other OTC's incorporates dealers, who offer bid and ask prices to brokers who execute trades based on a listing of the current quotes from dealers. Although this is a very liquid market, dealers typically take a spread from the bid/ask price in exchange for the risk that they incur for holding the security. This is a major downside, because why should any investor be willing to be charged a mark up when they can enter into an ECN where there is no actual spread, other than the capital gain or loss the seller is wishing to capitalize or reduce, respectively.ECN's are an alternative to both NASDAQ over-the-counter markets and stock exchanges for trading securities. The ECN system allows buy or sell orders to be matched with other buy or sell orders within the system. Both sides benefit because this eliminates any bid/ask spread, which can be very expensive. Instead, investors are charged a certain fee per transaction or per share, which is almost always smaller than a dealer's bid/ask spread. Basically, an ECN has eliminated a middleman who takes a profit because it provides an atmosphere of buyers and seller without dealers or a need for a formal trading floor. Additionally, major players on Wall Street such as Charles Schwab, Fidelity Investments, and Donaldson, Lufkin & Jenrette are or have announced joint forms of ECN's. Most of the big Investment Banks such as Goldman Sachs have invested in ECN's. Also, the NYSE is being pressured to incorporate an ECN to trade NASDAQ stocks by the Investment Banks, which as we've seen have big stakes at hand because they have invested in many ECN's. Finally, the advent of ECN's brings many small investors into play. Although currently small investors don't have direct access to ECN's, they can send orders through their brokers who then execute the trade on the ECN. It is widely speculated the future will bring direct access to ECN's for smaller investors, which is a major reason why so m...
