An ECN (electronic communication network) is a technology-based venue incorporating numerous liquidity providers (LPs), both bank and non-bank, who continuously stream their pricing to the ECN.
The ECN will, in turn, aggregate the pricing. When viewing the entire depth of the aggregated price feed of electronic communication networks, you will notice that it has many levels of liquidity.
Liquidity Providers prefer to stream smaller ticket size pricing to the ECNs due to the fact that this allows them to provide tighter spreads knowing that they aren’t at risk of getting hit with large tickets on those spreads.
The LPs are also aware that, by pricing competitively, they have a chance of being “Top of Book” (ToB) and can win business from competitors in the space.
The end result is a very tight ToB.
Vincent Nyagaka is a Professional Trader, Analyst &. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Checkout Vincent’s Professional Trading Course here.