Abstract:

The purpose of this paper is to present a critical analysis on the competition between online (ECN) and traditional (market maker) trading on the Nasdaq stock exchange. Online stock trading mechanisms at exchanges are often hybrid of dealer and auction markets. Different aspects of trading execution, which is the most commonly used market center at present, are analyzed. This leads to a discussion on: (a) the way that executes order is organized, and (b) it’s impact on effective market performance, trading cost and investor behaviour.