What is the difference between NDD, Market Maker and ECN? of Forex Money Trading




In simple words, the difference between NDD, Market Maker and ECN are:

Market Maker = Not real market. Broker is against you !

NDD maybe NO dealing desk = Market Maker ! Don’t be fool !

NDD = NON dealing desk = No boker involved

ECN = Real trades, but price fast

Guarentee price but can cheat you is Market Maker

Guarentee price if hit like market maker, but NON dealing desk is NDD

Not guarentee price but real market trade is ECN

Let me give you the difference’s sample:

Market Maker: Online Retail Broker who will take the other side of your trade (aka: they trade against you, when you buy they will sell and vice versa), they have a somewhat shady algorithm to calculate their net exposure and cover their risk by sending order to interbank market.

eg: Joe buy 3 lots EURUSD and Jane sell 2 lots EURUSD, Market Maker simply match Joe and Jane orders (2 lots) and they sell 1 lot EURUSD to match the rest of Joe’s order. They will also buy 1 lots from interbank market to cover the 1 lot they sell to Joe.

NDD = Non Dealing Desk. It’s about the same as Market Maker. I think it’s more of marketing hype.

eg: FXCM, IBFX claim to be NDD, but we all know they both are one of the biggest Market Maker.

ECN is supposed to pass your orders straight to interbank market, so ECN should not trade against you.

Let me give you more details:

Because for every buy, there must be someone who sell, vice versa.

So for the rest of Joe’s buy order to be executed, someone MUST sell 1 lot EUR-USD. Because nobody else is selling EUR-USD, Market maker MUST sell 1 lot of EURUSD to Joe. After they sell it, they have risk when price go up (aka: when Joe is winning, they will lose). In order to cover that risk, Market maker should buy 1 lot EURUSD from interbank market to cover their risk. (so when price go up or down, they will not lose, cause they have 1 sell and 1 buy).

Market Maker makes money from the spread. let’s say that the spread is 2 pips, so from the example above they will receive 6 pips from Joe, 4 pips from Jane. They also have to pay the spread for 1 lot they buy from interbank which will probably be around 0.5 pips. So they will receive about 6 + 4 – 0.5 = 9.5 pips.

Now, if Joe is constantly losing, some Market Makers won’t cover that 1 lot EURUSD they sell to Joe. They simply sell it to Joe because Joe will lose anyway, and when Joe is losing, they will win.