ECN, STP and market maker: what broker execution models really mean

A market maker (dealing desk) broker quotes its own prices and takes the other side of your trades. An STP (straight-through processing) broker passes your orders on to one or more liquidity providers, such as banks and non-bank market makers. An ECN-style broker gives you access to prices aggregated from several liquidity providers, usually with a raw spread and a separate commission. In practice these are marketing labels, most retail brokers combine more than one model, and the things that actually affect your trading are cost, execution quality and regulation.

This guide explains how each model works, where the conflicts sit, what the labels hide, and the practical checks that tell you more than any account name.

Why execution models matter at all

When you click buy on a retail forex platform, you are not trading on an exchange. Spot forex and CFDs are traded over the counter: your contract is with the broker. What happens next, whether the broker keeps the risk, hedges it, or passes it straight to someone else, determines how the broker earns from you and what incentives it has. Our guide to how forex brokers make money covers the revenue side; this one focuses on the mechanics.

For background on the wider market your broker sits within, see how the forex market works.

Market makers (dealing desk)

A market maker sets its own bid and ask prices, normally derived from prices it sees in the wider market, and acts as the counterparty to client trades. When you buy, the broker sells to you. This is sometimes called a dealing desk model, or B-book.

How it works in practice: the broker collects many client positions. Long and short positions partly offset each other, so the broker's net exposure is smaller than the sum of its clients' trades. It can keep that net risk, or hedge some of it with liquidity providers.

Advantages for clients:

• Prices are often stable and fixed or tightly managed spreads are possible, even in quiet markets.
• Small trade sizes, down to micro lots, are easy to fill.
• Fills are instant in normal conditions, because the broker does not need to find a counterparty.

The conflict: a broker that keeps your trade on its books gains when you lose. Regulated brokers must manage this conflict under rules on best execution and conflicts of interest, but the incentive exists. Historical problems with less scrupulous operators have included one-sided slippage, requotes that only seem to happen when price moves in the client's favour, and stop-hunting. These are prohibited practices for regulated firms and are a strong reason to stick to well-regulated brokers.

STP (straight-through processing)

An STP broker routes your order to one or more liquidity providers, who fill it. The broker typically adds a markup to the spread and may charge a commission. Some call this a no dealing desk (NDD) model.

What the label leaves out:

• STP does not tell you how many liquidity providers there are, or who they are. Some "STP" brokers route to a single provider, which may be a related company.
• The liquidity provider may itself be a market maker, so somewhere in the chain someone is still taking the other side.
• Many brokers describe themselves as STP while internalising part of their flow, especially smaller accounts.

Advantages: the broker has less direct interest in your losses on the trades it passes on, and prices reflect the wider market more directly.

Drawbacks: spreads are variable and widen at the open, at rollover and around news. Fills can slip when liquidity is thin, in either direction. See slippage explained.

ECN (electronic communication network)

In the strict sense, an ECN is a venue where many participants post and match orders anonymously, with visible depth. In retail forex, "ECN account" usually means something more modest: the broker aggregates quotes from several liquidity providers and shows you the best bid and offer, with a raw spread and a commission per lot.

Typical features of ECN-style accounts:

• Raw spreads that can be close to zero on major pairs in liquid hours.
• A separate commission, often in the region of $6 to $7 per standard lot round turn on majors, although it varies.
• Variable spreads that widen when liquidity drops.
• Sometimes visible market depth, showing available volume at several price levels.

What to keep in mind: very few retail brokers operate a true multi-participant ECN where your orders interact with other traders' orders. Most "ECN" accounts are aggregation plus STP, and some are B-booked behind the label. The account name tells you about the pricing structure, raw spread plus commission, more reliably than about where your order goes.

Hybrid models: how most retail brokers actually work

Most large retail brokers use a hybrid model. Their risk systems decide, account by account and sometimes trade by trade, whether to internalise a position or hedge it externally. Typical patterns include:

• internalising small, short-term retail flow, where client positions offset each other;
• hedging large positions, or accounts that are consistently successful;
• hedging the broker's net exposure when it exceeds a limit.

This is legal and widespread. It means the question "is this broker an ECN or a market maker?" usually has the answer "both, depending on your account and your trading". The more useful questions are about outcomes: what you pay, how your orders are filled and who regulates the firm.

Following one order through the chain

It helps to trace a single order. Suppose you send a market order to buy 1 lot of EUR/USD at 1.1000 on the ask.

1. Your platform sends the order to the broker's trade server, usually in milliseconds if the server is close to you.
2. The broker's risk engine checks your margin, then decides how to handle the trade, based on rules set for your account group, the instrument and the broker's current exposure.
3. If internalised, the broker fills you from its own book at its quoted price. Your position now offsets, or adds to, other clients' positions. The broker may hedge the net result later, in bigger blocks.
4. If routed externally, the broker's bridge or aggregator sends the order to one or more liquidity providers. A provider may accept, reject under last look, or fill at a slightly different price if the market has moved.
5. The fill comes back to your platform. The price you see in your history is the result of all of the above.

From your seat, steps 3 and 4 look identical: a filled order at roughly the price you expected. That is why you cannot infer the execution model from the platform, and why the order execution policy and your own fill records are more informative than the account name.

Note also what does not happen: your order does not appear in a central exchange order book, and nobody else in the market sees it as a retail order. Spot forex has no single exchange, which is also why spreads, prices and even candle shapes can differ slightly from broker to broker. If you want to understand quotes and spreads at this level, read reading a forex quote.

Last look, requotes and slippage

Three execution terms come up repeatedly.

Last look

Many liquidity providers in the wholesale FX market use last look: a short window after receiving an order in which they can accept or reject it at the quoted price. It protects providers from being picked off by stale quotes. For retail clients it can show up as rejected orders or slippage during fast markets. The FX Global Code, a set of principles for the wholesale market, sets out expectations on how last look should be used and disclosed.

Requotes

A requote happens when the broker declines to fill at the price you clicked and offers a new one. It is most common with instant execution on dealing-desk platforms. Frequent requotes, especially only when the market moves in your favour, are a red flag.

Slippage

Slippage is the difference between the price you requested and the price you got. It happens to every broker in fast markets and is not, by itself, a sign of bad faith. What matters is symmetry: a fair broker passes on positive slippage, a better price than requested, as well as negative slippage. If your fills only ever slip against you, that is worth raising with the broker and, if unresolved, with the regulator.

Worked example: comparing two accounts on cost

This is an illustrative comparison with invented but realistic numbers, for someone trading 10 standard lots of EUR/USD a month.

Account A, "Standard" (market maker), no commission:

• Average spread: 1.1 pips.
• Cost per lot: 1.1 × $10 = $11.
• Monthly cost: 10 × $11 = $110.

Account B, "ECN", raw spread plus commission:

• Average raw spread: 0.2 pips.
• Commission: $7 per lot round turn.
• Cost per lot: 0.2 × $10 + $7 = $9.
• Monthly cost: 10 × $9 = $90.

Now add execution. Suppose on account B the trader's market orders slip by an average of 0.2 pips net against them during news, worth $2 per lot, while account A fills at the quoted price. Account B's effective cost rises to $11 per lot, the same as account A.

The point is that the label tells you very little. You need the all-in cost, including realistic spreads at the times you trade and the slippage you actually receive. A trading journal that records requested and filled prices gives you that data, and the spreads and commissions guide explains how to put costs on one scale.

What to check instead of the label

1. Regulation and entity. A well-regulated market maker is a better counterparty than a lightly regulated "ECN". Check the licence on the regulator's own register; our guide to how to check a broker licence and the regulator registers page show you how.
2. Order execution policy. Regulated brokers in the EU and UK must publish one. It should state whether the firm acts as principal (your counterparty) or as agent, which execution venues or liquidity providers it uses, and how it handles slippage and price improvement.
3. Conflicts of interest policy. Look for how the firm manages the conflict of being your counterparty.
4. All-in costs. Average spreads at the times you trade, commission, swaps and other fees, from the broker's published costs and charges disclosures.
5. Your own fill data. Once you trade, compare requested and filled prices. Look at both positive and negative slippage.
6. Order types and minimum stop distances. Some brokers impose minimum distances for stop and limit orders, which matters for short-term strategies. See order types.

Which execution model suits which trader?

There is no universal answer, but some broad patterns hold:

• Small, infrequent traders often find a standard account simpler, and the extra cost over a year is modest.
• Active traders and scalpers usually pay less overall on raw-spread accounts and care most about fill quality, minimum stop distances and whether the broker restricts very short holding times.
• Algorithmic traders should check server location, latency and any restrictions on automated trading in the terms.
• Anyone trading around news should expect wider spreads and slippage whatever the model, and should read how economic data moves forex before doing so.

Whatever the account type, remember that leverage magnifies losses as well as gains, and most retail CFD accounts lose money. Execution quality affects costs at the margin; it does not change that basic arithmetic.

Common misconceptions

• "ECN means no conflict of interest." Many ECN-labelled accounts are hybrid, and ECN brokers still earn more the more you trade.
• "Market makers manipulate prices." Regulated market makers must provide fair prices and best execution. Poorly regulated ones are the problem.
• "No dealing desk means no slippage." STP and ECN accounts typically slip more often in fast markets, because prices come straight from the market.
• "Fixed spreads are always better." Fixed spreads are usually wider on average, and may come with requotes when the market moves fast.
• "My orders go to the interbank market." Retail orders go to the broker and, at most, to its liquidity providers. Very few retail clients ever trade directly with the large dealing banks.

Frequently asked questions

Is an ECN broker better than a market maker?

Not automatically. ECN-style accounts tend to be cheaper for active traders because of raw spreads, but the label does not tell you where your order goes. Regulation, total cost and fill quality matter more than the account name.

How can I tell if my broker is a market maker?

Read the order execution policy. Regulated brokers must state whether they act as principal, meaning they are the counterparty to your trades. If the document says the firm acts as principal or counterparty, it is operating at least partly as a market maker.

What does no dealing desk mean?

It means the broker says it passes orders to liquidity providers without manual intervention by a dealing desk. It is a marketing term with no fixed legal definition, and does not tell you how many providers there are or whether some flow is internalised.

Do market makers trade against their clients?

They take the opposite side of client trades, which means they gain when those clients lose. That is a conflict of interest, which regulated firms must manage and disclose. It does not mean they can legally manipulate prices or fills against you.

Why does my ECN account have slippage?

Because prices come from liquidity providers and change quickly, especially around data releases and at the daily rollover. Your order is filled at the best available price when it arrives, which may be better or worse than the price you clicked. Check that slippage goes both ways.

Does the execution model affect my risk?

Not directly. Your risk comes from position size, leverage and stop placement. The execution model affects costs and fills. The biggest risk-related factor in choosing a broker is regulation, which determines protections like negative balance protection and client money segregation.