A market maker takes the other side of your trade itself. An STP broker passes your order to a liquidity provider. An ECN broker routes it into a pool where several providers compete. In practice most retail brokers combine these models depending on the client and the order.
Does a market maker trade against me?
A market maker profits when clients lose on trades it has not offset, which is a conflict of interest that regulators require firms to manage. In strict jurisdictions brokers must execute orders on terms that are fair to the client and disclose how they do it.
Is ECN always better?
ECN-style accounts usually have lower spreads and suit frequent traders, but the label is self-applied and unregulated. What you can verify is the total cost per lot, how often orders slip, and whether fills are symmetric, meaning you get positive slippage as well as negative.
What should I look at instead of the label?
- The broker’s order execution policy for your entity.
- Average, not minimum, spreads for the hours you trade.
- Rules on scalping, news trading and automated strategies.
See the list of brokers that describe their execution as ECN.