What Are the Different Types of Forex Brokers?

Forex brokers are categorized into Dealing Desk (DD) and No Dealing Desk (NDD) brokers, with NDD further divided into ECN and STP models. Here’s how they work:

1. Dealing Desk (DD) Brokers – Market Makers

Market makers provide fixed spreads and quote prices that may differ slightly from interbank rates. They act as the counterparty to trades, meaning traders do not interact directly with liquidity providers.

• Key Features:
  • Fixed spreads.
  • Can take the opposite position of the trader.
  • Generates revenue from spreads.

2. No Dealing Desk (NDD) Brokers

NDD brokers provide direct access to the interbank market, ensuring faster execution without requotes. They operate as either STP or STP+ECN brokers.

a) Electronic Communication Network (ECN) Brokers

ECN brokers connect traders to the real interbank market, displaying an order book with buy and sell prices from banks and institutional participants.

• Key Features:
  • High market transparency.
  • Raw, variable spreads.
  • Charge commissions instead of widening spreads.
  • Orders go directly to liquidity providers.

b) Straight-Through Processing (STP) Brokers

STP brokers automate trade execution, routing orders directly to liquidity providers without manual intervention.

• Key Features:
  • Fast execution.
  • No dealer intervention.
  • Spreads can be variable, depending on market conditions.

Each broker type serves different trading needs, with market makers offering stability, while ECN and STP brokers provide direct market access with tighter spreads and higher transparency.