Types of Forex Brokers
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Forex brokers serve as intermediaries between individual traders and the larger foreign exchange market. The type of broker a trader chooses can affect everything from trade execution speed and pricing transparency to the overall trading experience. Though the forex market itself operates in a decentralized manner, brokers are the gateway for most participants. The two main categories of forex brokers are dealing desk (DD) brokers and no dealing desk (NDD) brokers, with further distinctions within those. Understanding how each operates helps clarify pricing structures, execution models, and potential conflicts of interest.
No forex broker type is objectively better than the others. Each comes with trade-offs in cost, transparency, and execution method. The critical factor is alignment with the trader’s strategy and expectations. Regulatory oversight, financial stability, and operational transparency matter more than the label of ECN, STP, or market maker. A broker’s actual trade execution history and its behavior under stress — such as during a market spike — often say more about its reliability than its declared model.
While newer traders are often advised to keep things simple, experienced ones must periodically reassess whether their broker is still serving their needs. Switching from one broker type to another can lead to better fills, more competitive spreads, and fewer surprises.
You can find and compare brokers of all the types listed below by visiting ForexBrokersOnline. A website designed to make it easy to compare forex brokers.
Dealing Desk Brokers (Market Makers)
Dealing desk brokers, often called market makers, quote bid and ask prices and take the opposite side of a client’s trade. They don’t necessarily pass orders directly into the interbank market. Instead, they manage exposure internally. If a client opens a long position in EUR/USD, for instance, the broker might take the opposing short position, hedge that position internally, or route it to liquidity providers selectively based on its own risk strategy.
This type of broker typically offers fixed spreads and may not charge commissions. Execution tends to be fast under normal market conditions, but slippage and requotes can occur during high volatility. Because dealing desk brokers can profit when a client loses (in cases where trades are not hedged externally), there’s an inherent conflict of interest. However, reputable firms manage risk and operate within regulatory standards to avoid unethical behavior.
Market makers are often preferred by new or smaller traders because of lower capital requirements, straightforward pricing, and the relative stability of fixed spreads. Many retail trading platforms fall under this model, making it one of the most commonly encountered types.
No Dealing Desk Brokers
No dealing desk (NDD) brokers do not interfere with the trades placed by clients. Orders are routed either directly to liquidity providers or aggregated across multiple providers. This model reduces the likelihood of conflicts of interest, as the broker earns primarily through spreads and commissions rather than gains from client losses. Within this category are two subtypes: STP and ECN brokers.
Straight Through Processing (STP)
STP brokers automatically send client orders to external liquidity providers. These could be banks, hedge funds, or other financial institutions offering bid and ask quotes. Orders are filled at the best available price, and the broker often adds a small markup to the spread. This markup is the broker’s compensation, though some also charge a commission depending on the platform.
STP execution is generally faster than that of market makers and is not subject to requotes, though slippage is still possible in volatile conditions. Because the broker isn’t taking the other side of trades, this model is considered more transparent. However, variable spreads are the norm and can widen significantly during economic releases or sudden shifts in market sentiment.
STP accounts may require higher minimum deposits than those offered by dealing desk brokers, and execution quality can vary depending on the number and quality of liquidity providers.
Electronic Communication Network (ECN)
ECN brokers give traders direct access to the interbank market through an electronic system that matches orders from different participants. This includes banks, other traders, hedge funds, and institutions. The ECN model offers the tightest spreads, particularly during periods of high liquidity, though it charges a commission per trade as its main revenue source.
Unlike STP brokers, ECNs display depth of market (DOM), showing the available liquidity at different price levels. This level of transparency allows traders to make informed decisions about entry and exit points, particularly in strategies involving scalping or high-frequency trading.
Because ECN brokers route orders anonymously and never act as counterparty, there’s no potential for trade manipulation. However, this setup requires advanced technical understanding and is best suited for experienced traders. Spreads can be razor-thin during active hours but may widen during off-peak times, when liquidity thins out. ECN brokers usually require higher deposits and enforce tighter trade size minimums, limiting accessibility for casual or low-capital traders.
Hybrid Models
Some brokers operate on a hybrid model, combining elements of both market making and STP or ECN models. In such cases, smaller trades may be handled in-house using a dealing desk while larger or more frequent trades are routed to external liquidity providers. This allows brokers to manage risk and liquidity more effectively.
Hybrid models can be hard to identify without transparency from the broker. Traders should pay attention to execution speed, pricing consistency, and order rejection frequency to gauge how trades are being handled behind the scenes. Regulators may require disclosure of execution practices, but this varies by region.
Choosing the Right Type of Broker
The right broker depends largely on trading strategy, capital size, and experience level. Beginners often prefer market makers due to lower costs and ease of use. More advanced traders, particularly those using automated systems or trading large volumes, may find ECN or STP brokers more aligned with their needs.
Traders should consider spreads, commission structures, platform compatibility, regulation, execution speed, and customer support. Some strategies, such as scalping or news trading, benefit from the low latency and tighter spreads of ECN brokers. Others, like position trading or swing trading, may not require the added precision and could be comfortably executed through a dealing desk.
This article was last updated on: June 20, 2025