Key takeaways
- Market maker, STP and ECN-style describe how orders are handled, and many brokers use a hybrid.
- A dealing-desk broker's incentives conflict with client profits; an agency broker's incentives favour trading volume.
- Judge brokers by measured execution, disclosures and regulation, not by labels.
- Test with small trades in calm and busy markets and keep a simple log.
- Read the order execution policy and the conflicts of interest policy before funding.
Every leveraged trade has a counterparty. Who that counterparty is, and what they gain when you lose, is the heart of the market maker versus ECN/STP debate. Neither model is automatically honest or dishonest, but each creates different incentives that you should understand before you trade.
Three ways an order can be handled
When you click buy on a CFD or forex platform, the broker can do one of three broad things with that order. Many firms use a mix, deciding trade by trade or client by client.
| Model | What happens to your order | Broker earns from | Typical concern |
|---|---|---|---|
| Market maker (dealing desk, B-book) | The broker takes the other side of your trade internally | Spread, plus net client losses it keeps | Conflict: client loss is broker gain |
| STP (straight-through processing) | The order is passed to one or more liquidity providers, often with a markup | Markup on spread or commission | Price may include hidden markup; depends on providers' behaviour |
| ECN-style (A-book, matched pool) | The order is matched with other participants in a liquidity pool | Commission or fee per lot | Depth may be thin in quiet markets; still check routing |
The terms B-book and A-book describe the broker's internal decision. B-book means the risk stays with the broker; A-book means it is passed on to the market. A hybrid broker may A-book large or consistently profitable clients and B-book the rest.
Where the conflict of interest comes from
If a firm takes the other side of your trade, a winning client costs it money and a losing client makes it money. Brokers manage this in different ways, and regulated firms must have policies to treat clients fairly, but the incentive exists. It does not mean the broker will cheat. It means you should look for evidence that fills, prices and rules are applied consistently.
An agency model has a different incentive. The broker earns when you trade, whether you win or lose, so it may encourage activity and high volume. Each structure has its own temptations, which is why transparency matters more than the label.
Execution quality: what to observe
- Slippage: the difference between the requested and filled price. Occasional slippage in both directions is normal in fast markets. Slippage that always goes against you is a warning sign.
- Requotes and rejections: repeated refusal of orders at the displayed price, especially on profitable trades.
- Last look: some liquidity providers may reject a trade after you send it. Ask whether and how this applies.
- Stop-loss and take-profit behaviour: compare fills near your levels with the market data from an independent source.
- Spread during news: widening is expected, but check how much and for how long.
An illustrative test you can run
The numbers below are illustrative. Suppose you place twenty small market orders in a calm period and twenty during a major data release, and record the difference between the price you saw and the price you received, in pips.
| Sample | Orders | Slipped against you | Slipped in your favour | No slippage |
|---|---|---|---|---|
| Calm period (illustrative) | 20 | 3 | 3 | 14 |
| News release (illustrative) | 20 | 9 | 6 | 5 |
| Pattern to worry about (illustrative) | 20 | 15 | 1 | 4 |
The first two rows look like normal market behaviour: more movement and more slippage around news, in both directions. The third row is lopsided, and if it repeats over many trades, you should ask support to explain, check the order execution policy, and consider whether the account is the right place for your strategy. A small sample is not proof, so repeat the test on different days.
What the paperwork can tell you
Regulated brokers must publish or provide an order execution policy, sometimes called a best execution policy, and a conflicts of interest policy. These documents are written in careful legal language, but they answer practical questions.
Reading the execution documents
- Find who your counterparty is. Look for wording on whether the firm acts as principal or agent, and whether orders may be executed against the firm's own book.Tip: Principal means the firm is your counterparty.
- Find the liquidity sources. Check whether the policy names the type or number of liquidity providers and how prices are aggregated.
- Check slippage and rejection rules. See whether the broker commits to symmetrical slippage and when it may reject or requote an order.
- Note the factors for best execution. Price, cost, speed, size and likelihood of execution are typical factors. Check which is given priority for retail clients.
- Read the conflicts policy. Look for how the firm manages conflicts between itself and clients, and between clients, including internal hedging policies.
Does it matter for you?
It depends on your style. A long-term trader who holds a position for weeks and uses wide stops is affected little by a few tenths of a pip of slippage. A scalper whose target is a handful of pips depends heavily on clean, fast execution and tight spreads. Strategy size also matters: very small accounts are rarely routed to external liquidity, while large or consistently profitable accounts may find limits imposed on them.
If you trade shares, ETFs or listed futures through a broker, orders generally route to an exchange or a venue, and the dealing-desk question is different. It still makes sense to read the execution policy and understand any payment for order flow or internalisation.
Frequently asked questions
Is a market maker the same as a scam broker?
No. Many regulated firms act as market makers and operate within rules on fair treatment. The point is to understand the incentive, not to assume wrongdoing.
Can I find out if my broker B-books me?
Not always directly, but the execution policy and support answers can indicate whether the firm acts as principal. A clear, specific answer is a good sign.
Does ECN guarantee no slippage?
No. Slippage is a feature of fast markets under any model. What you should expect is that slippage is not systematically one-sided.
Which model is best for scalping?
Scalpers usually need tight spreads, fast fills and permission to scalp. Check the terms, because some brokers restrict very short-term strategies.