There are two main types of Forex brokerage firms, Dealing Desk, and No Dealing Desk:
(I) Dealing Desk Brokers (DD) or Market Makers
(II) No Dealing Desk Brokers (NDD)
Each brokerage type offers a different order structure, as it is presented below.
(I) Dealing Desk (DD) or Market Makers
Dealing Desk firms are also called Market Makers. This type of brokerage usually provides fixed spreads and no commissions. Dealing Desk firms make money out of the spread between ask/bid. Actually Dealing Desks are always trading on the opposite side than their clients do. They provide bid/offer prices in a way that they are able to diversify their market risk via orders of a different direction. This type of Forex brokerage is accused of high slippage, price manipulation, and stop-handing techniques. Market-makers are only suitable for Forex beginners, and maybe semi-advanced traders.
(II) No Dealing Desk (NDD) Forex Brokers or Agents
No Dealing Desk Brokers provide their clients with access to the Interbank Market without the use of a Dealing Desk. Real NDD Brokers don’t require order confirmation and their transactions are executed immediately without delays. This works in favor of their clients, especially for those who are trading during news time. No Dealing Desk brokers are making money by widening the bid/ask spread and/or by charging trade commissions. Some NDD Forex Brokers don’t charge any commissions and make money only out of the spread. Others, offer zero-spreads and charge only commissions. The advantage of trading with NDD brokers is that there isn't any conflict of interest between brokers and their clients. No Dealing Desk brokers are either ECN or STP, but some of them are both ECN and STP. NDD brokers are suitable for all types of traders (day traders, swing traders, news traders, position traders, etc.)
Here are the basics about ECN and STP Forex Brokers
1) ECN FOREX BROKERS
The ECN (Electronic Communications Network) brokers provide a marketplace where the participants (traders, market makers, hedge funds, and banks) trade against each other. ECN Forex Brokers are basically transferring trading orders directly to the Foreign Exchange market. These orders interact with other trading orders, and therefore transactions are executed.
- All ECN trading orders are matched in real-time
- A true ECN Forex broker provides its clients with the Depth of the Market (DOM) data table (as seen in the picture –MT4)
- Another advantage of ECN trading is that it provides Forex traders with full anonymity
Compare Brokers: » ECN Brokers
2) STP FOREX BROKERS
STP means Straight-Through Processing and refers to the method of transferring retail trading orders straight to liquidity providers, without any dealing desk intervention.
- An STP broker doesn't interfere when processing orders.
- Usually, STP brokers have big banks as their liquidity providers. The more liquidity, the better
- STP Forex brokers usually offer a transaction speed between 70 and 150 milliseconds.
Compare Brokers: » STP Brokers
Types of Forex Brokers
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