MM: Market Maker, market maker; DD: Dealing Desk, with a trading platform.
STP: Straight Through Processing, straight-through processing system.
ECN: Electronic Communications Network, electronic communication network mode.
DMA: Direct Market Access, direct market access
NDD: No Dealing Desk, no trading platform (non-DD/MM collectively referred to as NDD)
Before giving a detailed explanation, let me first explain: In the complex Forex industry, Broker has many meanings. Unlike the typical stock brokers we see, they only set up a channel for you to enter and exit the market. In the Forex market, brokers can not only act as channel providers (NDD), but also as liquidity providers (MM), so sometimes the Forex broker itself means the market, so Broker will also be translated as "dealer" in the Forex market. In addition, Introducing Broker (IB) is called an introducing broker in Chinese. It is a collaborator who develops the market for Broker. We also call it "agent" and "intermediary". Introducing brokers are often referred to as brokers. Therefore, when terms such as "broker" or "broker" are mentioned in the Forex market, its specific meaning must be analyzed according to the specific situation.MM market maker model and DD inquiry and transaction modelThe market maker will directly receive the trader's order and directly become the trader's counterparty. Market makers are usually also called Dealing Desk (DD), which means "dealer platform", because market makers often make complex settings based on market conditions or traders' situations to interfere with traders' transactions, in order to make transactions more beneficial to themselves.It is obvious that there is a naked conflict of interest between market makers and traders, but a conflict of interest does not necessarily mean that traders will frantically interfere with transactions. In fact, with today's advanced electronic technology, the vast majority of market makers' orders will be executed quickly without interference. Market makers will only do some "special" processing when the market situation is special or the trader's situation is special. This so-called "special" processing method may be diverse, such as extending the order completion time, refusing to complete the transaction (repeated inquiry) or even expelling the trader.The significance of the existence of market makers is mainly to provide trading liquidity for the market. In fact, in a broad sense, there would be no Forex market without market makers, because banks are the largest market makers! If the trader's order is not taken directly by the Broker, it will enter the ECN network or the inter-bank market. The significance of ECN is nothing more than to find a counterparty willing to accept the order. This counterparty can be any party in the ECN network, such as other Brokers or a certain bank. Interbanks are the ultimate liquidity providers in the Forex market. They will eventually take all the orders that have not been digested, thus causing fluctuations in the Forex market.There may not be any benefits for traders to choose retail market makers. Since market makers directly act as counterparties to traders, market makers often have faster transaction speeds and usually have smaller slippages. There are also advantages such as low threshold for opening an account and high leverage, allowing many beginners and investors with small funds to participate in Forex transactions. Therefore, traders can choose with confidence a market maker that accepts formal and strict supervision and has a good reputation.Typical representatives: Oanda, Forex.com, MIG Bank, Saxo Bank, etc.STP straight-through processing system modeIn some cases, such as too many traders placing orders in the same direction for a currency pair, the MM market maker may not be willing to bear all the risks alone, and will transfer some orders directly to the market (banks or other liquidity providers). The processing of this type of order is the so-called STP mode.Through the straight through processing system (STP), customers' orders are sent to the bank, and transactions are close to instantaneous at the bank's price. During periods of high trading volume, orders may be left hanging, indicating that the order has been executed but remains in the pending order window. Generally speaking, such an order has been executed, but it still needs some time to wait for bank confirmation. During periods of frequent trading, there may be multiple orders waiting to be processed. The increase in waiting orders sometimes affects the bank's delay in confirming some orders. Depending on the type of order, the situation may be different.An STP-type broker can be said to be a hybrid type of broker. Most of the time, it displays its own quotation (a quotation that has a certain correlation with the inter-bank quotation) (MM mode). Sometimes the broker will put your quotation into the market (STP mode).ECN electronic trading network modelECN is an electronic trading network and a Forex trading technology that uses a centralized-decentralized market structure. This model is accomplished by working closely with banks, institutions, Forex markets and technology providers. Traders' orders are directly and anonymously hung on this network. Each order has the same status, and transactions are matched fairly according to the optimization of price and time. Therefore, the price on ECN is the real market price, and the spread is not fixed. The operator of ECN does not participate in transactions and charges an appropriate proportion of transaction fees from traders. So they will try their best to provide customers with better services. With the development of Internet technology, ECN traders serving individual investors, small banks, investment institutions, and hedge funds have begun to appear. The business operation model of ECN is generally regarded by the U.S. securities industry as a typical fully automated electronic stock exchange. The ECN platform includes STP mode. Therefore, the ECN platform is accurately said to be an "ECN+STP" platform.DMA direct market access modelUnder the DMA mode, traders can directly connect to the physical market and receive direct quotes from liquidity providers (major Forex banks, other brokers, market makers, etc.).Sounds a lot like STP and ECN modes? It's really close, but there's a difference.The DMA (Direct Market Access) model is offered by ECN brokers and some STP brokers. In fact, all ECN brokers provide DMA mode, and only some STP brokers provide DMA mode.NDD No Dealing Desk ModelSTP, ECN and DMA are all NDD non-trading platform models.Traders who use no-dealing platforms rely on charging trading commissions or increasing spreads to make profits. The main advantage of the NDD platform is that there is no conflict of interest. As a community of interests, NDD traders usually hope that customers will make profits. However, it may not have an advantage over the MM platform in terms of transaction speed or slippage.Typical representatives: Dukascopy Bank, LMAX, Interactive Brokers, MB Trading, etc.
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