ECN stands for Electronic Communication Network and refers to an electronic system that matches buy and sell orders from different market participants directly with each other.
Unlike the market maker model, where the broker sets the prices, an ECN acts as a neutral marketplace where banks, institutional investors, and retail traders can interact and execute orders against one another.
ECN brokers typically offer variable spreads that depend on supply and demand and usually charge a commission per trade. Price formation in an ECN environment is considered highly transparent and closely reflects real market conditions.
ECN setups are particularly suitable for traders who value fast execution, minimal conflict of interest, and direct market access. In forex trading, the ECN model has gained significant importance in recent years.
