A ECN, or Electronic Communications Network, is an electronic trading systems that automatically match buy and sell orders at specified prices. ECNs register with the SEC as broker-dealers.

Those who subscribe to an ECN – institutional investors, broker-dealers, and market-makers – can place trades directly with an ECN. Individual investors must currently have an account with a broker-dealer subscriber before their orders can be routed to an ECN for execution. When seeking to buy or sell securities, ECN subscribers typically use limit orders. ECNs post orders on their systems for other subscribers to view. The ECN will then automatically match orders for execution.

There are several variations of ECNs in the market, each of which are slightly different. Here are some of the more popular ones and a summary of their basic characteristics:

Instinet was the first ever ECN, founded in 1969. It was originally a way for brokerages to display bid and ask prices for practically every stock in North America and abroad and was first used by institutions to transact with each other. Today it also includes a select group of smaller brokerages. Instinet is used to execute a large proportion of orders on Nasdaq and is primarily entered by market makers. Because of this exclusive access many of the large block orders on Nasdaq stocks are traded through Instinet. More recently, Instinet has tried to level the playing field by lowering access fees and allowing individual investors and small firms to access its orders.

SelectNet - this electronic system is primarily used for trading between market makers. SelectNet is known as a negotiable system, which means that market makers may or may not execute your order immediately, as on other ECNs, although they are required to execute immediately if the order is at the advertised price and it appears on the market maker's screen. SelectNet is popular among traders because orders can be preferenced, which allows a trader to isolate and trade with a particular market maker. This is advantageous because traders can target market makers who are active in the stock he/she wants to trade. This way the trader will get immediate attention, which usually results in a faster execution.