The truth about the types of forex brokerage firms MM, ECN, STP

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The truth about the types of forex brokerage firms MM, ECN, STPIn this topic we will try to explain the types of forex brokers which are DD, NDD STP , MM, and ECN. Clarifying some misconceptions about both MM and STP First you have to understand that the word “broker” in the Forex field has a double meaning. Unlike a regular stock broker who only gives you access to the market, forex brokers are often the market itself.

The truth about the types of forex brokerage firms MM, ECN, STP

When forex trading is mentioned, it is usually meant to have access to a limited interbank market where many banks or other institutions offer orders and deals. There are many such networks, often called liquidity provider clubs or, in an economic sense, clearing houses. Many Arabs mistakenly believe that these are market makers, so you hear phrases like “the market makers’ trap.” Whereas in this huge forex market the market makers are often the central banks.

first . systemmarket maker Market MakerMM DD

The general definition of a market maker is a company that sets both the purchase price and the selling price in a financial instrument or commodity, with the hope of making a profit from the difference between the bid and ask price. Basically what that means is that a forex broker can be either a broker in itself (just a channel between you and the actual market) or a market maker (who buys from you and sells to you) or even both!

A forex market maker (MM) is a company that buys from you and sells you lots. Also called Delling Disc (DD). Meaning that your orders are not passed to the market, simply because the broker is the market itself. When you read about brokers trading against you, this is what people really mean, although they are partly wrong - brokers are not necessarily trading against you, they are simply the counterparty to your trades. Of course they have an interest in you losing money but when rumors came out that themarket maker It is a scam and they always trade against you, it mostly comes from other companies market maker For marketing purposes, it is difficult to confront the . systemmarket maker The most prevalent, flexible and of course the most rapid, so the trader turns to it.

Market makers do not requote orders because they do not need to pass your orders to the interbank market but sometimes they choose to either accept your orders or not. For example, when a lot of traders place orders on one currency pair and in the same direction buy or sell, the market maker may not want to take all this risk and can reject some orders. The same can happen when there is “strong news” but there are companies market maker I overcame this problem by a large percentage by using its huge size. But you can be sure that brokers that are regulated by the NFA and FCA, are not trading against you as some unregulated brokers might do with the increased focus on oversight and transparency.

Second, the ECN and STP systems

Forex broker who is not a market makermarket makerNDD, is either a broker (STP) or a broker (ECN).
ECN is an acronym for “Electronic Communication Network”
STP is an acronym for “Straight Through Processing” System
NDD is the abbreviation for “None Dealing Desk.”

ECN broker

An ECN broker is literally a broker, which gives you direct access to display your order in the market. The income of this type of broker comes from a certain amount of spread added to the actual spread. For example if the current effective spread for EURUSD is 0.2 pips, this broker may offer you 0.5 pips, 0.3 pips spread on every trade you make or put a fixed dollar commission and sometimes both options.

There are many ECN brokers out there and Dukascopy is one of the most popular models. But for retail traders, the ECN is often out of reach: due to the nature of their banking business, traders are usually required to buy very large lots so the minimum deposit requirement is somewhere between $50,000 to $100,000. FXOpen recently tried to fill this gap by offering the MT4 ECN platform, which was not very successful and is far from transparent in my humble opinion.

STP وسيط Broker

An STP broker is a type of STP brokermarket maker "Market Makers". This broker, most of the time, displays its own quotes (which are related to the actual rates among the interbank network of internal banks).

Now here comes the real complexity: sometimes this broker passes your orders to the market (works as an STP broker) but sometimes it doesn't (acts as an STP broker)market maker). For example, the trades of successful traders or successful trading algorithms will be automatically passed to the market or interbanking while small clients or losers will not pass their orders. This way the broker makes profits twice: once by losing clients and another by not losing money to successful traders (of course this never works 100% but it does most of the time).

In this way the commission of the STP broker comes from two sources: losses of unsuccessful clients and arbitrage on orders passed to the market.

This type is also responsible for all requotes and rejections of orders. When you open a large order, the broker makes a pass to the market, but the prices there may have already changed (the market moves too fast sometimes) - so the broker faces two options: either reject the order and ask you to adjust the entry price, or complete the order and risk it may It ends as a successful trade which means the broker will pay you out of pocket.

distinguish between Types of brokerage firms different

So, how do you differentiate as a trader between an STP broker and an ECN broker?

It is easy to recognize an ECN broker: huge minimum capital requirements and the ability to see not only bid and ask prices but also amounts on both sides (depth levels) and tight leverage most of the time no more than 1:200 because that means brokers with negative balance suffer Especially in cases of flash crash.

Can you distinguish between MM brokers and STP brokers?

Mostly not, it is very difficult to distinguish between these two types and most of the time brokers use a hybrid system anyway. As I mentioned at the beginning, most regulated brokers in the US and UK will not “trade against you” in a way that will make you lose money, not because of their good morals but because it could cause you to lose their license.

Conclusion and conclusion

Now you can understand why all this negative marketing for the type ofmarket maker It does not require a huge deposit or a tight leverage like the ECN, and your trades are not rejected or re-priced like the STP and of course it is faster in execution because there is no scrolling or the choice between scrolling and no, and most importantly, it accepts all types of traders and strategies away from the most prevalent currently as We mentioned the combination of inter-banking and non-passing, and there will be a special topic listing the advantages and disadvantages of each type in a simplified table.

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