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How an Electronic Communications Network (ECN) Platform works

By: Christine Harrell

When trading on the Foreign Exchange (FX) market, some people prefer to use an Electronic Communications Network (ECN) platform to effect the transaction. The FX market is also referred to in modern terminology as forex. Those who trade with an ECN platform are required to first hold an account or open one through an FX broker providing direct access to trading.

The use of an electronic communications networking platform is done through Internet access from any computer anywhere worldwide. The trader can use this special online ECN account to execute orders. When possible, an exact match is made in price and share count through contra-side orders and buy orders. The orders must match precisely or the transaction cannot take place. ECN forex is created by electronic negotiation. This is a way for agents to communicate with each other either through a computer or a mobile device. This allows for sharing of information so that traders can determine a price and a bid and ask spread during negotiations.

What Makes It Different
All transactions with this type of trading platform are completely anonymous. When traders sell or buy through an ECN provider, their accounts are untraceable to the source and do not reveal a person's identity to others. This is especially important during trades involving aggressive strategies. It protects the trader's performance and does not allow others to see the particular electronic communications networking trading strategy being used.

When using this platform, traders can place orders between Bid and Ask spread. This opens the door for other participants to match the trader's order. Orders can also be placed outside of the Bid and Ask spread, in hopes that additional pips will be gained through the creation of the trader's own spread. This works, since ECN platform spreads are not fixed.

Currency pair spreads will vary, as they rely on the amount being traded in that pair, plus the amount of liquidity available to support these trades.

ECN brokers get pricing feeds from multiple institutional market participants and display the best quote on their trading platform. They provide their clientele with enhanced execution of their trades. It is essential to understand that the client is not directly trading with the Electronic Communications Network itself, but is merely using the network.

The Electronic Communications Network is solely focused on matching up the client's order with the opposite side held by another market participant on the network as quickly as possible.

Article Source: http://articles.tiptopweb.info

Author is a freelance copywriter who writes about online forex trading platform and trading forex. This material is considered a marketing communication and does not contain investment advice, an investment recommendation or an offer of or solicitation for any transactions in financial instruments.

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How an Electronic Communications Network (ECN) Platform works