ECN

An ECN, or Electronic Communications Network, is a private trading system maintained separately from the public markets such as the NASDAQ and NYSE.

Shares are traded in the same way but liquidity may vary. In any one instance the inside market may be different on an ECN than on the public markets (or indeed another ECN), thereby creating arbitrage opportunities. An important distinction should be made between buying/selling "through" an ECN and buying/selling "to" an ECN.

The grand daddy of all ECNs, is Instinet. Instinet is an acronym for "institutional network".

It is one of the primary markets in New York through which institutions (mutual funds, hedge funds, private asset managers) buy and sell large blocks of stock.

In addition to providing traders with substantial liquidity of shares to buy and sell, Instinet transactions can be conducted 24 hours a day.

Instinet participants tend to be the market makers themselves and institutional money managers. It is, by far, the most liquid of any ECN, but is also the most expensive, and hardest to execute against. There are a myriad of other ECNs which are cheaper and potentially more accessible to the individual investor.

See Also: Moneyextra's Stockmarket Centre

Last Updated: June 2007 © Moneyextra.com

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