When you click buy on a forex or CFD platform, your broker either passes the trade on to another firm or takes the other side of it itself. That choice is what labels like STP, ECN, market maker, A-book and B-book describe. This guide explains each model in plain terms, how brokers earn under each one, why most brokers mix them and which checks tell you more than any label.
Two Ways a Broker Can Handle a Retail Order
Every retail forex order is handled in one of two ways. The broker can pass the order, or the risk from it, to an outside firm such as a bank or a non-bank liquidity provider. Or the broker can keep the order on its own books and act as the counterparty, so its result is the opposite of the client's.
Passing risk outward is called A-book execution. Keeping it in-house is called B-book execution. STP, ECN and DMA are names for different ways of passing orders outward, while "market maker" describes a firm that quotes its own prices and takes the other side.
Almost every term in this debate maps back to that single question: who holds the market risk once your trade is open?
How a Market Maker Broker Works
A market maker broker quotes its own bid and ask prices and fills client orders from its own book. The idea comes from the wider financial markets, where a market maker stands ready to buy and sell and earns the difference between the two prices. In retail forex, the broker usually builds its quotes from prices supplied by liquidity providers, then fills client orders against itself.
A market maker earns from the spread on every trade, and from the net result of client positions it keeps. If clients who bought EURUSD lose money overall, those losses become the broker's revenue. If they win, the broker pays out of its own capital.
Why Market Making Is Not Automatically a Problem
Market making is a legitimate and regulated activity. It lets brokers fill very small orders, such as 0.01 lots, that no bank would accept individually. It also allows instant fills at quoted prices, fixed spreads on some accounts and trading during hours when outside liquidity is thin.
The concern is the conflict of interest. A broker that profits when clients lose has a reason to act against them, for example through unfair slippage, delayed fills or stop-hunting. Regulated market makers are required to manage that conflict, publish an order execution policy and treat clients fairly. The model creates the incentive; regulation and conduct decide whether the broker acts on it.
How STP and ECN Brokers Pass Orders On
An STP broker, short for straight-through processing, sends client orders automatically to one or more liquidity providers without a dealer intervening. The liquidity provider fills the order, and the broker opens a matching position for the client. The broker earns a markup on the spread, a commission or both.
An ECN broker, from electronic communication network, gives clients access to a pool where prices from several liquidity providers, and sometimes other participants, compete. ECN-style pricing usually shows raw spreads close to the market plus a separate commission. DMA, or direct market access, is a related term most often used for share CFDs, where the order is mirrored on an exchange.
How Last Look Affects Orders Passed to Liquidity Providers
Passing an order outward does not guarantee it will be filled. Many liquidity providers use a practice called last look, holding an incoming order for a few milliseconds and checking whether the price has moved before deciding to accept or reject it. If the market has moved against the provider, the order can be rejected.
For a trader on a pass-through model, last look can show up as rejected orders or slippage during fast markets. It is one reason why execution quality varies between brokers that describe themselves in the same way.
Why an STP Label Does Not Settle the Question
An STP label tells you an order is passed on automatically. It does not tell you who receives it. If the receiving liquidity provider is a firm linked to the broker, or a provider that itself keeps the risk, the trade can still end up on a B-book further down the chain.
Account names are an even weaker signal. "ECN account," "Raw account" and "Pro account" describe a pricing structure, usually a tight spread plus commission. A broker can offer raw pricing and still internalise some or all of the flow behind it. Pricing structure and execution model are two separate things.
What A-Book and B-Book Actually Mean
A-book and B-book are internal terms brokers use for where client risk sits. A-book flow is passed on and hedged with an outside party, so the broker is market-neutral on those trades. B-book flow is kept in-house, so the broker carries the opposite position.
An A-book broker earns the same whether clients win or lose, because its revenue comes only from spreads and commissions. A B-book broker earns spreads and commissions too, plus or minus the net result of client trading. That is the core economic difference, and everything else follows from it.
How Hybrid Brokers Decide Which Book a Trade Goes To
Most retail brokers today run a hybrid model, keeping some flow in-house and passing some on. Risk management systems sort accounts and orders using rules the broker sets. Large orders, accounts with consistently profitable records and strategies that react to price changes faster than the broker can hedge are often passed on. Small, short-lived accounts are often kept in-house.
The sorting can also change over time. An account can move from one book to the other as its trading pattern changes, and many brokers hedge only the share of exposure that exceeds a set limit. Hybrid execution is a risk-management practice, not a single fixed category.
Worked Example: Hedging Net Client Exposure
Here is how a broker can keep most trades in-house while limiting its own risk. Suppose clients hold 100 lots of EURUSD long and 70 lots short. Those positions offset each other, leaving the broker with a net exposure of 30 lots.
A broker with a risk limit of 20 lots on EURUSD might hedge 10 lots with a liquidity provider and keep the other 20. If EURUSD rises 50 pips, the long clients gain $50,000 in total and the short clients lose $35,000. The broker owes clients a net $15,000. Its 10-lot hedge returns $5,000, so the broker loses $10,000 on the 20 lots it kept in-house.
The example shows why the A-book versus B-book choice is rarely all-or-nothing. Brokers manage aggregate exposure across thousands of positions, and the share that is hedged can change by the minute.
How Each Broker Model Earns Money
Every broker model earns from the cost of trading, but the mix differs. Under an A-book model, revenue comes from spread markups, commissions and swap markups. Volume drives income, so the broker wants clients to trade often and stay active.
Under a B-book model, the broker earns those same costs plus the net result of client trades it keeps. That extra component can be large, but it is also risky: a run of profitable client trades or a sharp market move can cost a B-book broker money. This is why B-book brokers invest heavily in risk systems and hedging.
A hybrid broker sits in between. It earns the spread and commission on everything and takes a trading result only on the share of exposure it keeps. The table below summarises the differences.
Model | Who holds the market risk | How the broker earns | Typical pricing |
Market maker (B-book) | The broker | Spread, commission, swaps and net client losses | Fixed or variable spreads |
STP (A-book) | Outside liquidity provider | Spread markup, commission, swaps | Variable spreads |
ECN or DMA (A-book) | Outside liquidity providers or venue | Commission, sometimes a small markup | Raw spreads plus commission |
Hybrid | Split, based on the broker's risk rules | All of the above, by share of flow | Varies by account |
What Each Model Means for Your Trading Costs and Fills
The execution model shapes a few practical things you can observe. Spread structure is one: market makers more often offer fixed spreads, while pass-through models usually show variable spreads that widen in fast markets. Requotes are another: instant execution on a market maker model can produce requotes, while market execution produces slippage instead.
Slippage symmetry is the most useful thing to watch. On a fair execution model, slippage happens in both directions: sometimes you get a better price than requested, sometimes worse. A broker that only ever slips orders against you, whatever its model, is a problem.
Leverage magnifies losses as well as gains under every model. The execution model does not change the risk of a leveraged trade, only who stands on the other side of it.
How to Check How a Broker Handles Your Orders
No retail trader can see inside a broker's risk system, but several checks reveal more than any marketing label. The most important is the order execution policy, a document regulated brokers publish to explain how they execute orders and manage conflicts.
What to Look For in an Order Execution Policy
Read the policy for the capacity in which the broker acts. A broker acting as "principal" or "counterparty" is on the other side of your trades, at least in part. A broker acting as "agent" or "riskless principal" is passing them on. Most policies also list execution venues, explain how slippage is applied and describe any links between the broker and its liquidity providers.
A good policy is specific. It names the factors the broker weighs, such as price, speed and likelihood of execution, and explains what happens to orders during gaps and news. A vague policy that commits to nothing tells you something too.
Testing Execution With Your Own Trades
Your own trade history is the second source of evidence. Over a few weeks, record the requested price and the filled price on market orders and note when slippage occurs. Positive and negative slippage of similar size and frequency suggests fair handling. One-sided slippage, especially around news, suggests otherwise.
Also check how stop orders behave during fast moves and whether pending orders fill at their set price when the market trades through them. These tests take patience but give you evidence instead of assumptions.
Why the Execution Label Matters Less Than Regulation and Conduct
The execution model matters less than most online debates suggest. A regulated market maker that handles conflicts properly can offer fairer conditions than a poorly run firm that calls itself STP. What protects traders is the combination of regulation, a clear execution policy, fair handling of slippage and reliable withdrawals.
Online claims that a broker is "100% A-book" or "pure ECN" cannot be verified from the outside. Treat them the way you would treat any marketing claim, and rely on the documents and tests above. The questions that matter are simpler: is the broker licensed, does it publish how it executes orders and do your own trades show fair fills?
Choosing a Broker With Execution You Can Trust
When you compare brokers, read each one's order execution policy, check its licence on the regulator's register and test execution with small live trades before committing larger funds. Compare all-in trading costs as well, because the execution model does not tell you whether an account is cheap or expensive.
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Whatever the broker, the method in this guide holds. Read the execution policy, measure your own slippage, confirm regulation and choose the best broker for forex trading on the evidence you gather yourself, not on a label. CFDs are leveraged products and carry a high risk of losing money, so only trade with funds you can afford to lose.