Orders meet on a network wide:many quotes, and none to hide.
A system that collects prices from many participants, such as banks and other trading firms, and matches orders against the best prices available.
A broker using an ECN model passes client orders into that pool instead of filling them from its own book; the spread varies with market conditions and a commission is usually charged.
In plain words
An electronic communication network, or ECN, is a system that collects buying and selling prices from many participants, such as banks and other trading firms, and matches orders against the best prices available. A broker using an ECN model passes client orders into such a pool instead of filling them from its own book.
See it move
ECN and Banks
Why it matters
In this model the spread is whatever the pool shows at that moment, so it varies: narrow in busy markets and wide in thin ones. The broker usually charges a separate commission, and orders are filled at the prices available, which may differ from the price requested.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
On an invented ECN-style account the spread is 0.2 pips and the commission is 6 US dollars per standard lot for opening and closing.
- 1Spread cost = 0.2 × 10 = 2 US dollars
- 2Commission = 6 US dollars
- 3Total = 2 + 6 = 8 US dollars, the same as 0.8 pips
The full cost of the trade is 0.8 pips, not the 0.2 shown as the spread.
A common mistake
A narrow ECN spread is sometimes compared directly with a wider spread on an account that charges no commission. The comparison is fair only when the commission is added in.
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Educational information, not investment advice or a recommendation to trade.