ECN, STP and market maker: how your broker actually makes money
Three execution models, one question that matters — does the broker profit when you lose? And why the label on the account page rarely settles it.
Every broker advertises tight spreads. Far fewer explain what happens to your order after you click, and that is where the money is actually made — or taken.
There are three models. The difference between them comes down to one question: is the broker on the other side of your trade?
Market maker (dealing desk, B-book)
The broker creates its own market and takes the opposite side of your position. You buy, it sells to you from its own book. If you lose, that loss is its revenue.
This model allows fixed spreads and instant execution on any size, which is why it is common on beginner-facing accounts. But the conflict is structural and unavoidable: your loss is the broker’s gain.
That does not make every market maker dishonest; many are regulated, hedge their net exposure and behave properly. It does mean the incentive runs against you, and you should know it exists rather than discover it later.
STP (straight through processing, A-book)
Orders are passed to liquidity providers with no dealing desk deciding whether to fill them internally. The broker adds a small markup to the raw spread, typically 0.2 to 1 pip, and that markup is its revenue.
The broker is not your counterparty, so it does not profit from your losses. It profits from your volume.
ECN (electronic communications network)
Your order enters a network where it can match against banks, funds, non-bank market makers and other traders. The broker charges a commission per lot rather than marking up the spread, so raw spreads can approach zero on liquid pairs during liquid hours.
Like STP, this is A-book: revenue comes from commission, not from your losses.
The comparison that matters
| Market maker | STP | ECN | |
|---|---|---|---|
| Broker is your counterparty | yes | no | no |
| Revenue from | your losses, spread | spread markup | commission |
| Spreads | fixed, wider | variable, small markup | raw, near zero on majors |
| Extra commission | usually none | usually none | yes, per lot |
| Conflict of interest | structural | limited | limited |
Raw spreads plus commission is not automatically cheaper. An ECN account showing 0.1 pips with $7 per lot round-turn can cost more than an STP account at 1.2 pips with no commission, depending on how much you trade and in what size. Compare the total, not the headline.
The words the industry actually uses
Brokers talk to clients about ECN, STP and market making. Among themselves they say A-book and B-book, and those two terms describe the arrangement more honestly.
A-book means the trade is passed to an external liquidity provider. The broker stands between you and that provider as an agent and earns the spread markup or a commission. Your outcome does not affect its revenue.
B-book means the broker keeps the trade on its own books. No external hedge, no provider: the firm is your counterparty, and your loss is its gain.
STP and ECN are both A-book arrangements described in customer-facing language. Market making is B-book. Mapping the marketing terms onto the internal ones removes most of the confusion, because the second set of words admits what the first set avoids saying.
Almost everyone runs both
The important part is that these are not two kinds of broker. They are two ways of handling a trade, and the large majority of firms do both, deciding per client and sometimes per order.
The logic is unsentimental. Clients who lose consistently are profitable to keep in-house, so their trades stay on the B-book. Clients who win are expensive to hold against, so their trades get routed out to a liquidity provider. Neither is hidden from regulators and neither is unusual; the segmentation is standard risk management in the industry.
What follows from it is worth stating plainly: the same broker can be your counterparty on Monday and your agent on Tuesday, without telling you and without anything changing on your screen. A firm advertising “no dealing desk” may still internalise part of its flow, because the phrase has no fixed regulatory meaning.
This is also why the question “is this broker A-book or B-book?” rarely gets a straight answer. Traders ask it in forums constantly and brokers decline to say, which is itself informative: a firm running pure A-book has every commercial reason to tell you so.
Why the label on the website settles nothing
Nothing stops a broker from calling an account “ECN”. The term is not defined in regulation and not enforced by anyone, and hybrid setups are the norm rather than the exception: many firms A-book clients who trade profitably and B-book the rest, switching per client or per trade without telling anyone.
What is checkable:
- Is there a separate commission? Genuine ECN pricing charges one. An account advertising “ECN, zero commission” is marking up the spread, which is STP pricing with an ECN label.
- Are spreads variable? Fixed spreads mean someone is taking the other side.
- Does the broker publish execution statistics? Slippage and rejection data, with dates. Most do not; the ones that do are making a checkable claim.
- Which entity holds your account? Execution policy is set per entity, and an offshore arm may run a different model from the regulated one under the same brand.
The document that has to exist
Under MiFID II, a firm regulated in the EU or the UK must have an order execution policy, must be able to show how routing decisions are made, and must demonstrate that orders are handled in the client’s interest. The policy is a real document, it is usually public, and almost nobody reads it.
It is worth ten minutes. Look for three things.
Where orders can be sent. A policy naming specific liquidity providers or venues describes an A-book arrangement. One that says orders may be executed “against the firm’s own account” is telling you the B-book exists, in the only place the firm is obliged to say so.
How conflicts are handled. The section exists because the regulator requires it. Vague wording here, in a document written by lawyers who could have been specific, is a finding rather than an oversight.
What the firm publishes about execution quality. MiFID II built a disclosure regime around this, and firms differ enormously in how much they still put out. Any broker publishing slippage and rejection rates with dates is making a claim that can be checked against your own fills.
None of it applies to an offshore entity. If the group’s regulated arm has an execution policy and the entity that actually holds your account does not, you have your answer about which set of rules governs your trades.
What to take from this
- A-book and B-book describe the arrangement; ECN and STP are A-book, market making is B-book
- Most firms run both, deciding per client, and the same broker can be agent or counterparty on different days
- A separate commission is the one reliable signal of genuine ECN pricing
- The execution policy is a public document for regulated entities, and its absence for an offshore one tells you something on its own
We check these rather than the label, and where a broker declines to state its model we record that too; see the methodology.
Sources
- B2Broker — ECN vs STP brokers
- ECN Execution — ECN vs STP vs market makers vs DMA
- Pandats — Understanding ECN, STP and market makers