ECN

ECN stands for electronic communications networks. ECN's are essentially computerized order matching systems and existing in the world of equities [stocks], futures, and currencies [forex].

When an order to buy or sell a stock is sent to an ECN, the order is usually executed at a lightning-fast speed (less than a second is possible). Before regular investors and day traders could trade via ECN's, only institutions could do so through Instinet. This allowed institutions to buy and sell stocks outside of regular stock market hours (when most earnings announcements took place), while small investors could only sit and wait for the market to open.

This unfair scenario lasted until 1997, when an ECN by the name of Island finally opened its doors to the public. As a result of this and the creation of other ECN's, the stock trading landscape was changed forever. The growth in trading volume via ECN's has been so dramatic, that Instinet and traditional NASDAQ and NYSE order execution systems have lost a significant amount of business.

Due to their speedy executions and transparency, ECN's have always been day traders' favorite choice when executing a trade. Even though the forex market is more liquid than the stock market, ECN systems for trading currencies have lagged behind stock ECN's. Nevertheless, in the last few years forex ECN's and multi-liquidity systems have picked up steam

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