Electronic Communication Network (ECN) represents a floor or network in which the liquidity providers and individual traders complete transactions among themselves, without the middle man. ECN is often understood to mean the whole interbank market, but this is not entirely true. ECN is one of the ways to submit client transactions to the interbank market. The interbank market is a much broader concept that includes spot operations with delivery, in which dealers from two banks negotiate directly with each other.
Several liquidity providers, the so-called top-tier banks, are typically connected to an ECN, including the largest banks in the world:
- Deutsche Bank,
- HSBC, J
- Royal Bank of Scotland,
- Credit Suisse,
- Morgan Stanley,
- Goldman Sachs.
At the root of the operating principles of any ECN lies a system of pairing orders: trading orders from all floor participants enter a common order database, and opposing orders are executed when their basic parameters (asset, volume, and price) match.
STP stands for Straight Through Processing, which is a way to connect to a liquidity provider, in which all the transactions are submitted only to this provider. A broker connected to an ECN through a single provider is still an STP broker. Although these brokers frequently refer to this category of accounts as "ECN", this is a case of different concepts being confused.
Thus, you could say that an ECN is a structure for connecting to the interbank market, which consists of several liquidity providers and in which brokerage companies use STP technology to interact with the liquidity providers.
Moreover, the interbank market is accessed using Reuters/Bloomberg platforms, where bank dealers directly offer quotes to each other and conclude currency contracts.
By our own ECN floor we mean a system to provide clients with the best quotes from several
- liquidity providers and then submit each transaction to the provider whose price, including commission, was most competitive.