ECN
An ECN (electronic communication network) is an electronic trading venue that intermediates trades between connected participants, either by matching their orders or by carrying executable bid and ask prices that several liquidity providers stream.
The BIS Triennial Survey reporting guidelines class trades through a third-party electronic platform, such as a matching system, as electronic-indirect, and name ECNs among the routes for fully disclosed price streams in wholesale foreign exchange. Retail brokers also use "ECN" as an account name, and each broker's own terms set what that label covers.
This page covers the mechanic; it is not trading advice.
How several providers' prices become one quote
A liquidity provider is a bank or non-bank firm streaming prices at which it will trade. On an ECN, or through an aggregator, the best prices across those streams form the top of book: the highest bid and the lowest ask on offer. Since the best bid and the best ask can come from different providers, the combined Spread can be narrower than any one provider's own.
Each price holds only for the volume resting at it. Where the broker supplies volumes, the MetaTrader 5 Depth of Market window lists the levels behind it; for over-the-counter instruments its help notes that the broker's prices can differ with volume, and that without volumes the window shows price levels calculated from the Bid and Ask. The depth behind the top level is the Liquidity a larger order draws on.
An ECN account name does not mean orders go straight into the interbank market, or that the displayed price holds at any size. The BIS reporting guidelines describe retail brokers that price from dealers as intermediaries aggregating dealer quotes, and the dealer's direct counterparty is typically that firm, not the retail trader. Size matters too: the displayed price covers only the top level's volume.
A fee can also sit between firms: the same guidelines note that third-party aggregation technology providers may charge the liquidity provider a pre-trade brokerage fee. For the trader, spread sits in the price while Commission is billed separately, and the broker's terms set whether an account carries a markup, a commission or both.
Three providers, one quote and a 5-lot EUR/USD buy
The quotes, sizes and fill rule below are assumptions. Three providers quote EUR/USD around an example mid of 1.1253, each 0.5 Pip wide: 1.12528 / 1.12533 (provider 1), 1.12529 / 1.12534 (provider 2) and 1.12526 / 1.12531 (provider 3), with 2, 3 and 2 standard lots per side. On a USD account one standard Lot size moves $10 per pip, and the account shows the best prices with no markup.
Worked example
Top of book = highest provider bid / lowest provider ask- Highest bid (provider 2)
- 1.12529
- Lowest ask (provider 3)
- 1.12531
- Each provider's own spread
- 0.5 pip
Aggregated quote
1.12529 / 1.12531, a 0.2-pip spread
No provider alone quotes 0.2 pip.
What a larger order pays
A 2-lot buy Market order fills entirely at 1.12531; at 5 lots the order uses up that level and fills the rest at the next asks.
Worked example
VWAP = Σ(lots × price) ÷ Σ lots; cost of depth = (VWAP − best ask) ÷ 0.0001 × $10 × lots- 2 lots at the best ask (provider 3)
- 1.12531
- 2 lots at the next ask (provider 1)
- 1.12533
- 1 lot at the third ask (provider 2)
- 1.12534
- Volume-weighted average price (VWAP)
- 5.62662 ÷ 5 = 1.125324
Cost of depth on 5 lots
0.14 pip × $10 × 5 = $7.00
That is $4.00 on 2 lots 0.2 pip above the best ask and $3.00 on 1 lot 0.3 pip above it. Against the 1.12530 mid, the fill costs $5.00 of half-spread plus $7.00 of depth. The $7.00 appears as Slippage against the displayed ask, though no quote moved.
At an assumed $3.50 per side per standard lot, Commission adds $17.50 to the 5-lot opening deal, taking the entry side to $29.50; over the round turn the commission comes to $35.00. How a real account fills an order beyond the top level is set by the broker.
Related terms
Related articles
Common questions
Does an ECN account mean trading directly on the interbank market?
No. The BIS Triennial Survey reporting guidelines describe retail brokers that price from dealers as intermediaries that aggregate dealer quotes for margin accounts, with the dealer's direct counterparty typically that firm, not the retail trader. A trader buying 1 standard lot of EUR/USD at an example 1.12531 holds that position with the broker.
Why can an aggregated spread be narrower than any single provider's?
The best bid and ask can come from different providers. With assumed EUR/USD quotes of 1.12528 / 1.12533, 1.12529 / 1.12534 and 1.12526 / 1.12531, each 0.5 pip wide, the highest bid is 1.12529 and the lowest ask 1.12531: 0.2 pip around an example mid of 1.1253. Before any broker markup or client-specific pricing, the result is never wider than the narrowest single quote.
Why does a large order fill at a worse average price than the quote shows?
The quote covers only the top level's volume. In an assumed EUR/USD book with 2 lots at the 1.12531 best ask, 2 at 1.12533 and 3 at 1.12534, a 5-lot buy averages 1.125324: 0.14 pip beyond the displayed ask, or $7.00 at $10 per pip per lot. The cTrader VWAP Depth of Market shows the average price for a given volume.
Does ECN pricing always come with a commission?
No. Spread sits in the price and commission is a separate charge, quoted per side or per round turn; the broker's terms set whether an account carries a commission, a markup on the spread, or both. On 5 lots of EUR/USD at an example 1.1253, an assumed $3.50 per side per standard lot adds $17.50 to the opening deal and $35.00 per round turn.