Direct from the desk of Dane Williams.
To find a forex broker that doesn't take the opposite side of your trades, I recommend looking for brokers who operate using an ECN (Electronic Communication Network) or STP (Straight Through Processing) model.
These types of brokers typically provide a more transparent trading environment where your trades are directly routed to the market, without the broker acting as the counterparty.
When researching brokers, make sure to check their trading terms and conditions, as well as their regulatory status.
Look for brokers that clearly state their execution model and provide information about how they handle client orders.
Reading reviews and testimonials from other traders can also give you insights into a broker's reputation and whether they adhere to their stated execution model.
Remember, personal due diligence is ESSENTIAL when choosing a forex broker to ensure trading conditions that align with your own preferences and goals.
Which execution model should I look for?
As I said in the introduction above, when searching for a forex broker, you should look for brokers that offer either an ECN (Electronic Communication Network) or STP (Straight Through Processing) execution model.
These models are known for their transparency and the fact that they don't usually take the opposite side of your trades, providing a direct connection to the interbank market.
When reading about how a broker handles client orders, pay attention to the following points:
- No Dealing Desk (NDD) policy: Brokers that operate with an ECN or STP model often have a "No Dealing Desk" policy, meaning they don't intervene in the execution of your trades and instead pass them directly to the market.
- Price aggregation: A transparent broker will typically aggregate prices from multiple liquidity providers to offer you the best available prices for your trades, resulting in tighter spreads and better execution quality.
- Slippage and requotes: Check if the broker provides information about how they handle slippage (the difference between the expected price and the executed price) and whether they requote orders - An issue any reputable broker will have clear policies in place to fairly address.
- Regulation: Ensure the broker is regulated by a reputable financial authority that imposes certain standards and guidelines on brokers, ultimately contributing to a fair trading environment.
Do ECN forex brokers ever run a b-book?
While ECN brokers don't "usually" take the opposite side of your trades, the honest truth is there are cases where ECN brokers do still trade against their clients.
You may have heard traders talk about an ECN broker running what’s called a b-book, where they figure out who the least profitable clients are and instead of pushing their orders through to the interbank market, they simply trade against them.
ECN forex brokers are generally designed to provide direct market access and transparency.
But in a B-book model, a broker may choose to not pass certain client orders directly to the interbank market and instead match them internally or trade against them.
The motivation behind this approach could be to manage risk or generate additional profit for the broker.
While this practice isn't exclusive to ECN brokers and can be found among various types of brokers, it's worth noting that reputable and transparent ECN brokers strive to provide direct market access and minimise conflicts of interest.
Running a B-book operation can potentially lead to concerns about fairness and transparency, as you may worry that your broker's interests are not fully aligned with your own.
Whether this is an issue or not depends on your trading goals and preferences.
If you're seeking a broker with the highest level of transparency and direct market access, you might want to choose an ECN broker that clearly states its execution model, policies and procedures related to order handling.
As always, this is totally up to you having those conversations before you deposit any funds.
Best of probabilities to you.