What is the difference between a DD and a MM broker?

Beginner Questions
1

Hello, I’m actually with a ECN broker because (As far as i’m concern) these kind of broker are the most trustable ones.
But ECN broker like ICmarkets or Pepperstone are not regulated by NFA or CFTC but FXCM is.
The thing is that FXCM is a which is a DD broker (if you have the account with the minimun amount of money) and then if you have the normal size account it transforms into a NDD

but

What is the difference between a DD and a MM?
Are they the same structure?
What is a NDD?
Which bibliography (professional books or academic ones) can i use to read about these types of brokers?

2

It’s literally one of the first lessons in the school.

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3

Yes it is, but whether it really means anything on micro accounts and for retail generally, is a subject which is often discussed.

Whether it even matters whether you are gambling with “the market” or with a “Bookmaker” is also debateable at our level.

Personally, as long as the “Broker” you use is large, reputable and regulated in the top tier of counter-parties, I don’t really care.

It matters hugely which “broker” you use, in that your deposits need to be safe and withdrawable at YOUR discretion and that there are no “unexplained” withdrawal issues and “lost accounts” - which many do have. There are complaints on here every week against certain “brokers” who are accused of “stealing” punters’ money. Keep your eyes and ears open and do “Due diligence” before putting hard earned cash into some random money transfer to someone you don’t know.

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4

DD broker or MM broker or NDD, all these are the very basic things of forex trading and in Baby pips school these things are given in the first lesson to newbies. Basically whatever broker you select for your trading the most important thing is the security of your funds and the deposit and withdrawal issue. Weather your broker regulated or not or ECN broker first check the security of your funds and if there any hidden issues while deposit and especially withdrawing.

5

mm = market maker
dd = dealing desk

its pretty much the same just different names like car and automobile

6

These 2 lessons should answer your questions.

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7

I see they are giving them new names.

All brokers are market makers, no matter what they say. They all profit from margin losses. That’s the real money. Do you think the small trades that people do are enough to generate the profitability in this market for brokers?

So forget the DD, MM, ECN, DMA, STP and any other abbreviation and realise you trade against the broker. It doesn’t make much difference to the broker as everything is looked at from a global P and L, that is net client losses = net profits. Just go with a broker that will definitely payout winnings. This will be dependent on number of clients the broker has. The average calculation is, if the broker has £10m in deposits in 3 months, then 70% of that will get booked, a cool £7m by year end minus withdrawals and £3m will remain in flow or paid out, that’s why new blood is always needed.

Hope this helped.

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8

Your whole post is wrong on so many levels that I haven’t the words to describe it.

Let me try to explain.

Wrong. DD/MM is what you’ve described below - [quote=“emeraldorc, post:7, topic:145234”]
net client losses = net profits …
This will be dependent on number of clients the broker has. The average calculation is, if the broker has £10m in deposits in 3 months, then 70% of that will get booked, a cool £7m by year end minus withdrawals and £3m will remain in flow or paid out, that’s why new blood is always needed.
[/quote]

A DMA/STP/ECN broker will only profit from the fees on transactions/orders. For a DMA/STP broker it’s irrelevant if the traders is successful or not in terms of getting paid.
It does matter, however, if the broker wants to get paid on a regular basis (for a longer period of time). For a broker that profits of the amount of trades a trader makes it’s better to have successful ones with him, because this means that when they are successful they will trade longer = more fees on transactions.

While a DD/MM broker will lose when the trader is successful and vice versa. That is why some DD/MM brokers will manipulate the prices/spreads in order to make traders lose which is a profit for the broker.

The difference in DD/MM and DMA/STP/ECN brokers is that the first can/will profit XXX from a single failure of a trader and the second will only profit a X% on the amount of the order.
Examples:
DD/MM => you open a position for 1000$ - stop loss closes it at 900$ -> broker wins 100$
DMA/STP/ECN => you open a position for 1000$ - broker gets (for example) 1% of the order from both sides (10$x2) regardless of your loss or success.
Guess which type of broker has more intrest to successful traders as clients. (and will do his best to provide best trading conditions, execution speeds, etc. because this means more traders will come and [possibly] be succesful.)

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9

Hi @kurahell,

Not to pick on you personally (in fact, we posted a similar response to someone else on this forum recently), but your comments reveal some misconceptions about the forex market we would like to address.

It’s important to understand that if a particular retail forex broker tells you they are not a market maker themselves, that only means they must offset your trades with another firm that is a market maker. That’s because market makers perform a vital service, not only in forex, but in many financial markets, including major stock and futures exchanges.

Consider what the world’s largest stock exchange says about how their market model works:

The cornerstone of the NYSE market model is the Designated Market Maker (DMM). DMMs have obligations to maintain fair and orderly markets for their assigned securities. They operate both manually and electronically to facilitate price discovery during market opens, closes and during periods of trading imbalances or instability. This high touch approach is crucial for offering the best prices, dampening volatility, adding liquidity and enhancing value.

DMMs apply their market experience and judgment of dynamic trading conditions, macroeconomic news and industry-specific intelligence, to inform their decisions. A valuable resource for our listed company community, DMMs offer insights, while making capital commitments, maintaining market integrity, and supporting price discovery.

In the following post, we discuss the three methods retail forex brokers can use to offset your trades in greater detail: Who is the counterparty in an exchange?

Full disclosure: FOREX.com is a market maker, but that’s not why we defend this model. (In fact, for institutional traders, our parent company, GAIN Capital, offers ECN solutions through the GTX marketplace.) Rather, we are a market maker for retail forex traders, because we believe market making is the best way to provide our retail clients with reliable pricing at retail trade sizes while effectively managing our own risk. We are fully accountable for every execution and don’t outsource that responsibility to a third party. It’s not our intention to make this discussion about ourselves, but we wanted to address the misconceptions some people have about market makers and the vital role they play in financial markets whether you trade forex, stocks or commodities.

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10

@FOREX.com,do you mind explaining how your market maker operations for retail forex differ from forex CFDs?

11

Hi @TradingPanda,

Please clarify what you mean by “forex CFDs”.

FOREX.com uses the term CFD (contract for difference) for the non-forex products we offer*

  • indices (S&P 500 and DAX)
  • shares (Apple and Amazon)
  • commodities (Oil and Gold**)
  • cryptocurrencies (Bitcoin and Ethereum)

*CFDs are not available to US residents.
**Unleveraged spot Gold and Silver contracts are available to US residents and are not subject to regulation under the US Commodity Exchange Act.

12

Other broker use the CFD term for forex…“offering forex CFDs”.

I was just wondering the actual operations are one and the same whethe retail FX brokers use “spot forex” or “forex.CFDs”?

Like is the difference simply just marketing terms?

13

Hi @TradingPanda,

Whether a particular retail broker chooses to call them forex CFDs or spot forex, they would still have to manage their risk in one of the three ways mentioned here: Who is the counterparty in an exchange?

14

Your explanation why @emeraldorc is wrong is unsubstantiated. In fact it is totally misguided.

Regardless of the capital letters your broker claims to have, fact is for those of us here, our regular bucket shop broker is the counter party to our trades and profits directly from our losses. They also lose from our wins. How they manage their risk we’ll never know, thats their business. Does not mean they are bad. One just has to be diligent and research the broker first.

Their are many out there that have “superior” knowledge/experience to our own. @emeraldorc is such an individual.

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15

My statement is made out of experience. You know, as a person who’s been employed and trained by a brokerage in the past.
It’s exactly that “inferior” experience with the inner-workings of the brokerage services that allows me to make that statement. Whether you choose to ignore, minimize or disregard it as misguided is up to you.
Don`t know about AU and USA but in EU (a sizeable part of it) in order to profit from the trader’s loses a broker has to be certified as a dealing desk and that certification costs close to an arm and a leg.
It’s also a choice for the broker to get AND use it or not.
Before having such certification a brokerage service is limited ONLY to be a hub/node (or STP service provider, if you will) to the market.

16

I do agree with that – in the end of the chain there is ALWAYS a market maker who “creates” (makes) what is needed on the market. IMO essential by choosing a NDD/STP broker is the part that it passes the trades anonymously to the market (maker) and with no SL, TP and entry levels visible and don’t care that much if the trades win or lose, e.g. there is no conflict of interest between broker and client. As for the managing of risk of the Market Maker I really have no idea too.

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17

I know only a few people whom work for brokers. They are very good marketers but know not how to trade nor the business model. What broker and in what position. I make thinks from milk but I’ve disclosed this before.

Again there are very few of us here that would have an account size large enough for DMA. In the mean time the retail brokers know how impressed we are with or these letters and loosely use them as a marketing technique. They determine which book we are on. They are the ones that issue the contract and our risk lies solely with them. There is no third party our “orders” are being passed straight on to.

18

This is true. A lot of brokers market themselves as DMA/STP and whilst they are able to provide the service they would actually act as a DD (provided they are certified for it).
However, the legit ones can and will provide you with a post trade transparency report. It’s a part of the MiFiD II regulation and all brokers in the EU (or should I say regulated by an EU regulator) are obliged to provide such a report upon customer request.
They tend to avoid marketing that feature tho (sarcasticly don’t know why that is).
In that report you can see the order execution times on each step of the process, bridges, pool, servers etc.

P.S I’d rather not advertise my past employments.