Inventory of foreign exchange platform models

DD Mode: Trader Platform

What is the DD model?brokerThe platform uses the DD model, which means that the broker's platform is a trader's platform.

The secret behind the trader's platform. Why do brokers choose the trader's platform? That's because the trader's platform allows them to make money through spreads, and they can also perform reverse operations with customers' orders. For example, in the trader's platform, customers want to buy euros, and if no other customers sell euros, these traders will sell their own euros to customers; customers want to sell euros, and if no other customers come to buy euros, traders will do it themselves to buy customers' euros. In this way, traders can always make customers' orders close and make transactions active. On the surface,foreign exchange marketLiquidity has increased.

For the above reasons, brokers or dealers who use a trader platform are referred to as "market makers" or "MM" (MarketMaker). Among US brokers, FXSolutions is a typical representative of the DD model trader platform.

NDD Mode: No Trader Platform

What is the NDD model? If a broker's platform adopts the NDD model, it means that the broker's platform is a no-trader platform.

Some foreign exchange brokers or dealers use a no-trader platform, where customers' orders don't have to be processed by traders. Instead, they are sent directly to the interbank market in one step.

A trader or broker using a non-trader platform can collect commissions from clients or make money by fixing spreads. A trader using a non-trader platform may belong to the STP type, or it may belong to the ECN + STP type. Among US traders, FXCM's trading platform such as TradingStation II is a typical representative of the NDD model of non-trader platforms.

STP pattern: a platform that directly handles types

What is the STP model? If a broker's platform adopts the STP model, it means that the data of the broker's platform is directly sent to the liquidity provider, and the liquidity provider automatically matches it. Orders can be completed within one second.

So what exactly do brokers that adopt the STP model do? In simple terms, they send customers' orders directly to institutions that provide liquidity, such as banks. The more banks and other institutions that provide liquidity, the better the effect of meeting customer needs and the faster the customer's orders will be completed. Among US dealers, FXDD is a typical representative of the STP model.

ECN mode: electronic communication network

What is the ECN model? In the platform of a Forex broker or dealer that uses the ECN model, the customer's orders will be traded with the orders of other customers. An ECN Forex broker or dealer provides a market that allows all participants (banks, market makers and individual traders) to find the best price in the ECN trading system. All trade orders are filled in real time. This type of dealer charges a lower commission.

There is disagreement on how to distinguish between the STP model and the ECN model. Some people believe that the STP model belongs to the ECN model. However, a real ECN broker or dealer must display the number of customer orders, allowing other customers to close those orders. Through the ECN platform, traders can find market liquidity and execute trades. Among US dealers, IBfx (Intime Beck) and Baileys Financial Group (PFG) are typical representatives of the ECN model.

DMA broker

brief introduction

On the DMA (Direct Market Access) foreign exchange trading platform, traders have direct access to the actual market for foreign exchange trading, allowing them to place orders with liquidity providers (banks, other brokers, market makers, etc.).

Some features of DMA direct market access include:

market execution

floating spread

5 decimal place pricing

Optional: DOM (Depthofthemarket)

Most ECN brokers offer DMA (Direct Market Access), but not all STP brokers offer DMA.

Comparison of DMA/STP foreign exchange trading platform and STP platform

Ordinary STP brokers: Traders' orders are first executed internally in an instant manner, and then hedged through their liquidity providers.

Because the broker expects to make a profit during the hedging process, if the broker cannot find a profitable hedging opportunity when the trader places an order, it is possible to re-quote.

The price traders see is higher than the best price a broker can get from a liquidity provider.

DMA/STP, Direct Market Access STP Brokers: The trader's orders are sent directly to the liquidity provider (with a slight increase in fixed value), and the execution method is the market price, so that all orders are completed at the best of all the prices offered. (Of course, it will not be exactly the same as the price when the trader places the order, because on the one hand, the network speed is a factor, and on the other hand, the price offered by the liquidity provider changes quickly.)

DMA technology guarantees that there is always a true tradable price, and there will be no re-quotes.

DMA/STP brokers allow traders to directly see the best bid/ask prices offered by liquidity providers, making them relatively more transparent.

The differences between DMA/STP and ordinary STP brokers include:

1DMA brokers have a large number of liquidity providers.

2DMA brokers only offer floating spreads and never fixed spreads, as the buy and sell prices from liquidity providers are always changing.

On the 3DMA trading platform, the order execution method is always market execution.

4 No requotes

Like ECNs, DMA brokers can also provide depth of market (DOM) information, where traders can see all the bid and offer information from different liquidity providers.

6DMA's trading model broker welcomes traders of all trading styles, whether it is ultra-short-term and short-term scalping, day trading or medium and long-term swing trading, position trading, the broker will not exclude a certain style of traders.

Comparison of DMA foreign exchange trading platform and ECN platform

Common ground:

Both DMA and ECN broker spreads are floating. Both are fractional pricing. Both have depth of market (DOM, Depthofthemarket) manuals (DMA/STP brokers do not necessarily provide DOM to traders)

Point of difference:

Spread

DMA brokers have separate contracts with each liquidity provider, and the same liquidity provider has different contracts with different brokers.

Even so, DMA spreads are still relatively competitive compared to ECN.

ECN brokers are linked to anonymous ECN liquidity pools, where liquidity providers are not contracted with ECN brokers. ECN brokers do not necessarily get the best prices from all liquidity offers (for example, as many people know, banks like to hide their best prices in ECN liquidity pools).

The implementation of ECN technical solutions (facilitation, processing, execution) involves costs, and transactions are subject to commissions for such costs.

execute

Prices on the DMA trading platform come directly from liquidity providers, and all orders are placed at the best of all prices offered. This way, there will be no requotes, rejection of a price, or partial execution of an order.

The features of the ECN liquidity pool lead to requotes, slippage, and more opportunities for partial execution of orders. (For example, anonymous participants can place a hypothetical order and then reject it)

Charging method

ECN brokers make profits through commissions.

DMA brokers make profits by slightly adding a fixed value to the spread, not through commissions.

Some DMA brokers will charge a fee based on the trader's monthly trading volume, and there are corresponding fees for no trading volume. Therefore, while traders can enjoy the best quotes and lowest spreads for such DMA brokers, if you don't plan to trade frequently and heavily, you may pay more fees than you can save from low spreads.

summary

Traders' platforms hide unexpected trading risks.

The no-trader platform has the advantages of transparency, good quotes, and fast transactions. Transparency allows customers to enter the real foreign exchange market, and customer orders are sent directly to the interbank market for automatic execution. No-trader quotes are usually low and transactions are fast.

According to industry insiders, customers can be divided into two categories. Customers with strong profitability are separated into slow mode, and such customers face multiple obstacles such as slippage and difficult orders to close. Customers with poor profitability are classified as automatic execution mode, because on average, these customers are losing money. Market makers trade with these weak people, of course, the odds are better. As for transparency, it can only depend on the internal policies of these market maker companies.