Forex Broker Acronym Definitions: NDD, ECN & STP

ForexNewsNow | Published on July 11, 2011 at 5:26 am

Forex broker reviews

ForexNewsNow – Trading through a competent online forex broker can be a crucial factor in the success of a forex trader. Nevertheless, according to a number of forex broker reviews available on the Internet, the broker with the best dealing rates may not necessarily be the best forex broker. Most currency brokers execute customers’ trades through a dealing desk (DD), via a Non Dealing Desk (NDD) Electronic Communications Network or ECN, and/or with Straight Through Processing or STP.

Dealing Desk Forex Brokers

A large number of online foreign exchange brokers have an in-house dealing desk, where orders are executed on prices obtained from the brokerage’s own market makers. This means that the online forex brokers with dealing desks will generally take the other side of their clients’ trades.

Nevertheless, the dealing desk might offset larger trades or accumulated positions with the Interbank market or with some other professional market maker. Dealing desk currency brokers have a vested interest in the opposite of what would benefit their clients’ online trading accounts happening. This situation may not always benefit the trader, and often results in the re-quoting of prices during periods of high market activity or movement.

Although many reputable online forex brokers have a dealing desk, other foreign exchange brokers execute orders directly with the Interbank forex market.

NDD or No Dealing Desk Forex Brokers

NDD refers to No Dealing Desk. This type of currency broker allows clients to bypass a dealing desk and directly access pricing available in the Interbank market. Trading directly via the Interbank market, a trader can even execute a transaction when economic news comes out without suffering the inconvenience of market maker re-quotes.

Generally, the NDD broker will offer tighter spreads which are not fixed but which can increase in times of higher volatility. NDD brokers can also charge a per trade commission if they do not effectively charge a commission by adding onto the dealing spread.

ECN or Electronic Communication Network Forex Brokers

An online forex broker that executes through an ECN, generally offers customers real-time order book information directly from banks and the Interbank market. The ECN broker will generally make their commissions on volume traded instead of on the spread. An ECN currency broker executes all trades on the interbank market in NDD mode. ECN foreign exchange brokers provide a transparent market environment where all market participants can watch the order flow.

STP or Straight Through Processing Forex Brokers

The STP mode of order execution routes all orders electronically directly to the Interbank forex market, where the order is automatically executed.  Brokers that offer this type of execution by-pass all dealer intervention completely. The more traders active in the computerized STP trading system, the higher the level of liquidity, thereby giving the customer better fills on their orders when many participants are present.

Also, if the broker is operating as a NDD or ECN broker, then they are most probably using the Straight Through Processing mode. As a result, liquidity will depend on the amount of market participants on the network at any given time.

Choosing Among Forex Brokers

Having a good online forex broker can make a significant difference to your trading results and often gives traders the confidence required to operate optimally in the forex market. When doing a forex broker review and shopping for a competent online forex broker, be sure to check out how the broker fills their customer orders. If they fill all of their customer orders through their own in house dealing desk, a conflict of interest may arise in fast markets or if your trading becomes exceedingly profitable.

Researching online broker reviews can be a useful way to decide on a broker list to review in greater depth before opening an online trading account.  Furthermore, if a broker has performed either exceptionally well or poorly for their clients, their clients will often voice their opinions by leaving forex broker reviews at popular forex forums.

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