Broker execution models: market maker, STP and ECN

Retail FX sites use “market maker”, “STP” and “ECN” as account names. The documents those words come from use them for something narrower, and none of the three is a category of FCA permission. This guide sets out the primary definitions and then says what a label on an account type does not prove. It does not rank the models, and it does not say which account to open.

The spread between a bid and an ask is a feature of a quote. It is described in how FX trading works. Whether the firm is authorised at all is a register check, not a conclusion you can draw from the account name.

Market maker

In the FCA glossary, a market maker is someone who holds themselves out on the financial markets, on a continuous basis, as willing to deal on their own account by buying and selling financial instruments against their own capital at prices they define. The glossary notes a COBS and MiFID limb in those terms. An older limb, used outside COBS, is similar: prices are set generally and continuously rather than negotiated for each trade.

A retail CFD firm that quotes its own prices and takes the other side can fall under that description. The definition does not say that every FX broker is a market maker. It does not say that dealing as principal is better or worse than sending an order somewhere else. “Market maker” on a marketing page is the firm’s label until you have read how that firm says it deals. The glossary definition is the regulatory term, not a review of any one firm.

Straight-through processing

Straight-through processing in the Basel Committee’s 2013 FX settlement guidance is an operations term. It means automated processing so that data is entered once and then used for the later steps, instead of being typed in again. The guidance says a bank should pass trades, adjustments and cancellations automatically from the execution system to operations and credit systems, because rekeying causes errors and delay. It also says STP does not remove operational risk.

That guidance is about how a bank handles a trade after the trade exists. It is not an account type, and it is not an FCA authorisation category. A broker’s “STP account” is the firm’s own product name. This page does not treat that name as a description of how the firm hedges, or as a promise that an order reaches a particular venue.

ECN

In US securities rules, an ECN is an electronic system that automatically matches buy and sell orders at specified prices. The SEC’s description, referring to Rule 600 of Regulation NMS, says ECNs register as broker-dealers and are subject to Regulation ATS. Subscribers are typically institutions, broker-dealers and market makers. An individual investor needs an account with a subscriber broker before an order can be routed there. Subscribers usually use limit orders, which the ECN posts and matches.

Retail FX marketing uses the same three letters for a range of pricing models. That marketing label is not the SEC category, and it is not a type of FCA permission. A firm calling an account an ECN account is using its own product name. You cannot read the SEC definition back onto that account without a separate statement, from the firm, of where the order actually goes.

Direct market access is a different term

Direct market access is narrower again. The FCA glossary, noting Article 4(1)(41) of MiFID II, defines direct electronic access as an arrangement where a member or participant of a trading venue lets someone else use its trading code so that person can send orders electronically and directly to the venue. Direct market access is the case that uses the member’s infrastructure, or a connecting system the member provides. Sponsored access is the case that does not. The firm that provides the access has to assess the client, set limits and monitor the orders.

A retail CFD platform is not direct market access merely because it is electronic. The venue, the member and the code are part of the definition. An electronic ticket at a CFD firm does not, by itself, meet it.

Requotes belong to an execution mode

MetaTrader 5’s help describes three ways a dealer can handle an order. In instant execution the current prices are sent with the order. If the broker accepts them, the order is filled. If it does not, it sends a requote: prices at which the order can be executed. Request execution asks for a price first, and the trader then confirms or rejects a deal at that quoted price. Market execution has no requote step. The broker chooses the price, and sending the order is consent to it.

A requote shows which of those modes is in use. It is not, by itself, evidence of whether the firm hedges, internalises, or passes the order on. The mode is a setting on the account. The help page describes the software. The broker chooses what is enabled. A demo account is the place to see which mode a firm has switched on. The labels above are still not proved by that screen.

Best execution is a duty, not a model

Best execution under COBS 11.2A is a duty to take all sufficient steps to get the best possible result for a client when executing an order. The factors in that section are price, costs, speed, likelihood of execution and settlement, size, nature, and any other relevant consideration. For a retail client the best result is judged on total consideration: the price of the instrument plus the costs directly related to execution, including venue, clearing and third-party fees. A specific instruction from the client satisfies the duty only for the part the instruction covers. For an OTC product, including a bespoke one, the firm must check that the price is fair, using market data and, where possible, comparable products.

The duty is not a promise that every fill was the best price that existed anywhere. The glossary entry, following the handbook, also says COBS 11.2A does not apply to a spread bet that is not a financial instrument, where the firm has not made a personal recommendation. An account called ECN or STP does not replace this rule where the rule applies, and it does not extend the rule to a product the handbook excludes.

None of these terms is a ranking. A firm can quote as principal and still owe best execution where the rule applies. A firm can use the word ECN and still be describing its own price stream. Read the firm’s execution policy for the account you are looking at, and check the firm on the register before that account exists.

Published cost figures from the firms’ own pages, such as a spread or a commission they have stated, are lined up in the broker comparison. The table does not score or rank firms. An execution label is not one of those figures, and the table does not turn a label into a score.

This guide is for education and reference only. It is not financial, investment, tax, or trading advice, and it does not recommend a firm, product, or strategy. It does not provide signals, rankings, or profit claims. Contracts for difference, spread bets, and other leveraged products can lose money quickly. Worked figures are illustrations from the cited sources, or arithmetic on those figures. Where a guide asks you to look at a platform, use a demo account.