Electronic trading system definition
The primary benefit is the reduced cost of transactions for all concerned as well as the ease and the convenience. Web -driven financial transactions bypass traditional hurdles such as logistics.
Exchanges typically develop their own systems sometimes referred to as matching engines , although sometimes an exchange will use another exchange's technology e. Exchanges and ECNs generally offer two methods of accessing their systems —. From an infrastructure point of view, most exchanges will provide "gateways" which sit on a company's network, acting in a manner similar to a proxy , connecting back to the exchange's central system. Many brokers develop their own systems, although there are some third-party solutions providers specializing in this area.
Some banks will develop their own electronic trading systems in-house, but this can be costly, especially when they need to connect to many exchanges, ECNs and brokers. There are a number of companies offering solutions in this area. Many types of algorithmic or automated trading activities can be described as high-frequency trading HFT , which is a specialized form of algorithmic trading characterized by high turnover and high order-to-trade ratios.
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They may also be designed to automatically trade specific strategies based on technical analysis or to do high-frequency trading.
Transactions have traditionally been handled manually, between brokers or counterparties. However, starting in the s, a greater portion of transactions have migrated to electronic trading platforms. These may include electronic communication networks , alternative trading systems , " dark pools " and others.
The first electronic trading platforms were typically associated with stock exchanges and allowed brokers to place orders remotely using private dedicated networks and dumb terminals. Early systems would not always provide live streaming prices and instead allowed brokers or clients to place an order which would be confirmed some time later; these were known as ' request for quote ' based systems. Trading systems evolved to allow for live streaming prices and near instant execution of orders as well as using the internet as the underlying network meaning that location became much less relevant.