ECN: Electronic Currency Network. This system originated as a way for money center banks to post bid and ask prices for currencies they wished to exchange. It is not a single centralized system like those common in regulated markets such as bonds, equities and futures. Rather it is a network of semi-cooperative systems which typically used by banks and brokers who deal in trades of 100,000 currency units or more. This network is the at the heart of today’s off exchange currency market.

DD: Dealing Desk. The traditional way retail forex trading is done. Originally a telephone based system, retail traders get quotes from a dealer representing the broker and place orders based on those quotes. The broker may or many not choose to hedge their exposure by offsetting a given trade. If the trade is not hedged, the broker loses if you win and wins if you lose. This conflict of interest is at the root of the poor reputation suffered by the industry.

MM: Market Maker. A large dealing desk operation that often provide services to smaller brokers. In general an MM will try to maintain a balanced book of business, making offsetting trades with an ECN or matching orders internally to offset imbalances. Quotes from an MM are based on ECN quotes, client positions that have yet to be offset and pending internal orders. Quotes are further adjusted to compensate for perceived market risk.

STP / DD: Straight Through Processing / Dealing Desk. A partially automated system whereby a broker issues quotes based on ECN quotes marked up to allow for broker profit. Trades are processed automatically at the quoted price except in unusual situations. Such situations usually involve limited liquidity or spikes in market volatility which put brokers at more risk than they are willing to assume. When that happens, some or all orders are diverted to a dealing desk for approval, rejection or so that a re-quote can be offered to the trader.

STP / NDD: Straight Through Processing / No Dealing Desk. A fully automated system whereby a broker issues quotes based on ECN quotes which may or may not be marked up to allow for broker profit. Where ECN quotes are passed through directly to the client (not marked up), a commission is charged to allow for broker profit. In situations of low liquidity and/or high volatility, certain order types may be rejected by the automated system, however re-quotes are never offered as there is no dealing desk involved.

STP / ECN: Straight Through Processing or Electronic Currency Network. Trading type depends on client type. HotSpotFX is the forex arm of Knight Capital Group, one of the worlds largest market access providers and trade execution processors. Interactive Brokers provides online trade execution and clearing services for professional traders to the tune of around a million trades each day. They deal in stocks, options, futures, forex, bonds and funds. Large institutional clients of these brokers enjoy low cost ECN trading while retail clients use a STP / NDD system with adjusted ECN quotes