We talk about different types of brokers. We often simplify things and talk about things like, ECN, STP, PAMM, DMA, market maker, and treat them as distinct and separate types of brokers. In practice the landscape is messier: some firms combine models, product offerings change with regulations, and the consequences for execution, costs and counterparty risk vary in ways that matter. This article explains each model, what it means for price discovery and order execution, the typical costs and conflicts of interest, who each model suits, and practical checks you can run to verify a broker’s claims.
ECN brokers
An ECN broker offers access to an electronic network of liquidity providers: banks, nonbank liquidity providers, and other market participants. Prices you see on an ECN reflect executable orders from those participants rather than a single dealer’s proprietary quotes. That tends to produce variable spreads that tighten during liquid hours and widen when liquidity thins, and the broker usually charges a explicit commission per lot instead of embedding margins in the spread. For active traders the attraction is price transparency and the chance to trade against multiple counterparties; for algorithms and scalpers ECN execution often delivers better depth and less hidden slippage than many other models.
ECN execution is not magic: fees matter, and the total round trip cost is spread plus commission. During volatile moments an ECN can still produce slippage and partial fills because liquidity providers withdraw or update quotes, and smaller retail orders may not always find the best-priced block if the depth is thin. Some brokers advertise ECN but aggregate liquidity through a small set of providers, which reduces the theoretical benefit. The right use case for a true ECN broker is an experienced trader who values raw execution, measurable transaction costs and who is prepared to pay commission for that transparency.
STP brokers
STP stands for straight through processing and describes a routing workflow rather than a market structure. An STP broker forwards client orders electronically to one or more liquidity providers without dealing desk intervention. Unlike a pure ECN the pricing may be sourced from fewer counterparties and the broker sometimes applies a markup to the spread instead of, or in addition to, charging commission. STP tends to offer a middle ground: better execution than a dealing desk for many retail traders, simpler pricing than ECN, and often lower visible commissions.
Because STP brokers earn from spread markups some conflicts remain: if the broker both routes orders and benefits directly from wider spreads there is an incentive tension. That is mitigated where brokers publish execution statistics, disclose liquidity partners, or offer accounts that show direct commissions and lower spreads. For traders who want good execution without the explicit commission accounting of ECN, STP accounts are common and often sensible — especially for those who trade manually or with modest automation.
DMA (direct market access)
Direct market access means client orders are routed directly to the underlying exchange order books or venues with minimal intermediary intervention. DMA is typical for institutional desks, professional traders and some high end retail services that provide access to central limit order books. The key difference from ECN and STP is the level of transparency and priority: DMA participants can see and interact with the exchange order book, post limit orders, and benefit from exchange-level matching and clearing. Costs are typically explicit exchange, clearing and connectivity fees; spreads are those produced on the venue rather than a broker’s intermediation.
DMA is best for traders who require best-in-class execution, for strategies that rely on order book dynamics and for those who can absorb technical and billing complexity — typically institutions or high frequency operators. For most retail traders DMA is overkill both operationally and cost wise. Where it matters is in latency-sensitive strategies, and when regulatory or clearing arrangements require exchange-level settlement.
PAMM — percentage allocation money management
PAMM is not an execution model but an account management framework used by investors who want to allocate funds to professional managers. Under PAMM a manager trades a master account and profits or losses are allocated to investor sub-accounts pro rata to their capital contribution. Commissions, performance fees and management fees are typically part of the arrangement. For a retail investor PAMM offers convenience and the chance to access skilled traders’ returns without doing the trading oneself; for managers it provides an operational mechanism to manage pooled capital within a broker’s infrastructure.
Risks with PAMM include manager under-performance, concentration risk, and operational risk tied to the broker’s reconciliation and allocation systems. Regulatory treatment varies: in some jurisdictions PAMM-like services attract investment fund regulation, in others they sit in a broker’s permissible product set. Investors should evaluate manager track record, fee alignment, liquidity rules for deposits and withdrawals, and the broker’s segregation and audit practices. PAMM suits investors who prioritise delegated management and are comfortable with limited liquidity and third party performance risk.
Dealer desk / market maker brokers
Dealer desk brokers internalise client orders and act as the counterparty to client trades rather than routing them externally. This allows the broker full control over their product and allow them to offer fixed spreads, quick execution times, and services that can be hard to provide by other broker types such as micro account and very low minimal deposits. The problem with dealer desk brokers is the same thing that gives them freedom to offer a lot of different services, the fact that they act as counterparty to client trades, this can place the broker in a conflict of interest with the trader as the broker earn money when the trader loses money.
Not all market makers are problematic; reputable firms manage exposure by hedging aggregated client flows in external markets or by matching offsetting client positions internally. Problems arise when brokers refuse withdrawals, manipulate prices, use excessive slippage or rely on opaque bonus structures to lock capital in. Market makers often suit beginners who want predictable costs and stable spreads, but more sophisticated clients should verify the broker’s hedging policy, order execution audits and whether the firm publishes order execution reports or lets clients trade through segregated accounts.
Hybrid and agency models
Many brokers operate hybrids that blend these approaches. A broker might offer ECN accounts for high volume clients, STP accounts for retail customers, a PAMM platform for investors, DMA access for institutional clients and market maker execution for micro accounts. Hybrids are pragmatic: they let brokers serve a broader client base while optimising revenue. For traders the onus is on reading account level disclosures. The label a broker uses in marketing may not reflect the account type you will receive; always confirm the execution policy, fees and liquidity model for the specific account you open.
Execution quality, transparency and conflicts of interest
Across all models the same three practical questions determine whether execution will meet expectations. What is the source of liquidity and how deep is it at marketable prices? How are fees presented — as commission, spread markup, or both — and what is the total round trip cost? How does the broker manage conflicts: do they internalise risk, hedge externally, or publish independent execution statistics? Answers to these questions are more useful than the brand label of ECN or STP. For example a broker touting ECN access but sourcing liquidity from a single small provider may underperform a well capitalised STP firm that aggregates multiple top tier banks.
Testing execution empirically is straightforward and revealing. Use small live trades at different times of day and during varying market conditions. Track the difference between quoted spread and actual fill, measure slippage, note partial fills and requotes, and time withdrawal processing if funding is relevant to your strategy. Request the broker’s execution policy and any published execution quality reports. If a broker resists providing details, that reticence itself is a useful signal.
Costs and pricing structures
Costs hide in three places: the visible spread, explicit commissions and the invisible cost of slippage or requotes. ECN models make commission explicit, STP models often hide margin in spreads, DMA shows venue fees, and dealer desks can offer fixed spreads but rely on internalisation and occasional re-pricing during stress. Compare total cost per trade rather than headline spreads. For active strategies that execute many small trades the per-lot commission and average slippage will dominate economics; for directional longer term trades spreads and overnight financing matter more.
Consider also clearing and settlement arrangements where relevant. DMA and institutional accounts often involve separate clearing fees and margin requirements. PAMM arrangements embed performance fees that alter net returns. Market makers may offer perks that look attractive but only after you factor in how positions are managed over time.
Suitability and recommended matching
If you are an algorithmic trader or run latency sensitive strategies, prefer ECN or DMA with clear connectivity options and measurable latency. If you are a manual retail trader seeking relatively simple execution with fewer explicit commissions, STP often fits. If you want to delegate trading to a manager and accept third party risk, PAMM offers a packaged solution — just validate the manager and broker operations. If you prefer predictable fixed spreads and a simple user experience, a market maker account can be fine, but verify the broker’s reputation and hedging practices. Finally, if you operate at institutional scale or require exchange level matching, DMA is the right fit.