Market makers set both the bid and the ask prices and display them on their quote screens. They route orders through their own dealing desk and are prepared to make transactions at the displayed prices, providing liquidity to their clients. A Dealing Desk Forex broker also called a Market Maker literally ”makes the market” for traders: when traders want to sell, they buy from them, when traders want to buy, they sell to them, meaning they take the opposite side of the trade. Traders don’t see the real market quotes and the broker makes money via spreads - which are generally fixed spreads.
NDD - No Dealing Desk
NDD Forex brokers provide access to the interbank market without passing orders through their dealing desk. With true No Dealing Desk brokers there are no re-quotes on orders and no additional pausing during order confirmation. A NDD broker can either charge a commission for trading or choose to increase the spread and make Forex trading commission free. No Dealing Desk brokers are either STP or ECN+STP.
STP - Straight Through Processing
STP Forex brokers send orders directly from clients to the liquidity providers - banks or other brokers. Sometimes STP brokers have just one liquidity provider, other times several. The more the liquidity providers - and therefore liquidity in the system - the better the fills for the clients. The fact that traders have access to the real-time market quotes and can execute trades immediately without dealer intervention is what makes the platform STP.
ECN - Electronic Communications Network
ECN brokers pass on prices from multiple market participants, such as banks and market makers, as well as other traders connected to the ECN, and display the best bid/ask quotes on their trading platforms based on these prices. ECN Forex brokers additionally allow orders to interact with other orders. They provide a marketplace where all participants (banks, market makers and individual traders) interact inside the system and get the best offers for their trades available at that time. Unlike fixed spreads, often offered by market makers, ECNs spreads vary, depending on the pair’s trading activities. During very active trading periods, you can sometimes get no spread at all, particularly in very liquid currency pairs. These brokers make money by charging customers a fixed commission for each transaction. Authentic ECNs do not play any role in making or setting prices, therefore, the risks of price manipulation are reduced for retail traders. True ECN brokers display the Depth of the Market (DOM) showing order sizes in the system.