First-hand Forex trading experience and information about foreign exchange market that will be useful to traders
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Even experienced traders often get confused with various Forex terms. STP, NDD andECN are very important acronyms andare popular inbrokers lexicon. Theterm market maker, inspite ofnot being anacronym, is closely related tothose three andis used todescribe Forex brokers. Unfortunately, thedefinitions ofthese terms are quite vague andyou may find rather contradictory versions online. Here, Itry toprovide abetter explanation oftheir meaning toaForex trader:
Market Maker abroker that holds positions intheasset, forwhich he is offering trading services. Forexample, if you open EUR/USD Buy position with aMarket Maker, it will open amirroring EUR/USD Sell position inits liquidity market, keeping thespread difference between your Buy price andhis Sell price asapremium. Themajority ofForex brokers are Market Makers.
What does trading with Market Maker mean toyou asatrader? Since broker is opening aposition inanopposite direction, theres aconflict ofinterest that may become acause forthefraudulent manipulations, but that doesnt necessarily mean that all Market Makers are fraudulent. Market Maker brokers may charge any spread difference they like they are limited only with thelevel oftheindustry competition. Trade execution is slower, since broker needs toopen two positions inits books.
NDD orNo Dealing Desk abroker without adealing desk. Whats adealing desk then? Dealing desks inForex trading are thehuman teams that filter thetraders orders before they are executed bytheMarket Maker. Dealing desk can refuse toexecute anorder atthegiven price andsend arequote totrader; they may also delay anorder if thecurrent market conditions are unfavorable fortheMarket Maker. No Dealing Desk means that thebroker doesnt employ such manualorder-handlingsystem.
What does it mean toatrader? Faster execution, no fake requotes, delays, slippage andorder rejection. Its generally considered afairer type ofexecution.
STP orStraight Through Processing fully electronic execution ofthetrades without manual intervention. It was created astheopposite totheT+3 processinginfinancial markets. InForex, STP is thesynonymous ofNDD both features mean that theorders will be executed electronically without manual intervention from thebroker, ensuring both speed andconsistency oftrading.
Whats inSTP toatrader? Thesame aswith NDD its faster, with less manipulation andintervention between theorder andtheopen position.
ECN orElectronic Communication Network anetwork ofcomputers used fortrading. InForex, it means adirect access tothenetwork ofseveral liquidity providers. ECN brokers do not hold amirroring position toevery clients position. They merely pass thetraders order tothenetwork, matching it with thebest quote available from several liquidity providers. Inthis case, abroker doesnt earn spread, but charges commission fororder execution.
ECN results inextremely low spreads foratrader. Thespread isnt completely eliminated, since some Bid/Ask spread will exist even forthebest quotes among several providers. Traders pay commission, which depends onthetrading volume. With ECN, theres ahuge potential fortheincreased speed ofexecution, but, unfortunately, faster execution is not always thecase, since thespeed ofit depends onmany factors such astheintegrity oftheECN brokers network andquality oftheir software.
Theconclusion here is pretty simple. Asatrader, you probably want tofind anECN broker with low commission. If you cant find one, you should try find anSTP NDD (which is virtually thesame) Market Maker. Trading with Market Maker that employs dealing desk may be quite dangerous, andtheForex market is risky enough without that.
If you have any comments orquestions about theSTP, NDD, ECN orany other related term, pleasereplytothis post using theform below.
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7 Responses to STP, NDD, ECN WTF?!
helol i want to know of fx salt is ecn broker stp or mm thank you
Looks like a market maker, but youd better ask their support.
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 arent 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.
Some (unregulated) STP brokersmaydo that, though I doubt that its technically possible to apply such filtering effectively.
If an STP NDD is virtually the same why do they have different name? Thnk you.
The different names come from other markets (non-FX) where there is difference between STP and NDD. You can read more about broker models in our course:
I am watching NDD transactions and wonder about benefit of multiple small orders, 1 share to 20 shares that seemingly reduces stock price. Confused.