Best ECN/STP/DMA Brokers 2018
There are many reasons to trade with direct market access brokers that offer STP or ECN access. However it’s hard to know which brokers you should personally trade with. FXEmpire have narrowed down your selection by conducting research into the ultimate STP and ECN brokers. Find our list inside.
Forex Broker Models Explained
ECN vs STP vs DMA vs Market Maker
The STP model of brokerage, operated by ECN brokers, is accepted globally as the most transparent way to do forex trading. However, it is important to understand why this is the case and the benefits that this brokerage model has for the end user.
All brokers in the forex market are not created equal. It is therefore important to have some knowledge of the various categories of brokers that operate in the forex market. In the forex market, we have the following categories of brokers:
- Market makers
- ECN Brokers (also known as the STP/DMA brokers)
Market makers make the market for their clients. Their clients are usually retail clients who have small trading capital which is not enough to gain access to the interbank forex market where the liquidity providers operate. The liquidity providers (LP) are major banks that buy and sell currencies. They trade in billions of units of various currencies. Small traders do not have the capacity to provide the liquidity that is required to sustain these operations, and this is where the market makers come in. Market makers work by taking these large positions off the LPs, aggregate the orders of their retail clients, and then split the positions between the retail clients by fulfilling their orders at the dealing desk level, thus “making the market” for these retail clients.
What is an STP Broker?
An STP broker is a forex broker that offers Straight Through Processing of trade orders. These are brokers that send the trader’s orders straight to the liquidity providers (major banks) for trade order processing and fulfillment. Straight Through Processing (STP) is possible thanks to the development of the Financial Information Exchange (FIX) protocol. The core essence of the STP model is to shorten trade execution time, reduce slippage/re-quotes and ensure that traders get the best pricing. So STP describes the process by which non-dealing desk brokers route their orders.
What is an ECN broker?
ECN stands for Electronic Communication Network. ECN brokers provide pricing from several liquidity providers and display these various bid and ask prices to their traders. They also display the market depth and the order book, allowing traders to know who is buying and who is selling what currencies in the market. ECN brokers therefore provide their clients with direct access to the interbank market, pass their traders’ orders straight for processing to the LPs, and ensure that traders have more information about the activity of other traders in the market. So ECN describes the technology that makes all this happen.
What is a DMA broker?
A DMA broker is a broker that gives its end users direct market access to the interbank market in buying or selling currencies. Only non-dealing desk brokers provide such access; dealing desk brokers fulfill orders in-house and therefore are not DMA brokers. DMA therefore describes the accessibility of traders to transparent pricing from the interbank forex market.
Dealing Desk vs. No Dealing Desk brokers
Dealing desk (DD) brokers are essentially market makers. Dealing desk brokers usually provide trade order fulfillment in-house within a department known as the Dealing Desk. The name “dealing desk” is actually a misnomer, as it confuses a lot of people and misleads them into thinking that it is a single desk within the brokerage, manned by just one or two members of staff of the brokerage. In fact, the dealing desk is an entire department which runs the back end of the trade order and execution process of a market maker brokerage. Dealing desk brokers usually buy off large long and short orders from liquidity providers, then split this up and sell them as counterparties to the end users (retail traders). Dealing desk brokers therefore assume a position of conflict of interest, as they are essentially holding positions against the trader. They profit from trades where the trader loses, and lose money when the trader wins.
Non-dealing desk (NDD) brokers do not handle trade order fulfillments in-house. Rather, they route traders’ orders from the trader’s computers straight to the interbank market where liquidity providers will fulfill these orders at the bid/ask prices stipulated by the trader. There is no conflict of interest since the no dealing desk broker is a bystander in the trade process.
Pros and Cons of Electronic Communication Network Broker
- Transparent pricing
- Access to cutting edge technology for trading
- Level II quotes provided
- Large account capital needed
- Not suited for beginner traders
Pros and Cons of Straight Through Processing Brokers
- No re-quotes/slippage
- Not trading against a broker with conflict of interest
- Not all orders go to Tier 1 liquidity providers
Pros and Cons of Direct Market Access Broker
- Risk of price manipulation is non-existent
- Trader competes with others at the interbank market and not with a broker
- It is expensive to trade with a DMA broker as trades attract commissions
How to Distinguish between MM, STP or ECN Brokers
You can distinguish between market makers and ECN brokers by using the following barometers.
- What kind of trading platform does the broker offer?
- What are the capital requirements for operating the trading account?
- Is the trader able to visualize several bid/ask prices from the liquidity providers, or is one fixed price provided?
- Are spreads fixed or variable?
- Can the order depth be visualized?
- Do re-quotes or slippage occur during the trade process?
This table below sums up the differences between market makers and ECN/STP brokers.
|Trading Platforms||Professional platforms that are able to display multiple bid/ask prices are provided (e.g. Currenex Classic)||Typically, retail platforms such as the MetaTrader4/5, JForex, NinjaTrader, ActForex, are offered.
|Capital Requirements||Liquidity requirements of trading on the interbank market mean that account capital requirements for trading with an ECN broker is at between $20,000 and $50,000.||The broker makes the market, therefore capital requirements are small. A trader can open a retail account with a market maker for as low as $200.
|Spreads||Spreads are variable||Spreads are usually fixed|
|Order Depth||Level II quotes are provided and these can be visualized.
|Not possible to view order depth.|
|Slippage/Re-quotes||Slippage and re-quotes do not occur with ECN brokers.
|Slippage and re-quotes are common.|
|Trading Cost||Traders pay a commission on trade entry and exit, as well as incurring the spread on the currency pair.
|Traders do not pay commissions on trades.|
It is important to understand these differences as there are many market maker brokers now parading themselves as “ECN” brokers, and yet offering accounts for as low as $500. By the very nature of the forex market and its liquidity structure, it is not possible to offer ECN-style trading conditions for such low amounts.
Here’s our recommendations of the best ECN/STP/DMA brokers based on service, product and usability.
- New Zealand
- South Africa
- South Korea
- Hong Kong
- United Arab Emirates
- Russian Federation
List of Brokers
|BROKER||USER RATING||REGULATED BY||HEADQUARTERS||MIN. DEPOSIT||OFFICIAL SITE|
|ASIC, CySEC, FCA||Israel||$100||Open Account|
|ASIC, BVI, FSA(JP), FSB, MiFID||Ireland||$100||Open Account|
|ASIC, CySEC, FCA||Cyprus||$200||Open Account|
|CySEC, FSB||Cyprus||$100||Open Account|
|BaFin, FCA||United Kingdom||$300||Open Account|