Online Brokerage and Electronic Communication Network (ECN) [Continued]
The increase in the speed of communication is remarkably affecting the mere foundations of the investing infrastructure.
These are mostly brought by the popularity of the Electronic Communication Networks (ECN).
The ECN enabled the brokerages to put up stock trades through the electronic network to match the lowest offer and maximum bid made by individual traders.
This new breakthrough in trading seemed to work very efficiently as there was no interference from market makers and intermediaries was present.
Some online brokerages like Muriel Siebert still match orders using ECN. Meanwhile SEC is looking for new laws to implement for the functionality of trading systems off exchange.
ECNs are growing fast, and their fast growth promises better liquidity to awaiting trades.
Hence this is helping in the reduction of cost to traders, increase in effectiveness of the placement of order and creation of fresh markets.
Hence the competition in markets is favoring the growth of ECN. But in spite of all the factors favoring the fast growth of ECN, it still faces some obstacles before it becomes fully successful.
The very first hurdle that ECN has to face is the strong relation that the brokerages establish with the market makers. This result in the money making by strong traders on bid-ask spreads.
The brokerages cannot enrage the market makers by diverting their orders to the ECN instead of them. This is because angering these market makers would cost more to the online brokerages.
Experienced persons in the New York Stock Exchange are not ready to give away their profitable positions this easily.
They would avenge by asking the online brokerages to fill out lame forms for the orders of their customers.
As the ECN trades provide many benefits too, the low-cost trade and timely executions are things that are here to stay.
A report hereby states that systems which are not accepting these advancements in technologies, and support the traditional means of trading are risking their position in the market and are vulnerable to extinction from the market.
Category: Online Brokerage
