When you’re looking for a dependable Forex broker to open an account with, you may have observed that there are various types of brokers operating. In all likelihood, you would have seen the terms: STP, ECN, NDD, and so forth. This may be unfathomable to most traders however it’s essential to know the various kinds of Forex brokers as they execute your trades in alternative ways. In this article, we’ll clarify the four primary kinds of brokers: Straight Through Processing (STP), No Dealing Desk (NDD), Market Makers or Dealing Desk (DD), and Electronic Communication Network (ECN), to enable you to make an educated Forex Brokers comparison.
Straight Through Processing (STP)
STP Forex brokers work without dealing desks and pass their clients’ orders instantly to liquidity providers on the interbank market. The liquidity providers are the other party to the clients’ trade. STP brokers provide low variable spreads and are least expected to have re-quotes during news releases. Moreover, there is no lingering in processing the orders. STP brokers bring in their cash from the spread and some may charge a commission from the clients.
No Dealing Desk (NDD)
NDD brokers may incorporate STP, ECN or STP + ECN brokers. As the name infers, they are sans a dealing desk, and their client’s orders are passed immediately to liquidity providers for execution with no mediation from a dealer. The NDD broker provides low variable spreads and quick execution. NDD brokers too bring in their cash from a small markup on the spread or may charge commissions.
Market Makers or Dealing Desk (DD)
Market Makers are otherwise called Dealing Desk (DD) Forex Brokers. This variant of brokers retain a dealing desk and act the part of a counterparty to their clients’ trades. In other words, the broker takes the opposite side of all trades their clients make. A few people feel there is a conflict of interest as the broker is the counterparty, for all trades made by their client. However, since they accept all bids and ask quotes, the broker needs to locate a counterparty among its other clients. If not possible to locate it there, then they can decide to pass the order to a liquidity provider. Market Makers ordinarily have quotes that are a little different from the liquidity providers on the interbank market. Moreover, they are known to offer fixed spreads.
Electronic Communication Network (ECN) Brokers :
ECN brokers adopt straight-through-processing execution. They pass their clients’ orders to the interbank market in order to be executed. But also let their clients be a counterparty to a transaction. These types of brokers often have a trading module, through which all the orders from banks, market makers, and individual traders are displayed, and compete with one another. This is a highly transparent system of delivering price quotes. The spreads are variable & quite low. ECN brokers bring in cash from the spread and can charge commissions on trades.
Conclusion :
By doing a Forex Brokers comparison you can better understand how various types of forex brokers work and execute their trades.
