ECN (Electronic Communication Network)

Electronic Communication Network (ECN) in capital markets refers to an electronic system that attempts to eliminate the role of a third party in the execution of orders.

This network allows trade orders entered by an exchange or by an OTC market maker to execute partially of entirely as per trader's input choice. Introduction of ECNs eliminated the necessity of a middleman between brokerages and individual traders (or even large institutional traders). This is because an ECN connects brokerage firms with individual market participants, opening up opportunity for direct trade without the help of an agent in between. The main advantage of an ECN is that it displays order in real time; in case on NYSE, most investors are limited to view only the best bid and ask prices.

ECN facilitates trading of financial products such as stocks and currencies. Traders use ECN via customer accounts (following network protocols) with a broker that provides direct access trading. While considering stocks, ECNs exist as a class of SEC-permitted Alternative Trading Systems (ATS). The fee structure of ECN is classified into classic and credit (rebate) schemes. While classic structure attracts liquidity removers, credit structure appeals to liquidity providers. ECNs may additionally offer features such as negotiation, pegging and reserve size to the traders.

ECN and Gold

Long story short, ECN is one of the mechanisms that facilitate gold trading and trading of other precious metals.