Best Forex Brokers: the Difference between Market Maker, ECN and STP broker
Choosing a broker isn’t that easy. There are hundreds brokers out there with their mission to scam you! Before investing check for feedback on the website Forex Peace Army or surf some forums. It’s very hard to find a broker that will satisfy all your needs like spread, no slippage, deposit amount etc. but on top on that, you need to know if you want to trade with a Market Maker (MM), STP or ECN broker.
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So let’s say a few words about those three types of brokers.
Market Maker – like the name already says, this broker makes the market. This means that every time you buy or sell a pair the broker is the counter party. If you lose your money, this means that the broker earns it. So you can see that their interest is you losing money and that’s bad. The only good thing is the instant execution, all your orders are filled almost in the same second and you won’t get any re-quotes. This type of brokers are OK for smaller amounts but when you’ll start making trades at 5$/pip they will delay your execution or even make your trades re-quote. But on the other hand, market maker have account types with minimal deposit requirements and often offer nice welcome bonuses for newbie trades. Some will give you 5$, 10$ and up to 200$ bonus without any deposit made, other have some nice bonuses on deposit up to 50%, check out here for at Free Forex Bonus
ECN Broker is a broker that offers you direct trading on the real market. This broker makes money from spread displayed to you: let’s say if the current real spread on an GBPUSD pair is 0.3 pips, this broker might display you a 0.6 pips spread, so he’s making 0.3 pips on every trade you make. And ECN brokers have commissions per round turn lot traded, around 10$/round lot. Real ECN brokers have min deposits above 1k$ and min lotsize of 1$/pip. Some ECN brokers can even offer you 0 pip spreads! But like mentioned for a small trader ECN execution is often beyond reach: because its interbanking nature, traders are typically required to trade very large lots and minimum deposit requirements are somewhere from $50,000 to $100,000. This model is also responsible for all the re-quotes and order rejections because when you open a large order the broker routes it to the real market, but the prices there might have already changed so the broker is faced with two options: either rejecting the order asking for you to adjust prices or completing the order by taking the risk that it might end up a successful trade meaning the broker will have to pay you from its pockets and this will not happen.
STP Brokers are a hybrid between Market Makers and ECN brokers. This type of broker displays most of the time its own quotes which are correlated to the actual inter banking quotes.
And now here is the real complexity of STP brokers: This brokers sometimes routes your orders to the real market (acts as an STP broker) but other times it doesn’t and acts like a Market Maker.
STP brokers use complex algorithms that finds if a trader is successful and automatically routes those traders to the real market while small and losing traders aren’t routed to the market. This way the broker profits twice: once by clients losses and another by not losing money to successful traders. STP brokers are currently a hit and are not so long around. I’m trading with a STP broker and I find them superb. Check out the the best stp/ecn forex broker in my eyes. They are regulated, with great account types and leverage up to 1:500. Scalping, hedging, EA’s and all other trading strategies are allowed! US clients are welcomed too!
So you have a better picture now how those three broker types work.. I hope it’s more clear now.
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Best Forex Brokers: the Difference between Market Maker, ECN and STP broker
