If you’ve done a bit of research on FX trading, you will have come across the terms Dealing Desk broker or Market Maker, No Dealing Desk broker, STP broker and ECN + STP broker. These terms are employed to describe how each broker operates, so it is important that you know what they mean before you proceed to choose a particular broker to trade with.
There are two main types of brokers: Dealing Desk brokers (DD) and No Dealing Desk brokers (NDD). Dealing Desk brokers are also known as Market Makers. No Dealing Desk brokers can be subdivided into STP (Straight-Through-Processing) brokers, and STP + ECN (Straight-Through-Processing + Electronic Communication Network) brokers.
|DEALING DESK||NO DEALING DESK|
|STP + ECN|
Dealing Desk brokers/Market Makers
Dealing Desk brokers, or, Market Makers, create a market for their clients and often take the other side of their clients’ trades. They make money primarily through spreads and by providing liquidity to their clients. The clients of Market Makers do not have access to the real Interbank Market rates, yet they can benefit from the fixed spreads that Market Makers usually provide.
If you place a buy order with a Market Maker, they will try to find a matching sell order from their other clients or pass your trade on to their liquidity providers so as to minimise risk. Dealing Desk brokers may, however, take the opposite side of your trade in case they find no matching orders to fill your order.
No Dealing Desk brokers
No Dealing Desk brokers will not pass your order through a Dealing Desk, which means that they will not take the other side of your trade but merely provide you with access to the Interbank Market. They make money either by charging a commission for trading or by slightly increasing the spreads.
NDD STP brokers
No Dealing Desk STP (Straight-Through-Processing) brokers direct their clients’ orders to their liquidity providers, the latter of which have access to the Interbank Market. The liquidity providers quote their own Bid and Ask prices, and the STP broker chooses the best Bid price and the best Ask price from those they receive.
While some offer fixed spreads, the majority of STP brokers have variable spreads, since the Bid and Ask prices are constantly changing.
NDD STP + ECN brokers
ECN (Electronic Communication Network) brokers provide their clients with direct access to other participants in the market. ECNs also provide their clients with Depth of Market, enabling them to see the buy and sell orders of other market participants.