Different CFD Broker Types
What Are The Different CFD Broker Types?
Are you interested in online trading but a bit unsure about which broker to use? Are you aware that there are different types of brokers? Don’t stress – you are not alone!
Of all the online brokers that exist globally, a high % of them will offer one of three differing broker types;
(1) Market-Maker
(2) ECN broker
(3) STP broker
If you’re new to trading, you probably wouldn’t notice the difference between the three broker models. So, what are the key differences between a Market Maker, an STP broker and a ECN broker? And which one is best for your trading style? Let’s find out.
Different CFD Broker Types/ Models
Most brokers fall into three broker-type categories: STP, Market-Maker and/or ECN. Or, another way to look at it is, does a broker operate a dealing desk or not?
If a broker does not operate a dealing desk (i.e. “no dealing desk”), this typically means they will provide direct market access to the underlying exchange/s and they will either be classified an STP broker or an ECN broker (there is very little difference between the two).
Both STP brokers and ECN brokers ONLY send trades directly to their liquidity providers for market execution – this means they do not bear the risks of their clients trading activity internally, and instead act solely as an intermediary.
“Non Dealing Desk” Brokers
ECN brokers: ECN (Electronic Communication Network) is a type of broker model that connects traders to an electronic trading system that quotes the best bid and offer prices from multiple liquidity providers. Thus, an ECN broker simply connects market participants together so they can trade with each other – there is no dealing desk and so ECN brokers cannot trade against their clients (like a market-maker might do).
STP brokers: STP (Straight-Through-Processing) is a type of broker model that does not execute a trader’s orders. There is no human interaction (no dealing desk) – trades go straight through to a liquidity provider who are connected to the underlying market. STP brokers can provide fast execution speed, better pricing and eliminate slippage.
“Dealing Desk” Brokers
Market-Maker brokers: a market maker broker doesn’t offer a liquidity provider’s prices, but instead they make or create their own bid/ offer prices based of the underlying market. Put clearly and simply; clients that trade with an MM broker are trading the broker’s prices, not the true underlying exchanges prices. It is for this reason that they are called market makers, as they are “creating” the market for their clients. Most MM brokers will trade against their clients by taking the opposite side of your trade (like a sports bookie). Essentially MM brokers want you to lose as this means they will be profiting!
Compare ECN & STP Brokers
Best ECN
Brokers
Who are they?
Standard Leverage
Regulated?
Min. Opening $
Segregated Bank Accounts?
AUD/USD spread
EUR/USD spread
Standard FX Commission
Spread Type
ECN Platform
Next Steps
Outstanding NZ Broker,
High Leverage
500:1
$100
0.7 pips (Avg.)
0.25 pips (Avg.)
$3.50 per lot
Variable
MT4
Fast-Growing
FX Broker
500:1
$100
From 0.50 pips
From 0.50 pips
$3.50 per lot
Variable
cTrader
Award-Winning
Broker
500:1
$100
0.66 pips (Avg.)
From 1.1 pips
$3.50 per lot
Variable
IRESS
Compare Market Maker Brokers
Leading
CFD Brokers
Who are they?
Standard Leverage
Regulation
Min. Deposit
Segregated Bank Accounts?
ASX Stock Commission
Australia 200 spread
Wall St 30 spread
AUD/USD spread
Spread Type
Trading Platform
Next Steps
Low-Cost
CFD Provider
200:1
SCB
$0
0.07% with $5 min.
0.9pts - FIXED
1pt - FIXED
0.6 pips - FIXED
Fixed
CloudTrade, MT4
Fast-Growing
CFD Broker
30:1 (AU)
ASIC, FCA
$100
No ASX stocks
1pt
From 1.6pts
From 0.5 pips
Fixed & Variable
cTrader or MT4/ MT5
World-Leading
CFD Broker
30:1 (AU)
ASIC, FCA, MAS
$100
0.08% with $5 min.
1pt
1.6pts
From 0.5 pips
Variable
How Do Brokers Make Their Money?
Non Dealing Desk
These brokers charge their clients a commission on each trade they make, and/or they may markup the spread and take a % of that too.
Dealing Desk
These brokers will make most of their money through charging a spread on each trade. They also profit when you lose.
Broker Types: Conclusion
Choosing a broker isn’t the easiest thing to do. With 100’s of brokers around, it can be a difficult decision to find a broker that best suits you.
Most traders prefer a non dealing desk broker because they not only provide the best (and fairest) trading conditions for their clients, but they also want their clients to be successful (i.e. winning traders) as that means they’ll trade more and everyone will earn money from this trade volume. Non dealing desk brokers will typically have your best interests at heart.
As market maker brokers make their money when you (the trader) loses, they can be seen as being less fair and transparent than ECN/STP brokers as they have the ability to make the market.. That said, there are plenty of good, honest and reliable MM brokers out there to choose from and the benefits of using an MM broker are that you will probably get tight, fixed spreads which may lower your trading costs.