How Securities are Traded?

Chapter: 3 How Securities are Traded?

Section: 6 Fourth Market

The fourth market refers to direct trading between investors in exchange-listed securities without the benefit of a broker. The direct trading among investors that characterizes the fourth market has exploded in recent years due to the advent of electronic communications network (ECNs). ECNs are an alternative to either a formal stock exchange like the NYSE or dealer markets like NASDAQ for trading securities. These ECNs allow members to post buy or sell orders and to have those orders matched up or "crossed" with orders of other traders in the system. Both sides of the trade benefit because direct crossing eliminates the bid-ask spread that would otherwise be incurred.

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