Brokers are central figures in the functioning of financial markets. They facilitate access to assets, execute trades on behalf of clients, and, depending on their model, either provide liquidity or connect traders directly to it. For most retail traders and investors, brokers are the entry point to trading and investment platforms. Whether one is trading stocks, currencies, commodities, or derivatives, the broker’s structure, regulation, and execution model shape the quality and cost of each transaction.
What Brokers Do
A broker’s primary function is to act as an intermediary between traders and the financial markets. They provide a platform through which users can buy or sell assets, along with tools for market analysis, risk management, and account funding. In exchange, brokers charge either commissions, spreads, or both. The way these costs are applied, and how the broker interacts with the wider market, varies by broker type.
Some brokers pass client orders directly to the market. Others may choose to internalise trades by taking the opposite position, effectively becoming the market for the client. These distinctions affect everything from price transparency to execution speed and potential conflicts of interest.
Broker Types
There are several structural models under which brokers operate. These are not always disclosed transparently, but they shape the trading environment in important ways.
Dealing Desk Brokers (Market Makers)
Dealing desk brokers, often referred to as market makers, create an internal market for their clients. When a trader places a buy or sell order, the broker may match that order internally or take the opposite position. The broker earns money from the spread between bid and ask prices, and sometimes from trader losses.
This model offers guaranteed liquidity and fixed spreads, which can appeal to newer or low-volume traders. However, it introduces a potential conflict of interest, as the broker may benefit when a trader loses. Most reputable market makers operate under regulatory oversight, but traders must remain cautious and ensure that trade execution is transparent.
STP (Straight Through Processing) Brokers
STP brokers act as intermediaries that send client orders directly to external liquidity providers — such as banks or larger financial institutions — without internal dealing. These brokers make money either through spreads or commission per trade, but they do not hold positions against their clients.
STP trading tends to offer tighter spreads than market makers, especially during high-volume periods. Execution speeds can vary depending on market conditions, but generally, STP brokers are preferred by traders who want access to deeper liquidity without direct dealing desk involvement.
ECN (Electronic Communication Network) Brokers
ECN brokers provide a trading environment where client orders are matched with other participants on an electronic order book. This could include other traders, banks, or institutional market makers. ECN brokers do not trade against their clients and offer full market depth, showing bid and ask prices from multiple sources.
The ECN model is typically associated with variable spreads, high transparency, and lower latency. Traders pay a commission per trade in addition to the spread. ECN brokers are popular among professional and high-frequency traders who require precise execution and market visibility.
DMA (Direct Market Access) Brokers
DMA brokers allow traders to place orders directly onto the exchange or liquidity provider’s order book, bypassing any internal order handling or prioritisation. This model offers full transparency, no requotes, and market-based execution, where traders can see and interact with real-time pricing and order depth.
DMA is often associated with institutional or advanced retail trading, particularly for equities, futures, and derivatives. It allows for more control over how orders are placed and filled but typically requires larger account sizes and familiarity with order routing and exchange mechanics.
Hybrid Brokers
Some brokers combine multiple models, offering a hybrid setup where they act as both a market maker and an STP or ECN provider, depending on account type or trade size. This allows them to cater to different types of clients while managing liquidity internally where possible.
Hybrid models are common in retail forex trading, where the broker may route larger trades to liquidity providers and internalise smaller ones. While flexible, this model can be opaque, so traders should understand how their orders are handled and what execution policies apply to their account type.
Choosing the Right Broker Type
The best broker model depends on the trader’s goals, strategy, capital base, and execution needs. Scalpers and day traders often prefer ECN or DMA environments for speed and transparency. Swing traders may opt for STP models that balance spread and execution. Beginners may find market makers more accessible due to lower capital requirements and fixed costs.
It is essential to confirm the broker’s regulatory status, order execution policy, and pricing model before committing funds. Brokerlistings.com highlights that not all brokers clearly disclose their internal execution setup, so traders should ask questions and review trading terms carefully.
Regulation and Oversight
The most important factor when evaluating a broker is its regulatory status. Brokers operate under the supervision of financial regulatory authorities, which enforce standards for client fund protection, trade execution, and transparency. In Europe, common regulators include the Financial Conduct Authority (FCA) in the UK and the Cyprus Securities and Exchange Commission (CySEC). Other major regulators include the U.S. Commodity Futures Trading Commission (CFTC), the Australian Securities and Investments Commission (ASIC), and the Financial Sector Conduct Authority (FSCA) in South Africa.
Regulated brokers are generally required to keep client funds in segregated accounts, maintain minimum capital reserves, and adhere to fair trading practices. They may also be subject to audits and client dispute resolution procedures. Unregulated brokers can offer attractive conditions but expose clients to significant risks, including withdrawal delays, order manipulation, or outright fraud.
Platform Access and Tools
A broker’s trading platform is the interface through which clients interact with the markets. Platforms like MetaTrader 4, MetaTrader 5, cTrader, and proprietary systems vary in terms of design, indicators, execution speed, and automation support. A reliable and well-integrated platform contributes to faster order execution, better risk management, and reduced slippage. For active traders, platform performance is not a secondary consideration — it directly influences outcomes.
Additional tools offered by brokers may include market news feeds, economic calendars, technical analysis packages, and trading calculators. Some brokers provide API access for algorithmic trading, while others focus on user-friendly interfaces and mobile support for casual investors.
Costs and Trading Conditions
Cost structure is another critical area to evaluate. Brokers typically generate revenue through spreads — the difference between the buy and sell price — or through direct commissions. Some brokers offer raw spread pricing with commissions per trade, while others bundle costs into wider spreads. Overnight financing charges (swap fees), inactivity fees, and withdrawal charges can also apply, depending on the broker’s model.
The true cost of trading depends not only on fees but also on order execution quality. Delays, requotes, or slippage during volatile conditions can significantly affect trade outcomes. Transparent brokers disclose historical execution metrics and provide clients with tools to audit their trades.
Final Considerations
Choosing a broker involves more than comparing spreads or platform features. It requires understanding how the broker makes money, how it executes trades, and how it handles client funds. Traders should prioritise regulation, execution transparency, and platform reliability over superficial benefits like high leverage or promotional bonuses.
Different traders will find different brokers appropriate for their goals. High-frequency scalpers need fast execution and low latency. Long-term investors prioritise safety and stable platforms. Beginners may benefit from strong educational content and responsive support.
A well-chosen broker becomes more than just a service provider — it is a structural part of a trader’s long-term success or failure. As with any financial decision, the foundation should be due diligence, not advertising claims.
This article was last updated on: May 18, 2025