ECNs (Electronic Communication Networks)

So far I have mentioned that Level II shows the institutions and electronic systems that have open orders for a stock. The formal name for these electronic systems is "electronic communication network" or ECN. An ECN is a computerized system that matches orders for buyers and sellers for a stock. Since ECNs work electronically, executions through ECNs are usually lightning quick (a fraction of a second) and this is one of their big advantages. A direct-access broker gives traders access to ECNs through the trading software they provide. RealTick is an example of this type of software. The first well-known ECN is Instinet (symbol INCA on level II), which used to allow only institutions to place orders through it. In the last few years, Instinet has opened its doors slowly to individual investors and traders because of the pressure it is experiencing in the form of lost business to the newer, and more competitive ECNs, like ISLAND. At this point in time ISLAND is probably the ECN that is most widely-used by traders, and, according to the National Association of Securities Dealers (NASD), Island traded more shares of NASDAQ securities than any other ECNs, executing 10.1% of total NASDAQ share volume during December 2001 (in second place was Instinet with 9.2%).

Investors that use online brokers or full-service to day trade do not have direct access to individual ECNs. This is a big disadvantage and one that will become more and more apparent to you when you experience the power of trading through a direct-access software like RealTick.