The Forex market provides for a variety of brokerage types. Three of those are described in detail below:
No Dealing Desk (NDD): The “No-Dealing-Desk” category of brokers is the one, which do not interfere in any way in the trade processes of their user clients. They don’t dictate the way a client should trade; nor do they set any terms and conditions for picking situations or choosing the lot size. This category includes STP, ECN or those ones which are ECN+STP. Like the name would seem to imply, you can define these by a lack of a ‘dealing desk’ which is the feature of a market maker (as described below). And their clients’ orders are passed on directly to the providers of liquidity for execution, without any sort of intervention from a dealer. The NDD broker offers spreads which are low and variable; and is super fast when it comes to the execution of trade orders. NDD brokers also earn their fee from a small mark-up on the spread. They might also charge a fixed commission per month from their clients.
Market Makers or Dealing Desk (DD): Market makers are usually referred to as “Dealing Desk” (DD) Brokers. These have a dealing desk they’re known for acting as the counter-party to their clients. This implies that the broker takes a stance which is opposite to every single trade executed by the client. Actually, there exists a conflict of interest between the trader and the market making broker. This is because of the reason that they accept all ‘bid and ask’ quotes, they are compelled to find a counterpart from among its other clients. If they don’t find it there, then they can choose to pass the order over to a liquidity provider. Market makers usually have quotes which are slightly different from those of the liquidity providers on the interbank market. They generally let out only negative slippages and not the positive ones, have set fixed rates.
Electronic Communication Network (ECN): ECN brokers have a straight-through-processing method of execution. Like market makers they pass their clients’ orders to the inter-bank market for the purpose of execution. However, unlike market makers and Desk Dealers, they allow their clients to be the counterparty to a transaction. Most ECN brokers usually have a trading module whereby all the orders from banks, market makers and individual traders are displayed on a chart, and this enables traders to compete against one another. Thus, they have the most transparent system of delivering price quotes. The spreads are normally variable, and are generally very low. ECN brokers make money from the spread and by charging a fixed percentage of commission on trades. Also, for most of the time, they require a substantial initial deposit in order to open an ECN account with a broker.