When it comes to different types of forex brokers, there is a lot of confusion as to whether the brokers in question are STP or ECN or DMA. The truth is that despite the fact that some forex brokers claim to be ECN, if you look close enough you would realize that it is a complete sham. One of the basic criteria to identify if a forex broker is a STP or ECN or DMA is look at the following factors.
Factors to look out for in a STP, ECN, DMA forex brokers
- Market Execution
- Variable Spreads
- 5 Digit or decimal pricing
- Access to depth of market
Some other factors to bear in mind are Market Execution and Liquidity providers.
With market execution, trades are fullfilled at the best available prices. In pure DMA dealing, there is no requotes and can be usually traded by One-Click-Execution
Liquidity providers act as a counterparty to your trades. They (Liquidity Providers) take the other side of your trade in an attempt to close the trade later on with another party.
The best way to understand whether your forex broker operates on a STP, ECN or DMA model is to first know what each of the terms above mean.
STP Forex Brokers
STP, short for Straight Through Processing is a forex technical jargon for ‘Non Dealing Desk’ brokers. An STP Forex broker usually makes use of a small pool of Liquidity providers. Therefore an STP forex broker usually offers limited liquidity as compared to an ECN forex broker.
Some STP brokers offer fixed spreads as well. This is done by making use of a pricing engine which matches the orders and ensures that the forex broker makes a profit on the spread difference. When using a fixed spread STP broker, traders are given a higher spread which is usually marked up in order for the forex broker to make profits.
List of STP Forex Brokers
ECN Forex Brokers
ECN or Electronic Communications Network allows traders to interact with their liquidity pool. An ECN Broker has access to a large liquidity pool made up of banks and other financial institutions. Trading under a pure ECN model requires a higher capital (minimum deposit of $50,000) as the ECN forex broker is required to meet certain criteria such as higher trading volumes from their ECN clients.
List of ECN Forex brokers
DMA Forex Brokers
DMA or Direct Market Access forex brokers offers traders a direct connection to the actual markets. In a DMA forex broker model, traders and investors trade directly with the liquidity provders. Direct Market Access is actually a subset of ECN model. In other words, pure ECN forex brokers always offer Direct market access to their traders.
Another variant is the DMA – STP forex model. In this scenario, the forex broker will automatically execute your trades by filling them with the best available bid and ask price usually provided by the liquidity providers. This is known as Market execution.
List of DMA Forex Brokers
How to re-verify your forex broker
The above forex brokers listed under each of the different types (DMA/STP/ECN) are true to their trade execution model. However, if you want to trade with a forex broker not listed above and are unsure if the forex broker operates on a DMA/STP/ECN model, then simply take a look at the trading account details and the spreads.
A second level of verification can be done via the terms & conditions page/document where it will be clearly specified as to how the broker will fullfil your trade executions.