Market maker vs STP/ECN execution

The difference comes down to who sits on the other side of your trade. A market maker usually takes the opposite side itself, while an STP or ECN broker routes your order to outside liquidity providers such as banks and other institutions.

Market makers

A market maker (sometimes called a dealing desk broker) creates its own prices, usually based on the wider market, and fills your orders internally. When you buy, the broker is effectively selling to you.

• Spreads are often fixed or fairly stable, which some beginners find easier to plan around.
• Orders are typically filled quickly because they do not leave the broker.
• There is a potential conflict of interest: if the broker keeps your position on its own books, your loss can be its gain. Regulated market makers must follow fair-dealing rules.

STP brokers

STP stands for straight-through processing. Your order is passed automatically to one or more liquidity providers. The broker usually earns by adding a small mark-up to the spread it receives.

ECN brokers

ECN stands for electronic communication network. Orders meet prices from many participants in a shared pool, so spreads can be very tight, sometimes close to zero on major pairs at busy times. Because the raw spread has little or no mark-up, ECN brokers usually charge a separate commission per lot.

Comparing the models

In practice, many brokers use a hybrid of these models, and labels in marketing can be loose. Focus on what you actually pay and how reliably your orders are filled rather than on the label alone.

Key takeaways

• Market makers fill orders internally and often offer stable spreads with no commission.
• STP brokers pass orders to liquidity providers and usually earn through a spread mark-up.
• ECN brokers offer very tight raw spreads and typically charge a commission per lot.
• Judge a broker on total cost and execution quality, not just its label.