Retail traders often talk about brokers as if they were all the same: a login, a chart and a button. Behind the button, however, brokers differ in how they handle your orders and how they earn money. Understanding the models will not tell you which broker is best, but it helps you ask better questions and read fee schedules with open eyes.
The retail forex market is not one exchange
Unlike stocks, there is no single central exchange for spot currencies. Banks, dealers and liquidity providers quote prices to each other and to brokers. Your broker sits between you and that web of liquidity. How it connects you determines its incentives.
Model 1: Dealing desk (market maker)
A market maker takes the other side of your trade. When you buy, the broker sells to you from its own book, and it may or may not hedge that exposure in the wider market.
- How it earns: the spread, plus any profit from clients' net losses if it keeps the risk.
- Typical pricing: often fixed or semi-fixed spreads, commission-free.
- The conflict: if the broker keeps your risk, your loss can be its gain. Reputable, regulated firms manage this with disclosure and controls, but the incentive exists, so execution quality and rules on requotes, slippage and stop handling deserve scrutiny.
Model 2: STP (straight-through processing)
An STP broker routes your order to one or more liquidity providers instead of keeping it. It usually marks up the spread it receives.
- How it earns: the markup on the spread, sometimes plus a commission.
- The conflict: smaller. The broker earns more when you trade more, regardless of whether you win. That still encourages you to trade often, which is worth remembering next to our article on overtrading.
Model 3: ECN or ECN-style
With a true ECN, orders from many participants meet in a pool of liquidity and trade against the best available prices. Retail accounts of this type typically show raw spreads that can be very tight, and the broker charges a separate commission per lot.
- How it earns: commission, sometimes plus a small spread markup.
- Typical pricing: variable spreads that can widen sharply around news.
- The caution: the term "ECN" is used loosely in marketing. Ask who the liquidity providers are and whether orders are really passed on.
Comparing true cost
Do not compare advertised spreads alone. Total cost per round trip includes the spread, the commission, slippage and overnight financing. Here is an illustrative comparison for one standard lot of a major pair:
| Item | Account A (no commission) | Account B (raw + commission) |
|---|---|---|
| Typical spread | 1.2 pips | 0.2 pips |
| Commission, round trip | 0 | about 0.7 pip equivalent |
| All-in | 1.2 pips | about 0.9 pip |
The numbers are invented for illustration. The lesson is that the cheaper-looking spread is not always cheaper, and that costs change when volatility spikes. More on this in spreads, slippage and the true cost of trading.
What matters more than the label
- Regulation. Check the regulator, then verify the firm on the regulator's own public register rather than trusting a logo. For Canadian residents, see our checklist in forex broker due diligence for Canada.
- Client money handling. Are funds segregated? What protection exists if the firm fails?
- Execution policy. Reputable brokers publish how they handle orders, slippage and requotes. Read it.
- Margin rules. Understand stop-out levels before you need them; see margin calls and stop-outs.
- Withdrawal experience. Test a small withdrawal early. Friction here is a red flag.
- Your own evidence. Compare fills against a second price source on a demo or small live account, especially during news.
Red flags
- Promises of guaranteed profits or bonuses that lock your withdrawals.
- Unlicensed firms, or licences you cannot verify.
- Pressure to deposit quickly or to hand over account access.
- Vague or hidden fees, and execution terms buried in fine print.
Bottom line
No model is automatically good or bad. A market maker with strong regulation and clear execution terms can serve a small account well, while an "ECN" with unverifiable claims may not. Ask how the broker earns money, work out your all-in cost for the way you actually trade, and judge the firm on regulation, transparency and how it behaves when markets move fast.
Educational content only, not financial advice. This site does not endorse or refer any broker. Leveraged trading carries risk of loss.