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 The Electronic Communications Networks (ECN) Brokers 

When you trade with a Dealing Desk (DD) broker the price you see, is not a market price. It is a synthetic price generated by the broker. When you win, the broker loses and vise versa. That is why the DD broker runs the so-called B-Book.

The B-Book is a list of  those who lost and from whom the broker benefits. The traders in the A Book are the clients who won. In order to minimize the loses the DD broker will hedge all the A Book trades using a protective strategy. The broker also gets a commission from the A Book clients. The practice is not illegal or wrong and it is actually a good way for the traders to trade quickly and cheaply. However, unregulated brokers can generate  prices that move very unfavorably to the clients causing slips, skews, spikes, stop loss triggers, etc. As far as the regulated brokers are concerned the accusations that the DD  manipulate prices by ‘tweaking’ them in one direction are very unlikely. It is always possible to verify where the price got to, make a complaint and publicize this fact. For the broker it may lead to a “price fixing scandal” or at least an investigation from the regulating agency.   

The term non-DD (NDD) broker implies that orders are never held in-house (B-Book) whereas the DD does the B-Book or aggregate the major part of the orders and only after that passes them to the market in the right moment.  

The Direct Market Access (DMA) broker is any broker which passes your order to a larger broker or to a liquidity provider (LP).

Straight Through Processing (STP) entails that  the trading order is transferred directly to the LP with no delay or other third party involvement. The price you see is the price you get, however, an occasional slippage can have some effect on that price.

Semi-false STP brokers claim that 99% of the orders are executed in less than 1 second when in fact they are deliberately delayed by up to 90 seconds. False STP brokers lie about their immediate processing of orders while not passing the orders to any outside LP at all ("bucketshop" brokers).

The ECN broker is a combination of STP/NDD/DMA. Usually ECN broker is connected to multiple LPs. The real  ECN also entails no broker-dealer intervention so that the LPs accept 100% of the order flow. Of course, psychologically it feels good that your broker does not trade against you. Does it make a big difference? Remember the rest of the world trades against you anyway. 

And again, there are false and true ECN brokers. Here are some observations. The fake ECN brokers often impose a minimum stop distance from the actual level  whereas the real ECN do not do that since all trades are running in the real time. Slippage can take place in a true ECN environment, however, it works for forex traders advantage and against them. The fake ECN provider passes only negative slippage keeping the positive slippage for themselves. A real ECN broker does not limit your order size  since in the real ECN setting there is always a purchaser and a seller. Finally, the true ECN broker usually provides tools to watch the actual trades being run in the real time whereas the fake ECN run the orders with a tangible delay. 

 

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