ECN (Electronic Communications Network) is an electronic system that attempts to eliminate the role of a third party in the execution of orders entered by an exchange market and permits such orders to be entirely or partly executed.An ECN connects major brokerages and individual traders so that they can trade directly between themselves without having to go through a middleman. ECNs pass on prices from multiple market participants, such as banks and market makers, as well as other traders connected to the ECN, and display the best bid/ask quotes on their trading platforms based on these prices.

Electronic networks make money by charging customers a fixed commission for each transaction. Authentic ECNs do not play any role in making or setting prices; therefore, the risks of price manipulation are reduced for retail traders.ECN(Electronic Communications Networking)is basically a computerized ,private financial trading. ECN (Electronic Communications Network)is frequently used for creating electronic stock, futures or spot currency markets. Electronic Communications Networks, or ECNs, are electronic trading systems that automatically match buy and sell orders at specified prices .ECN’s,communicate Bids, Offers, Last, Size, depth of market and orders. Hence the acronym, ECN, Electronic COMMUNICATIONS Network An ECN will generally establish agreements with several tier 2 banks for liquidity. However instead of matching orders internally, it will just pass through the quotes from the banks, as is, to be traded on.The ECN, collects a commission on each transaction. There are some points that are required to be kept in mind about true ECNs and the market places they work in.

1. The ECN has nothing to do with setting the prices
2. The ECN communicates with a central market place
3. The central market place pushes the quote data of the price action on the different ECN’s, which includes depth of market and Id of participant if shown, to the broker, the broker then passes it on to the trader.

Now here are the differences
1. Forex does not have a central market place
2. The ECN programming does mess with the prices
3. There is a limited circle of liquidity

There are number of ECN Forex brokers which provide Forex traders with a direct access to other Forex market participants - retail and institutional. This result in some advantages - no anti-scalping, no “stop-loss hunting”, very low spreads; but also include a disadvantage i.e, ECN brokers charge commissions for Forex trading. Nevertheless this innovative ECN has created a level playing field for all traders. When an order to buy or sell a stock is sent to an ECN,the order is usually executed at a lightning speed.

Due to their speedy executions and transparency,ECN’s have always been day traders’favourite 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. By the turn of the twenty-first century ECN,were generating heavy enough trading volume.ECN also led the way in moving trading systems away from the antiquated practise of listing stock prices with fractions. However, it must be agreed that ECN, have been a major force in driving innovation in securities trading, and that the future of the markets will reflect the ECN influence.