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A forex broker is your gateway to the currency market. You open an account, deposit money and place orders. On the surface it looks simple: a chart, a quote, a buy or sell button, and some margin settings. Underneath, the broker decides how orders reach the wider market, how they manage their own risk and how they earn their money.
If you trade occasionally with small size, the broker model can feel like a detail. Once you increase volume, frequency or account size, it starts to matter a lot. Slippage, spreads, execution speed and even how the firm behaves during wild moves all depend on the business structure behind the platform.
This article will introduce you to the most common types of forex brokers. We will, however, not talk about individual brokers. If you want help to actually find a good broker that suits your trading need, then you should visit Forex Brokers online. Forexbrokersonline.com is a website that reviews hundreds of different forex brokers.
Retail vs institutional access in forex
On the interbank level, forex is a network of large banks, dealers and funds quoting to each other. There is no central exchange. Prices on your screen are a filtered view of prices quoted between those bigger players. To reach that pool, an individual trader normally goes through a broker.
Institutional clients, such as hedge funds or high volume trading firms, may connect straight to bank liquidity or large electronic platforms. They hold prime brokerage or prime-of-prime relationships, post large collateral and trade under terms negotiated with banks.
Retail traders sit one or two steps further out. A retail broker might run a dealing desk and show its own quotes, or it might send orders to outside liquidity providers and match you against the wider pool. Some firms have separate arms for both worlds; one part serves small traders, another serves funds.
For you as a trader, this means that “type of forex broker” is really short hand for “how close am I to the real pricing engine and who is on the other side of my trade”. A market maker can be your direct counterparty. An ECN broker may just route your order into a larger book. A hybrid model might do both, depending on what their risk team decides.
Market maker / dealing desk brokers
Market makers, also called dealing desk brokers in this context, quote their own bid and ask prices to clients. They stand ready to buy from you at their bid and sell to you at their ask. In many retail setups, that quote comes from an internal pricing engine which references outside feeds and then adds markups or smoothing.
How dealing desks quote and manage risk
When you place a trade with a market maker, you usually deal directly against the broker. If you buy one lot of EURUSD, they are short that amount to you. They can leave that risk on their own book, hoping that a mix of clients will net out or that your trade will lose money. Or they can hedge part or all of the position with a bank or another liquidity provider.
Risk desks look at client flow in aggregate. If client positions more or less balance long and short, the broker might hedge only net exposure externally and keep the rest. If clients are all leaning long a pair, and the firm worries about risk, they may hedge a larger share. The broker’s income comes from spreads, markups and the difference between client PnL and their hedging cost.
Pricing can be stable because the firm controls quotes. In quiet times, they may show fixed spreads. In volatile periods, they may widen spreads, reject some trades or requote to protect themselves from price jumps. They can also apply “last look”, checking whether the market has moved after your order and deciding if they will fill at the shown price or not.
Pros and issues for active traders
For many beginners, a market maker is the first type of broker they meet. Minimum deposits are low, platforms are easy to use and spreads can look tight on popular pairs. For slow swing trading and modest size, decent market makers do the job without drama most of the time.
There are real plus points. Because the firm internalises flow, they may absorb small bursts of size without trouble. Some offer guaranteed stop orders, where they take on gap risk in return for a premium or wider spread. Fixed spread accounts during calm periods can also make cost planning simpler for some styles.
The obvious issue is conflict of interest. When you lose on a B-booked trade, the broker gains. That does not mean they are out to get you, but it creates a tension. Poor quality dealing desk brokers have a history of slippage that always seems to be in the broker’s favour, odd rejections during news and spreads that widen just when a wave of client stops might be hit.
Well run dealing desks manage risk at book level, hedge sensibly and try to keep pricing fair so that active clients stay. Poorly run shops cut corners and chase short term revenue. From the outside, it is not always easy to tell which one you are dealing with until you have some live experience and read their regulatory record.
STP “no dealing desk” brokers
STP stands for straight through processing. In the forex retail world, an STP broker is meant to pass client orders straight to external liquidity providers without the old style manual dealing desk sitting in between. Many firms call this “no dealing desk”, although in reality there is still risk management, just with more automation.
Routing flow to liquidity providers
In an STP setup, the broker connects to one or more banks, non bank dealers or other liquidity pools. They receive quotes from those sources, aggregate them into a price feed and then route client orders back out according to internal rules. The broker may choose the best price at that moment, or balance flow between providers to keep relationships healthy.
The firm usually does not hold client trades on its own book for long. Instead, it hedges by passing orders to the providers. Revenue comes from a small markup on the spread and sometimes from commission per trade. If client trades win or lose, it matters less to the broker because they are not warehousing much exposure.
This model can reduce the direct conflict between client PnL and broker income. It does not remove all conflicts. The broker still chooses which liquidity providers to use, how much markup to add, and how to handle errors or spikes. But the broad idea is that the firm earns on volume and spreads, not by taking the other side of your bets.
Pricing, spread behaviour and who this suits
Prices under STP are usually variable. Spreads on major pairs can be very tight in liquid times, then widen when banks step back around announcements or during thin sessions. There are fewer promises of fixed spreads outside quiet hours.
For active traders who care about realistic market behaviour, this can be an advantage. You see more of the true cost of trading at different times of day, and you can plan which sessions you want to avoid. For traders who dislike changing spreads, it can feel unsettling at first.
STP brokers often suit intraday and swing traders who want to avoid classic dealing desk tricks and who are comfortable with variable spreads. They are also popular with traders who run automated systems and want predictable routing. Slippage still happens, but the pattern can feel more symmetric over time because the broker is not trying to pick off profitable flows.
One detail that sometimes gets missed is that STP is a broad label. Some firms still internalise small trades and pass only larger blocks to providers. Others pass almost everything. Marketing copy may not spell out the split, so it is worth reading the fine print in their execution policy documents when they are available.
ECN brokers
ECN stands for electronic communication network. ECN brokers connect clients to a shared order book where banks, other brokers and sometimes other clients place bids and offers. Prices come from the top of that book, and your orders interact with it more directly than in a straight market maker model.
Order books, commission and depth
In a clean ECN setup, the broker shows you a feed built from contributions of several liquidity providers. You might see the best bid and ask, and sometimes several levels of depth beyond that. You submit market or limit orders, and they match with resting orders in the book.
Instead of marking up spreads heavily, ECN brokers usually charge commission per trade. Spreads can be very small on major pairs during active times, even close to zero. The real cost then is the commission plus any slippage.
For traders who place limit orders and are willing to provide liquidity by resting orders, ECN access can feel closer to institutional trading. You can sometimes improve the spread by quoting inside it, and you see more about how much size is available at each level, though retail platforms rarely show full depth from banks.
Practical pros and trade offs
The main appeal of ECN brokers is transparency and pricing quality. Scalpers, high frequency traders and some larger swing traders value the ability to see raw spreads and to work orders in the book instead of only hitting a broker’s dealing desk.
There are trade offs. Commission based pricing can be more expensive for very small accounts even if spreads look tight. Minimum trade sizes may be higher than at pure market makers. Execution quality depends on the broker’s technology and the quality of the liquidity providers linked into the ECN, not just on the label.
During stress, ECN spreads can blow out and depth can thin quickly. That is not a broker error, it is the network reflecting that providers have pulled back. To someone used to market maker smoothing, it can be surprising. Stops can be hit during brief spikes that a dealing desk might have filtered.
ECN access tends to suit more experienced traders who understand how to manage variable spreads, prefer raw pricing and are prepared to pay fixed commission for that access. Beginners can use it as well, but the learning curve around execution behaviour is steeper.
DMA and prime-of-prime style access
Direct market access, or DMA, is another term often used in forex marketing. In practice, DMA means that the broker streams prices from external sources with minimal change and sends your orders back out to those same venues, instead of internalising them.
Direct pricing feeds and routing
With DMA, the broker acts more like a conduit. Prices come from banks, non bank market makers or even central limit order books on certain platforms. The broker passes them to you with small markups or separate commission. Your orders are sent, usually automatically, to those providers or books.
You may get more control over routing, such as choosing which venue to use for large orders, or using advanced time-in-force options. This is more common for larger accounts and institutional clients, but some retail oriented DMA brokers expose simple versions of those features.
DMA is close to STP in spirit. The difference is degree rather than kind. DMA tends to stress the idea that the broker does not “shade” or heavily process prices. Whether that is true in a given case depends on the firm and its agreements with liquidity partners.
How smaller traders reach institutional liquidity
Smaller traders do not directly link to interbank venues. Instead, they reach that layer through prime-of-prime brokers. These firms have relationships with large banks and institutional platforms. They take in smaller flows from downstream brokers and aggregate it, giving the smaller pool access to better pricing than it could negotiate alone.
If your forex broker talks about its prime-of-prime partners, that is usually what they mean. Your orders pass through your broker to a prime-of-prime, then on to banks or matching engines. You inherit both the benefits of that network and the extra counterparty in the chain.
For an individual trader, the main practical benefit is more reliable pricing and fill quality on larger tickets, especially during active times. The cost is higher account minimums in some cases and more complex fee structures once you move beyond small retail accounts.
Hybrid broker models and A-book / B-book splits
Very few modern brokers are pure examples of any one model. Many run hybrids. They operate a dealing desk for some flows, send other orders straight to liquidity providers, and adjust the split as their book changes. This is often described as A-book and B-book routing.
Why many brokers mix models
A-book flow is client trading that the broker passes out to external counterparties. B-book flow is trading that the broker internalises. New or very small clients with random behaviour often end up on the B-book, because internalising their trades is cheaper than hedging every tiny ticket with a bank.
Profitable or toxic flow, such as tight spread scalping, may be pushed to the A-book so the broker does not carry that risk. Some firms decide on routing based on a simple set of rules, such as account size, history and trading style. Others run more complex analytics.
Mixing models helps a broker manage risk and costs. Internalising some trades smooths revenue. Passing other trades out protects the firm from sharp clients. From a business view, that is rational. From a trader view, it can feel opaque if the broker never explains how routing decisions are made.
What a trader should watch for
Because hybrids are so common, the question is not “does my broker ever B-book trades” but “how do they behave with that power”. Fair firms disclose the broad outlines of their model, treat profitable traders professionally and do not change execution quality when a client has a good run.
Red flags include sudden spread changes for one client group, platform slowness only when you trade certain styles, or a history of regulatory action for unfair execution. Reading client agreement terms and best execution policy documents gives hints, though they are not always written in plain language.
For practical purposes, if you use reasonable leverage and hold trades for more than a few seconds, you will probably be fine at a decent hybrid broker. If you scalp aggressively or use arbitrage strategies, you need to pay closer attention to how your orders are filled, which can include running small live tests across several brokers to compare.
Regulation, region and what that means for broker choice
Broker type is tied closely to where the firm is based and who supervises it. Two brokers can claim to be ECN, yet one is regulated in a major financial centre and another is registered in a small offshore jurisdiction with light oversight.
Heavily regulated regions
The forex trading is heavily regulated in most developed nations. The regulation in other parts of the world can often be lacking.
This does not remove all risk, but it narrows the range of behaviour. A market maker in a strict region cannot change your account history without leaving evidence. Complaints can go to an ombudsman or court with a real chance of redress. Regulators can and do fine or ban firms that mistreat clients or misrepresent their services.
Execution models in these regions are still varied. You can find dealing desks, STP, ECN and hybrids. The strength is not in the label but in the fact that the firm sits under a rule book with some teeth.
Offshore brokers and higher risk
Offshore brokers are based in countries with lighter financial rules. They often offer higher leverage, fewer trading limits and easier onboarding. Some are honest businesses that simply prefer a looser regime. Others are shells used to collect deposits with little intent to play fair.
The main attraction of offshore brokers is freedom: high position multipliers, wide product menus and fewer questions about your background. The main cost is weaker recourse if anything goes wrong. If a broker in a remote jurisdiction refuses a withdrawal, your options shrink to complaints that may never be answered.
Offshore firms can run any execution model they like, from decent STP setups to bare bones B-book operations. The fact they call themselves ECN or DMA means little without proof. For a trader with a small experimental account, that risk might be acceptable. For anything larger, many prefer the slower, more rule bound world of regulated brokers.
Different types of forex brokers are not just a glossary exercise. They define how your orders travel, who is on the other side and how both gains and losses move through the system. Market makers, STP, ECN, DMA and hybrids all have a place. Matching your trading style and risk tolerance to a model, then picking a firm with a rule set you trust, is one of the few choices in trading you can fully control before you put money on the line.