The concept of ECN
Electronic Communication Network (ECN) is an electronic system for organizing and executing transactions for the buying and selling of financial assets on the interbank market. Essentially it is a "floor" or network, on which liquidity providers (for example, major financial institutes) and individual traders carry out trade transactions between themselves, without the middle man.
Trading orders from all ECN participants are entered into the common order database. Opposing orders (for selling and buying) are executed when their basic parameters (asset, volume, price) coincide. Thus the main principle of any ECN floor is implemented - the system automatically picks up orders that match and executes them.
The main virtues of ECN sites:
- Best trading conditions - an increase in the number of liquidity providers leads to a decrease in spreads and best prices.
- Absence of conflict of interest between brokers and traders - an ECN broker only transmits traders' orders into the system and makes money exclusively on the commission from each deal.
- Openness - bids entered are visible on the system, and information on them is available to all participants. Opportunities for analyzing changes in the exchange rate of a given financial instrument are increased. Traders' orders, given via ECN, appear in the market and can influence its dynamic.
- The opportunity for round-the-clock trading every day, since bidders can be financial companies and traders from all over the world.
- No requotes - participants' bids are executed at current market prices.
The availability of electronic trading substantially raises the demand for system reliability and security. In the first instance this means guaranteeing the protection of information about participants and the trading transactions they have completed. Considerable attention has been paid to issues of guaranteeing security in ECN. Special technology is used to validate users, share access and encrypt information.
The best-known and biggest ECN floors are Currenex, HotSpotFXi, Integral and FX Alliance (Fxall).
EXNESS LIMITED (NZ) offers clients access to the interbank market via the ECN system, the basis of which is the "aggregator" program which coordinates the execution of client bids at the best prices among the many well-known brokers and banks connected to it.