Today we will talk about what types of brokers there are in the Forex market and how they differ from each other. There are not just a lot of articles on this topic on the Internet, but an extremely large number, but useful information in most of them, as a rule, not a penny, and often the authors do not understand at all what they are writing about. Occasionally you come across sensible materials, but they are usually aimed at a well-prepared reader. Today I will try to make a short review, which in an accessible - I hope - form will help to put in order the scattered information on this topic, which many undoubtedly have.

Let's start with the first type of brokers called market makers(marketmaker), or DD-Brokers (DealingDeskBroker), or dealers, or dealing centers (DC). Such brokers act in the financial market at their own expense and on their own behalf and purchase and sell currencies and other assets with their own money. We are all very familiar with examples of market makers in everyday life: these are currency exchange offices. Exchange offices set currency purchase and sale rates at their own discretion; if you agree with their offer, you buy or sell from them; if not, pass by. It also happens: you see (for example, on the Internet) an exchange rate, but you come to the exchanger and see that the rate has changed. In trader's parlance, this is called a requote - that is, the market maker says that the price is out of date and offers a different price in return, which you agree or disagree with. The traditional way of executing trade orders for such brokers is the so-called Instant execution(InstantExecution). Its peculiarity is that such execution involves the possibility of a requote – that is, situations when the broker rejects a trading order at the stated price and offers a new price. A trader usually has the opportunity to set a range of price deviations from a given one within which the order will be executed; otherwise, the trader receives a requote.

In retail forex, such dealers are often called “kitchens” and are advised to stay away from them. Is this really true? Yes and no. There is nothing particularly bad about the dealing system itself. I think everyone has had to use the services exchange offices currencies. Moreover, large international banks At the top of the chain, liquidity providers appear to operate this way and are giant market makers who set prices at their own discretion. The only problem here is the possible conflict of interest between the broker and the trader if the trader has been earning consistently for a significant period of time. Since his earnings are a loss for the market maker, the market maker has an incentive to either get rid of the inconvenient client or make him stop earning. It is worth noting that both lead to reputational losses for the broker, so reasonable brokers try not to resort to such methods of influence unless absolutely necessary.

Now let's move on to the second type of brokers, the so-called NDD (NoDealingDesk) to brokers. They use two main technologies: STP (Straight Through Processing) and ECN (Electronic Communication Network).

Let's first deal with STP. An STP broker sends its clients' trading orders directly to liquidity providers. There may be one or several liquidity providers. In the second case, the broker has the opportunity to compare prices from different suppliers and execute client orders at the best available price. In this scheme, the broker plays the role of an intermediary, transmitting the order from the client to the next authority. The broker, of course, charges some fee for his services. It can be expressed either in a deterioration in price by a certain value, i.e. widening the spread (so-called spread markups), or assigning a commission for executing a transaction.

The STP platform uses its own method of order execution, called Market execution(Market Execution). With this execution, there are no requotes, but there are slippage(slippage) prices – i.e., situations in which the order opening price differs from the stated one. You need to understand that a trader has no way to control slippage of market and pending stop orders, and slippage, in principle, can be quite significant in a fast market. But slippage can be both negative and positive – that is, the opening price can differ in a direction favorable to the trader.

Is it good if your broker uses STP technology? Overall good. In the STP mechanism, the broker plays the role of an intermediary who does not play against the client, but provides certain services for a certain fee. But you need to understand that the mere fact that a broker uses the STP platform does not mean anything. STP is only a technology that CAN ALLOW a broker to provide good trading conditions to the client. If the broker is not interested in this, then no technology will help, and trading conditions may turn out to be worse than with a decent dealing broker. Again, who said that an STP broker cannot play against a client? Maybe if he wants.

In addition to STP, there is an even more advanced ECN technology (ElectronicCommunicationNetwork), which allows its clients to trade directly with each other. The ECN broker provides clients with a platform where all trading participants (both clients and liquidity providers) can interact with each other on equal terms. What is the difference here from STP technology? On the STP platform, a trader’s trading order can only be executed at the price offered by the liquidity provider. That is, a trader can only “take” someone else’s price - in other words, he is a price-taker. On the ECN platform, a trader can actively influence the market by placing his trading orders. For example, if we place a limit order inside the spread on the ECN platform, the spread will narrow, all market participants will see this and will be able to react accordingly. How? For example, by agreeing to our price, which will result in our limit order being executed. Thus, on the ECN platform, a trader can offer a price - in other words, be a price-giver, and not just a price-taker.

Real ECN brokers offer clients very valuable information about the so-called “depth of the market” (Depthofthemarket), which is usually represented in the form of a market “glass”. The market depth represents information about the current best offers (limit orders) for buying and selling, which is updated in real time. What can such information tell us? Let's think about it. What does the Ask and Bid price, which is displayed as standard in our terminal, show us? Beginners usually answer that Ask and Bid show the current buy and sell price for a given instrument. In reality this is, of course, not the case. Ask and Bid are the price of the last executed buy and sell transaction. Thus, Ask and Bid prices show us the past. The order book shows us the future - with some degree of probability, of course. Seeing the order book, the trader knows at what price a market order can be executed at the moment. That is, the order book shows us Which maybe the next price. This is very important information, if used correctly.

Since we're talking about price, let's discuss this issue. For some reason, many people believe that an “ideal broker” should not have slippage in market prices and, especially, no pending orders. In reality this is, of course, not the case. The only order that must be opened at the stated price (or better) is a limit order. The market order always slips - we now know why. Because the price that we see in the terminal is the previous price. And the next price in most cases will be different - this is normal and, if you think about it, obvious.

With stop orders everything is about the same. A stop order is a conditional order: when the Ask or Bid price (depending on the order type) reaches a specified value, the broker will send a trade order, which will be executed at the next price. Therefore, a pending stop order is essentially a market order and, like any market order, in most cases it is executed at a price different from the stated one. The only advantage of a stop order over a market order is that the conditional order is triggered on the broker's side. This saves time on sending a tick to the trading terminal, processing it and sending a trade order to the broker.

Do you need an ECN broker? The question is actually not entirely obvious. Very few traders actually use the opportunities provided by ECN brokers, in particular order book, market depth, etc. For everyone else, an ECN broker is just a broker with good execution and tight spreads. Tight spreads are not important for every trader. For example, for those who trade on weekly charts, spreads do not play a big role. But for those who trade with scalpers or intraday, spreads are very important. In this case, it makes sense to choose a broker based on independent services that track and compare the average spreads of different brokers for different currency pairs. One such service is provided by, for example, myfxbook (

Today he offers his services on the Internet a large number of calling on his potential clients take advantage of a variety of benefits, including the advantage of working on ECN, STP and NDD accounts. What kind of accounts are these and what are their advantages is the topic of our article today.

Basically, account types differ in the way trades are processed and executed, as well as in the amount of commission and spread. Based on this principle, we will carry out our review of the most common types of accounts.

Accounts with “Instant Execution” execution

“Instant Execution” literally means “immediate execution”. This is exactly how these accounts are positioned in advertising for Forex brokers, promising their users instant execution of trading orders. Although, if we talk specifically about the execution time of such orders, Instant Execution does not promise to do this very quickly. It all depends on the brokerage company. Whereas, the name “Instant Execution” speaks only about the method of executing transactions that are carried out according to a certain principle - the client’s transaction is concluded at the price that he sees in the trading platform at the time of opening the transaction.

In reality it looks like this. Let’s imagine that you decided to open a Buy order for EURUSD and pressed the BUY button at a time when the price of this asset is at 1.2000. After this, his transaction is queued for execution. If by the time the trader’s turn reaches the trader’s transaction, the price of the asset has not changed, the Forex dealer opens an order at the required price of 1.2000. If the price has changed, for example, dropped to 1.1995, the broker buys the asset at a price of 1.1995 and sells it to the trader at the price he requested of 1.2000. In this case, you also conclude a deal at a quote of 1.2000, and the broker earns additional “tips” on it.

What happens if during processing the transaction goes in a direction unfavorable for the broker, for example to the level of 1.2005? After all, in this case the broker would have received a loss of 5 points! That is why the broker will return such an order to you without execution, informing you of a change in the quote. What is called a “requote”. Thus, the main disadvantage of Instant Execution accounts is requotes, which you should be prepared for when opening an account type with such order execution.

Accounts with Market Execution

“Market Execution” literally means “market execution”. This type of execution has its advantages and disadvantages. Market Execution means that the broker will execute your order at the market price, regardless of how much it has changed since you entered into the transaction. On the other hand, Market Execution guarantees faster execution of transactions than Instant Execution.

In reality it works like this. Let's imagine that you decide to enter into a BUY trade on EURUSD at a price of 1.2000. Immediately after pressing the BUY trading key, the order will be sent to the broker for processing and execution. But by the time your transaction reaches its turn, market quotes may change significantly. And it makes no difference which direction. Let’s say that the price of an asset during the processing time of the order increased to 1.2005, then the broker will execute it at exactly that price.

What's happenedNDD (Non-Dealing Desk)

A trader's trading order can be executed directly by the broker (as in Instant Execution accounts) or redirected by the broker for execution to an upstream counterparty. For Instant Execution accounts, the counterparty is the brokerage company with which the trader is registered. In this case, when one trader makes a deal, it is overlapped by a deal of the opposite direction from another trader. If there is an advantage for buyers or sellers, then the dealing center forms an aggregate position and transfers it to a higher counterparty, which allows it to hedge its own risks. In such a situation, the broker's interests are in internal clearing.

The second option is better - traders’ transactions are automatically transferred to the liquidity provider, and the broker does not interfere with their processing and execution. This type of processing is called NDD (Non-Dealing Desk). This is exactly the principle that Market Execution accounts work on.

As you can see, the benefits of NDD are obvious. In this case, the broker makes money only on the commission and part of the spread. Therefore, it does not matter to him at what price the client’s transaction is executed. Your broker will be interested in only one thing - that you make as many transactions as possible, which will allow him to earn even more on the commission. That is, in essence, in this situation the broker is on the client’s side. Hence, an additional advantage of NDD is the transparency of the transaction execution process.

What's happenedSTP (straight through processing)

STP (straight-through processing) is the automatic execution of a trader’s transactions. Just like NDD work, asset quotes come from multiple suppliers. The broker makes a profit through commission and spread, being interested in the active trading activities of clients.

STP scheme

What's happenedECN (ElectronicCommunicationNetwork)

ECN is a commodity trading system. Its goal is to unite liquidity providers and provide traders with the opportunity to enter the market with a minimum number of intermediaries. Thus, the ECN system is a network where the execution of traders’ transactions is carried out in the ECN order book according to average price from quotes provided by several suppliers.

Orders executed using the ECN system go directly to the ECN market without being processed by the brokerage company.

In the ECN order book, any trading participant has the same opportunities as the broker himself.

The most popular ECN systems: Atriax, FX Alliance, Currenex.

In the table on this page (just below), we offer you best banks forex, which provide online trading services on financial markets.

As numerous surveys show, today, an increasing number of traders prefer Forex banks rather than dealing centers (DCs). The reason for this decision is obvious. The fact is that the DC often makes transactions with clients on its own behalf and at its own expense. As a result, on the Internet you can often find dissatisfied clients to whom their DC has not paid a profit. And in most cases, these are not dummies, but real traders who really did not receive their honestly earned profit.

Non-payment of profit by the dealing center is possible for two reasons:

• The DC does not have the financial ability to pay income;
• The DC has no desire to pay out profits, since it very often happens that the client’s income is a loss for the company itself.

The situation is completely different with Forex banks, whose sources of income are much wider than those of DCs. And there is no conflict of interest with its clients and the broker bank. Therefore, you don’t have to worry about paying out profits.

Best Forex banks:

Bank	Bank overview	Minimum deposit	Trading instruments	More details
	2 000$	Forex, Metals, Index CFDs, Energy CFDs	Bank website
	5 000$	Forex, Metals, Indices	Bank website
	50$	Forex; Metals; Futures for indices, energy, commodities; Stock	Bank website
	10 000$	Forex, Metals, CFD, Futures, Options, Stocks	Bank website
	10 000$	Forex	Bank website
	1$	Forex, Metals	Bank website
	100$	Forex	Bank website
	5 000$	Forex, Metals, Futures, CFD, Options, Stocks	Bank website
		Forex, CFD	Bank website
	2 000$	Forex, Metals, Oil, Indices	Bank website
	2 500$	Forex, CFD, Metals	Bank website
	1 000$	Forex, Metals, Stocks, Options, Futures, CFD	Bank website
	200$	Forex	Bank website
	2 000$	Forex, Stocks	Bank website
		Forex, Futures, Options, CFD	Bank website
	50,000 euros	Forex, Stocks, Futures, Options	Bank website
	300$	Forex, Metals	Bank website

Advantages of Forex banks:

1. Forex banks always have the necessary licenses, are controlled by state and independent market regulators and have higher positions than DCs.

2. Broker banks are not registered offshore, as almost all DCs do.

3. The bank's income is significantly higher than that of the dealing center. As a result, banks can guarantee the payment of profit to traders, including at the expense of their own numerous assets.

4. Unlike most DCs, banks insure the deposits of their clients.

5. Forex banks independently participate in interbank trading and have a large number of reliable quote providers. But DC cannot boast of such an advantage.

6. Almost all the banks from the table above have a long history, a huge staff, numerous branches around the world, and an unblemished reputation. The bank will not risk all these advantages, which have been acquired over the years, for the sake of the trader’s profit, because it is not worth it. Dealing centers for the most part do not have anything like this, so it will not be difficult for them to disappear one “fine” day, along with the funds of all their clients.

A person who first encounters Internet trading comes across such terms as DD, NDD, ECN, STP and DMA, as well as Instant and Market Execution. These terms are often found on broker websites among trading conditions, however, not everyone professional trader will be able to clearly define and determine how one differs from the other.

First, let's figure out what Instant Execution and Market Execution are.

Instant Execution

Instant Execution- type of execution of trade orders by a broker, which involves opening an order at specific price asset. Literally “Instant Execution” is translated as “instant execution”, as they are positioned in trading conditions dealing centers. However, it should be understood that “instant” execution is not related to time, but rather to price accuracy. As for time, an order with Instant Execution may take longer to execute than with Market Execution.

For a better understanding, let's look at an example of how Instant Execution works.

Let's assume that a trader decides to enter the market to buy (Buy order) at a price of 1.4000. When you press the corresponding button in trading terminal, a request arrives at the broker’s server and is queued for execution. If a large number of traders simultaneously open a position, there may be a delay due to the order execution queue. If during the waiting period the price of the asset remains the same (1.4000), then the broker opens an order at the stated price. If quotes have decreased by 10 points to 1.3990, then the brokerage company purchases the asset at 1.3990 and opens it to the trader at the stated price of 1.4000. In this case, the dealing center earns an extra 10 points. But if during processing the price rises to 1.4010, then it will no longer be profitable for the broker to open a position for the trader at 1.4000. In this case, the DC sends a requote to the trader.

Thus, a requote is a repeated request (de facto - refusal) from the DC to a trader to open a position at a new price. Requotes are a disadvantage of Instant Execution, since in this case, the trader may not notice that his order was not executed. At automatic trading Requotes can interfere with the trading robot (advisor), which again affects the trading result.

On the other hand, the advantage of Instant Execution is the precise opening of a position at a given price, which allows the trader to accurately calculate entry points into the market, as well as the size of profit/loss. The exact entry location is an important factor in most trading strategies.

Market Execution

Market Execution— type of execution of trade orders by a broker, which involves opening an order By current price asset. Literally, “Market Execution” is translated as “market execution,” which fully reflects its essence. The trader's order is sent to the broker, who executes it on the market at the price that will be at that moment.

For a better understanding, let's look at the same example, but with Market Execution.

Let’s say a trader plans to enter the market to buy (Buy order) at a price of 1.4000. When you click the corresponding button in the trading terminal, the broker’s server receives the corresponding order, which is queued for execution. During the waiting time, quotes may change (let in our example the price rise to 1.4015). But unlike Instant Execution, a broker with Market Execution will open a transaction at the current market price, that is, at 1.4015, which is called slippage.

Slippage can be either positive or negative.

Positive slippage in trading they call a situation when a trade was opened at more favorable price for the trader.

For example: with a Buy order at 1.4000, the position was opened at 1.3980. Thus, the position “started” 20 points lower than it should have. Therefore, if the transaction is successfully completed, the trader will receive +20 points of profit than expected.

Negative slippage in trading is a situation where a trade was opened at the worst price for the trader.

For example: with a Buy order at 1.4000, the position was opened at 1.4015. Thus, the position “started” 15 points higher than it should have. Therefore, if the transaction is successfully completed, the trader will receive -15 points of profit than expected.

The advantage of Market Execution is the speed of execution. The broker executes the order immediately, without assessing the benefit for himself, as happens with Instant Execution, due to which the speed of order execution can increase. Market Execution excludes requotes, which allows the trader to be confident in the reliability of the transaction execution.

Now let's move on to technologies for processing customer requests.

DD

DD (Dealing Desk) is a technology for processing trade orders of a dealing center (broker), where trading operations are carried out within the company, without entering the external market. In other words, the trader trades with a dealing center, which inevitably causes a conflict of interest. DD brokers use the Instant Execution type of order execution (although sometimes they pass it off as Market Execution), and work according to the following scheme: B- Book, which will be discussed below.

Dealing center (DC) has own capital, which is constantly increasing due to customer trading. When a trader makes a successful trade, e.g. foreign exchange market Forex, then his profit will be paid “out of the pocket” of the brokerage company (DC). Thus, even if the dealing center is honest and is not a Forex kitchen, it is simply impossible to pay profits to all clients in case of success. Therefore, the majority brokerage companies with the DD system - who go to various lengths to preserve and increase their funds.

DD (Dealing Desk) technology is ideal for interference in a trader’s trading by a dealing center, which is what usually happens. The dealing center itself can set the spread, leverage, commission, change the quotes received in the trader’s terminal, artificially create delays in quotes and slippage, disable the ability to make a new or close an existing transaction, and much more.

Thus, the DD dealing desk is a market maker, “creating” the market for the trader.

The only advantages of the DD (Dealing Desk) system for a trader are the ability to trade on financial markets with a very small deposit and, paradoxically, the lack of real liquidity.

DMA brokers usually earn from an additional commission, which eliminates a conflict of interest.

To summarize, let’s compare the conditions of all application processing models. But you should understand that different brokers may have different trading conditions, so this table presents the generalized characteristics of each model.

Comparison table MM, STP, DMA, ECN

Full title		Straight Through Processing	Direct Market Access	Electronic Communication Network
Possible processing structures				ECN + DMA + STP + NDD
Processing model
Execution	Instant Execution	Instant & Market Execution	Market Execution	Market Execution
	Fixed	Fixed / Floating	Floating	Floating
Quote accuracy	4 /5 characters	4 /5 characters
Commission
Counterparty		Liquidity provider (Prime broker)	Liquidity provider(s)
Conflict of interest
Market depth
Execution speed	Slow/Medium	Medium/Fast
Slippage
Trading on the news
Scalping
Deposit requirements
Spread size				Very low

Please remember that some dealing centers may provide misleading information about their trading conditions. Unfortunately, the reality is that many “Forex kitchens” pass off their transaction processing systems as ECN, DMA, STP, although in reality this is a market maker.