is a big fat zero for all practical purposes. In reality, it’s the ECN/STP (Straight through Processing) system which is actually popular in reality. However, these are still far better in comparison to the ‘dealing desk’ brokers (the brokers who don’t connect the traders to the liquidity market; instead they simply place trades and take positions on behalf of the traders. The trades placed by the traders are not directly connected to the liquidity market; they stay confined strictly within the brokerage. If there is no counter-party at all (which is alternatively known as the ‘opposite counter order’) for placing the order, but there is a satisfying order from the external (or the Liquidity Provider) ---in that case your request is sent to the external Liquidity Provider via STP mechanism. The very point of an STP’s existence is to showcase that there is a trading system which requires absolutely zero manual interaction for the entire life-cycle of the trade. In other words, e.g. every single thing after submission of an order e.g. processing, execution, booking (reservation), allocation and settlement occurs automatically.

How Do You Know Whether It’s an ECN?

In case you set a ‘Limit Order’ (or the existing difference between the ‘ask’ and the ‘bid’ offer) then it changes and maintains the Best Price (no improvement is found in the Best Price), until the limit order is fully executed or until yet another Limit Order appears with a superior price tag. You would be able to completely restrict the best price and the DAB can also be reduced. You should see to it that you are able to carry it out without your orders actually being executed – just get enough time to move around the Limit Order. If you place two opposite Limit Orders with the exact same price inside the DAB, then it provides immediate execution for the two orders. In other words, “you actually buy it from only yourself”. It is important to take into account such parameters considering the order volume, speed of execution and queue of the order.
If the brokerage you’re dealing with fulfils all the aforementioned conditions, then you should be absolutely sure that you are dealing with the actual ECN (ECN/STP). If not, it might be ECN+STP, STP or even a Market Maker posing as ECN, but not an actual ECN.
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