Dealers, ECN and STP

Broker websites lean hard on three labels: "market maker," "ECN" and "STP." They are used loosely, sometimes as marketing rather than description, so it helps to know what each one is supposed to mean and what to check for.

Market maker (dealing desk)

A market-maker broker quotes its own bid and ask and takes the other side of client trades. When you buy, the broker sells to you from its own book. It then decides, usually by rule and by size, whether to hedge that exposure with an LP or keep it.

Keeping it is called "B-booking." The broker makes money when the client loses. That sounds sinister, but for very small clients who trade often it is standard practice, and it is not illegal if the broker is honest about it and executes at fair prices. The conflict of interest is real, though: the firm profits from your losses, and a badly run dealing desk has an incentive to widen spreads at bad moments or delay fills.

Signs you are at a market maker:

• Fixed spreads that do not change during news.
• No commission; the whole cost is in the spread.
• Very small minimum deposits and very high leverage.
• Terms of business that say the firm "may act as principal."

STP (straight-through processing)

An STP broker routes client orders straight to one or more LPs without a dealing desk in the middle. It earns a markup on the spread, a commission, or both. Your counterparty is still the broker, but the broker has hedged its exposure by matching your trade with an LP, so it does not profit directly from your loss.

Signs of STP:

• Variable spreads that widen when the underlying market is thin (news, rollover).
• A commission per lot alongside a "raw" spread, or a small fixed markup.
• Occasional slippage in both directions, positive and negative.

ECN (electronic communication network)

A true ECN is a venue where multiple participants (banks, funds, other clients) post orders into a shared book, and the broker simply gives you access to it. You can see depth of market (multiple price levels with size), you pay a commission, and spreads can go to zero when two participants cross.

In retail FX, "ECN" is often used to mean "STP with a commission." Genuine depth-of-market access exists but is less common than the label suggests. The difference matters less than you might think; what matters is how the order is actually handled.

Hybrid is the norm

Most brokers of any size run a hybrid. Small accounts and small orders go to the internal book (B-book) because hedging them one by one costs more than they are worth. Larger or consistently profitable accounts get routed to LPs (A-book). The broker's risk engine decides, and you do not see the decision.

This is why the same broker can give one client a smooth experience and another client constant slippage. It is also why "ECN account" and "standard account" at the same firm can behave differently.

Key idea: The label matters less than the behaviour. Judge a broker by variable spreads that reflect the real market, fills that slip in both directions, a clear execution policy and a regulator that requires it to be honest, not by whether the word ECN appears on the homepage.

What a beginner should actually care about

You cannot verify a broker's internal routing. You can verify:

1. Regulation. The next lesson. A regulated broker that B-books is still bound by best-execution and conduct rules; an unregulated one is not, whatever it calls itself.
2. All-in cost. Spread plus commission, measured in pips, at the times you trade. Module 4 shows the arithmetic.
3. Execution quality. Do fills match the quote you clicked? Do stops fill near the stop level in normal conditions? Test this on a demo and then on a small live account.
4. Transparency. Does the broker publish its execution statistics, its LPs (or at least that it uses them), and its policy on principal versus agency dealing?

A broker that is regulated, cheap, executes cleanly and is transparent about being a market maker is a better choice than an unregulated "true ECN."

Try it: Take the three brokers you are considering (or three you have heard of). For each, write down in one line: regulator, account types offered, whether spreads are fixed or variable, and whether there is a commission. If a broker's site does not let you answer all four in five minutes, cross it off.

Recap

• Market makers take the other side of your trade and profit when you lose; STP brokers pass orders to liquidity providers; ECNs give access to a shared order book.
• In practice most brokers are hybrids that B-book small accounts and A-book large ones.
• The "ECN" label is often marketing; behaviour (variable spreads, two-way slippage, published execution policy) is the evidence.
• Regulation, all-in cost, execution quality and transparency are what a beginner can actually check.
• A transparent regulated market maker beats an unregulated firm with a fancy label.