For forex brokers, profitability is the ultimate goal. Different forex platforms operate under different business models, and their profit models also vary. This article will introduce several different types of forex platforms and the differences in their profit models, which we hope will be helpful to you.
Forex trading platforms can be divided into two main categories: Dealing Desk (DD) platforms and No Dealing Desk (NDD) platforms. The DD model, also known as the Market Maker (MM) model, involves a trading platform or dealing desk that processes orders, and its spreads are fixed.The NDD (No Dealing Desk) model includes two main subtypes: STP (Straight Through Processing) and ECN (Electronic Communications Network).
In NDD mode, the broker does not participate in the client’s trades but acts as an intermediary between the client and the bank, connecting the two parties. The trader’s orders are routed to the actual foreign exchange market for execution. Under this model, there are no re-quotes, no pending order confirmations, and no trading restrictions.
In the following sections, we will explain the differences between the various models— market makers, STP, and ECN — in three separate categories.
1. Types of Forex Trading Platforms—Market Makers:
Market makers, also known as the MM model, are—as the name implies—entities that create a market for customers, i.e., they act as market makers for them. Under this model, market makers have the authority to set their own quotes, and spreads are generally fixed.Once an order enters the system, it is first internally matched. Any remaining orders are then routed to the platform’s affiliated banks or ECNs for matching; orders that cannot be matched are settled by the platform taking the opposite position against the client.Under this model, there are no restrictions on the size of client orders; however, the platform’s interests are opposed to those of the client—when the client profits, the platform loses, and when the platform profits, the client loses. Client trades are not routed to the actual forex market but are executed through the platform’s internal processing system.Market makers typically have high capital requirements and the authority to set their own quotes; therefore, this trading model is characterized by fixed spreads and high leverage.
Market Maker Profit Model:
Market makers generate profits through spreads and by taking the opposite position to their clients. For example, if a client buys a certain amount of USD under the Dealing Desk (DD) model, the platform will match the client’s order with an opposing order from other clients on the platform or from an ECN platform.For any remaining unfilled orders, the platform will trade against the client to profit from the opposing position.
2. Types of Forex Trading Platforms—STP ( Straight-Through Processing):
In STP mode, clients can view real-time prices from the foreign exchange market. Client orders are sent directly to banks without any intervention from a processing platform, and clients can decide whether to execute the order.However, there are restrictions on the minimum order size, and orders must await confirmation from the bank. Therefore, during periods of high trading volume, it is possible for an order that has already been executed to remain in the pending orders window—a situation commonly referred to as a “floating order.” In the STP model, the broker has no authority to set its own quotes; instead, it relies on quotes provided by banks, and spreads fluctuate up or down depending on market conditions.
STP Profit Model:
STP brokers earn their profit by adding a small markup to the spreads they receive from banks.For example, a broker might add a small spread to the lowest ask price offered by a liquidity provider, or reduce the spread slightly on the highest bid price offered, while routing the trader’s order to the bank at the actual price. STP brokers generate profits by earning this spread. For STP brokers, profits are directly proportional to the frequency of their clients’ trades.
3. Types of Forex Trading Platforms: The ECN Model:
In the ECN model, an ECN forex trading platform provides a marketplace for forex traders. Traders (including banks, hedge funds, brokers, and retail forex traders) can submit competitive quotes to the ECN system, which matches real-time orders, allowing traders to trade directly with one another.In this model, traders can see which other participants are placing buy or sell orders. The operator does not participate in the trading process but acts solely as a market maker; therefore, a transaction fee is paid to the operator for each executed trade. The ECN model features strict protocols, identity verification, and third-party regulation, and typically offers lower leverage than the previous two models.
ECN Profit Model:
ECN brokers do not generate profits through spreads; instead, they charge traders commissions, which is their sole source of revenue. ECN brokers’ profitability depends on trading volume.
In the real forex market, there is no single, absolute model or profit-making model; platforms typically combine multiple models. For example, in the STP model, small orders are not accepted by banks, but STP brokers may adopt an internal hedging model within the platform, known as the DD model.
The above provides an overview of the different types of forex platforms and their profit models. We hope this information is helpful to your business. The table below offers a more intuitive understanding of the MM, STP, and ECN models used by forex platforms:
| Pattern Type | MM Mode | STP Mode | ECN Model |
| Platform Revenue Sources | Fixed Spread | Floating Spread | Trading Commissions |
| Quotation Information | Quotes are not real-time | Prices are sourced from liquidity providers | Quotes Between Clients |
| Trade Execution Time | The broker decides | to execute automatically, without the need for a new quote | to execute automatically, without the need for a new quote |
| Whether or not an intermediary processing platform is used | Yes | None | None |
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