DMA/STP Forex Brokers – Are They Really That Different?

Home » DMA/STP Forex Brokers – Are They Really That Different?

Finding the best Forex broker to assist you with your trades is a very complex process. There are thousands of different ones to choose from, and a range of different types, which makes the decision very confusing, especially for the beginner. The aim of our site is to provide traders, both new and more experienced, with as much information as possible to ease the burden. We’ve already looked at ECN brokers as well as STP brokers, so now it’s time to concentrate our attention on DMA/STP Forex brokers.

DMA – What does it mean?

The initials DMA stand for Direct Market Access, and if you choose this type of Forex broker you will be able to trade directly with market makers or Forex banks. This way of trading gives traders the opportunity to benefit from the best possible currency prices at any given time, all without having to go through a dealing desk.

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The best way to show you how this type of trading works is to show you how prices are obtained in the market, how your orders are processed, and how they will appear on a trading platform as a position.

How Direct Market Access works

In the Forex world, prices appear on a trading platform. These prices are streamed directly onto the platform of Forex brokers, and are provided by liquidity providers. These liquidity providers are generally major banks. Clients of the brokers are able to see the prices along with the market depth. When a trader places an order it is filled by one of the liquidity providers at the best possible price. A DMA Forex broker will usually add a small markup. When the order is fulfilled by the liquidity provider, after hitting their server it is now known as having been executed. As you know, the prices on the market can change very quickly, which means that the execution price may not be visible as soon as the order has been filled. There are also a number of other factors that will influence the display price once it has been executed, such as the speed of an Internet connection and variable spreads.

What does a DMA broker offer that is different?

The trading environment a DMA Forex broker offers is anonymous, which allows traders to deal on neutral prices. They also have equal access to the order book, and are able to see the true market depth.

DMA Forex brokers provide prices that are based on variable spreads. These spreads reflect demand and supply, as well as market volume and volatility. They also account for the fact there are no requotes, as there may be on a fixed-spread platform.

A DMA Forex broker is not troubled with the stigma of a conflict of interest, as a market maker would be, as there is no dealing desk and no counterparty trading. Trades are made regardless of account size or trade volume.

DMA, ECN, and STP – They all sound the same.

You’re probably thinking that the three types of broker we’ve been covering all sound the same; yet while they may be very similar there are some very subtle differences. We’ll try and explain what these are, but would first like to mention that all ECN brokers offer DMA trading, but this is not the case for all STP brokers.

You will encounter DMA/ECN Forex brokers and DMA/STP Forex brokers, but there will be a difference in terms of fees, execution, deposit requirements and spreads. A DMA/ECN Forex broker will be cheaper in terms of cost than a DMA/STP Forex broker, because they don’t charge a commission. The DMA/STP broker makes its profit by adding a small markup to the liquidity provider’s price. You may also find a DMA Forex broker charging a monthly fee, or a penalty if certain trade volumes aren’t met.

Are there any advantages to using a DMA Forex broker?

Well, actually there are a few; and there are also a few disadvantages, but we’ll come to them in a minute.

The advantages:

  • All traders are treated equally, regardless of the way in which they trade. Even scalpers are welcomed openly.
  • A DMA Forex broker never has requotes.
  • A DMA Forex broker does not suffer from a conflict of interest. They are always on the side of the trader.
  • Variable spreads are offered, but generally, these fall within a certain band.

The disadvantages:

  • Traders could incur a penalty if they are not trading enough, or if their account is inactive.
  • Generally, minimum deposits are on the large side.
  • DMA Forex brokers tend to offer fixed spreads, which don’t suit everyone.

DMA/STP or STP broker – What is the difference?

A DMA/STP broker passes its client’s orders directly to the liquidity providers, and these are then filled at the best possible price. There will also be a small markup that the broker adds as their profit. This type of order dealing is known as market execution. In other words, every order is filled at the best possible market price.

A pure STP Forex broker fills its own clients’ orders and then hedges the orders with their own liquidity providers. In this way, they try to make a profit. Unfortunately, this also means that a trader could experience a requote if the broker is unable to make a profit when the request is submitted.

If all this information is proving to be confusing, let’s finish up by giving you the advantages of using a DMA/STP Forex broker, to try and help you decide.

The benefits of using DMA/STP Forex brokers

The main advantage is that DMA/STP brokers provide direct access to the best possible bid and ask prices. However, there are a number of other benefits worth mentioning:

  • Fixed spreads are never offered, as prices are constantly changing.
  • The number of liquidity providers is larger.
  • There are never any requotes.
  • Execution of orders always happens using market execution.
  • Traders are able to see quotes from different providers, because they are offered a depth-of-market book.
  • DMA/STP Forex brokers welcome all kinds of traders, from beginners to more experienced traders, as well as scalpers, swing and position traders.
  • There is complete transparency with a DMA/STP FX broker.

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