Forex brokers: ECN, STP, NDD or DD?

There are two big groups of brokers. “Dealing Desk Brokers” and “No Dealing Desk Brokers”. The last one is split into two subgroups: “Straight Through Processing (STP)” and “Electronic Communications Network (ECN)”. Please go on reading to get to know what the difference between them is.

DD — Dealing Desk — Forex brokers operate (route orders) through the Dealing Desk and have usually fixed spreads. A dealing desk broker makes mainly money via spreads and often by trading against its clients. A Dealing Desk Forex broker is called a Market Maker - they "make the market" for traders: when traders want to buy, they sell to them, when traders want to sell, they buy from them, that means they are always the opposite side of the trade and in this way "make the market". A trader often doesn't see the real market quotes, which allows Market Makers manipulate with their quotes (that is often the case) where they need to in order to fill the client.

NDD — No Dealing Desk — true NDD Forex brokers provide access to the interbank market without passing orders trough the dealing desk. There are no re-quotes on orders and no additional waiting time during the order confirmation. Therefore trading during news times with no restrictions on trading is usually welcomed. An NDD broker can charge commission for trading, choose to increase the spread and make Forex trading commission free or make both charge commission and increase the spread.

No Dealing Desk brokers are STP or ECN+STP

STP — Straight Through Processing — STP Forex brokers transfer orders directly from clients to the liquidity providers - banks, which trade on the Interbank. The more there are liquidity providers in the system, the better the fills for the clients. The fact that traders have access to the true market and can execute trades immediately without dealer intervention is what makes the platform STP.

ECN — Electronic Communications Network — with ECN Forex brokers clients' orders to interact directly with other clients' orders. ECN Forex broker provides a marketplace where all its participants like banks, market makers and individual traders trade against each other by sending competing bids and offers into the system. Participants trade inside the system and get normally the best offers for their trades available at that time. All trading orders are matched between counter parties in real time. Commissions are always applied with each trade.

Many people think STP brokers were the same as ECN brokers. A true ECN broker must display the Depth of the Market (DOM) in a data window. Traders see their own order size in the system and allow other Traders to hit those orders. With ECN broker traders can see where the liquidity is and execute trades accordingly.