Last update: 4 April 2020
6 min read

Complete Guide to DMA/STP Forex Brokers

There are so many different options for new Forex traders. It can be rather confusing if you don’t understand what it all means. So we’ll spend a while looking at DMA/STP Forex brokers, and give you enough information to decide whether this will be one option for you.

What is DMA, with regards the Forex market?

DMA, stands for Direct Market Access. And this is one type of broker you can choose to use for your trading transactions. With DMA Forex brokers, clients can trade directly with leading Forex Banks or Market Makers. Trading in this way offers the opportunity to receive the best possible price in the market at a specified time, without having to use a dealing desk.

In order to fully understand what DMA means it’s best to look at the way in which pricing is obtained in the market. And how your order will be processed and eventually show up on the platform as a trade position.

How DMA works

dmaThe first step of the process is for the price to appear on the platform. There are a number of banks, also known as liquidity providers, that stream their prices directly into the platform of various DMA Forex brokers. Traders can see these prices as well as the available market depth. Orders are filled with one of the liquidity providers, at the best price possible. However, there is often a small mark-up on the side of the DMA Forex broker. When the order hits the liquidity provider’s servers it is fulfilled. This is called market execution. Obviously prices can change very quickly in the market, so the execution price may not necessarily be visible once the order has been filled. Variable spreads and the speed of the internet connection are also factors that can influence what price is displayed, after the trade has been executed.

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What a DMA Forex broker offers

  • An anonymous trading environment, enabling traders to deal on neutral prices, with equal access to the order book, and a view of true market depth.
  • Pricing that is based on variable spreads, which reflects demand and supply along with volatility and market volume. This also means there are no re-quotes, which can often be the case with a fixed spread platform.
  • With a DMA Forex broker, there are no conflicts of interest, as there is no dealing desk or counterparty trading. Trading is also done independently of account size or volume of trades.

DMA, ECN, STP – Are these all the same?

After reading our description of DMA Forex brokers, you may be thinking they offer the same model as ECN or STP brokers. There are actually a few differences, although they are rather subtle. We should also point out that all ECN brokers offer DMA, but this isn’t the same for all STP brokers.

There are also differences between a DMA/STP Forex broker and a DMA/ECN Forex broker. These differences are apparent in terms of spreads, fees, executions, and deposit requirements.

DMA/ECN Forex brokers have a cheaper fee structure than DMA/STP Forex brokers, because no commission is charged. Instead the broker makes money by marking up liquidity provider prices. A DMA Forex broker may sometimes charge a monthly fee, or a sort of penalty if traders don’t meet a certain trade volume in a monthly cycle.

The pros and cons of using a DMA Forex Broker

There are quite a few advantages of using a DMA Forex broker:

  • Whatever type of trader you might be, there is no discrimination. Even scalpers are welcomed with open arms.
  • No re-quotes ever.
  • A DMA Forex broker will always work for you. There is no conflict of interest.
  • Spreads can vary, but only within a specific band.

Now for the disadvantages:

  • Penalties can sometimes be levied if you do not trade often enough or for account inactivity.
  • Deposit requirements could be considered pretty steep.
  • If you prefer fixed spreads then a DMA Forex broker isn’t for you.

The differences between DMA/STP Forex brokers and STP brokers

A regular STP (Straight Through Processing) broker fills clients’ orders and then hedges the orders with their own liquidity providers. An STP broker will try and make a profit from this hedging operation, which means a trader could experience a re-quote if there is no profit to be made by the broker, at the time the request was submitted.

With a DMA/STP broker, a client’s order is passed directly to the liquidity providers, and will be filled at the best possible price, plus a small mark-up for the broker. This way of dealing with orders, is called Market execution. And ensures all orders are filled at the best possible rate clicked on.

The advantages of DMA/STP Forex brokers

A DMA/STP Forex broker offers direct access to the best bid/ask prices. When compared with a regular STP broker, there are a number of advantages:

  • A greater number of liquidity providers
  • There are never any fixed spreads, because prices are constantly changing
  • Orders are always executed using Market execution
  • No re-quotes
  • A depth of market book is offered, allowing traders to see all quotes from different liquidity providers
  • All types of trader are welcome – including scalpers, newbies, regular traders, position and swing traders
  • Complete transparency

One last snippet of information for those of you who may be confused about market and instant execution.

The differences between instant and market execution

Market execution – This is a transparent way of executing orders. Orders go to the market and are then filled based on available quotes from liquidity providers. DMA and STP brokers add a small mark-up which is their profit.

Instant execution – This is a far less transparent way of executing orders. They don’t go to the market, and are instead filled by the broker. The broker then decides whether they want to offset their own risk, or not, with their liquidity providers. Regular STP Forex brokers sometimes fill clients’ orders using instant execution, and then hedge these orders with liquidity providers, in order to make a profit. If they feel the profits aren’t enough when traders submit an order, it could be that they experience a re-quote.

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