STP Brokers, ECN and Market Makers – Type…

by: Mohammad Hafiz

STP Brokers, ECN and Market Makers – Type of Forex BrokersFebruary 5, 2016 Posted on February 5, 2016 by AdminDifference Between ECN, STP Brokers and Market MakersI’m asked quite a bit about various Forex brokers. How should you choose one? and what are the differences between different type of Forex brokers as ECN, STP brokers, and market maker brokers? So here I’ve decided to gather the main info regarding what you should know before deciding where you are going to trade. When you approach trading you can choose one of three types of forex brokers and they are ECN (Electronic Communication Network), STP brokers (Straight Through Processing) and Market Maker brokers. Let’s get to know them by understanding the main differences between them. Market Maker Brokers Forex Market Makers use their own inventories of currencies in order to offer an immediate liquidity for traders. When you buy or sell you are guaranteed that your order get filled right away. That, instead of waiting for another trader to buy from or to sell to. They offer competitive rates, as each market maker tries to provide the most attractive prices for its clients. they use other clients positions and sometimes take the opposite side of your order. By trading against their clients the Forex market maker provides high market liquidity by taking risks on its own trading books. In order to do so it uses dealing desks (DD). After understanding the advantages of trading with such brokers you need to know the negative side. Market maker Forex brokers may manipulate current bid and ask prices of a currency pair. They generate profits from spreads, and by trading against their clients. It doesn’t mean that this is what they do. But you must be aware of that conflict of interests. They also might use your personal identity for their benefits. So if you choose to trade with one, make sure that the reputation is positive and clean, and that its business model is based on decent risk management methods and not more than that. From my experience, there are only few Forex market maker brokers which are reliable enough to trade with. ECN BrokersECN forex brokers offer traders a direct opportunity to trade in the real market. Unlike the case of Market Makers, a trader’s identity remains anonymous to the ECN forex brokers. An ECN is supposed to have several liquidity providers such as other ECN brokers, and large banks. Such brokers earn money by charging their clients a commission fee for every trade. An ECN system provides the current market depth that consists of the following:Ask prices of pending sell orders. Total volume of every ask price. Bid prices of pending buy orders. Total volume of each bid price. The ECN brokers system matches contra-side orders for immediate execution and sends unmatched orders to forex traders. STP BrokersSTP brokers is are a combination of ECN brokers and market makers. It passes clients’ orders directly to the liquidity providers, which can be other ECNs, large banks, hedge funds or other brokers. STP brokers earn their income from the spread added to liquidity provider’s original price. STP Brokers display the best ask/bid prices offered by their liquidity providers to their clients. These brokers don’t know their clients’ identities, and executes trades by sending it directly to the liquidity providers. Unlike market makers, STP Brokers don’t have a dealing desk and never trade against their clients. For recommended Forex Brokers List Visit HERE. Share this:TwitterFacebookPinterestGoogle This entry was posted in Articles. Bookmark the permalink.

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