Heather McLean
Heather McLean

Assisting FX brokers to deploy the DMA/ECN/STP risk model

Life for FX brokers is being revolutionised. Direct Market Access (DMA), Electronic Communications Networks (ECN), and Straight Through Processing (STP) are now having a major impact on brokerage operations and becoming the number one choice for increasing numbers of firms operating in the Retail FX market. As Heather McLean discovers, brokers need no longer be exposed to the same high levels of risk that being a market maker involved and profits are able to be increased as blood pressure decreases in this exciting electronic world.

First Published: e-Forex Magazine 49 / Retail e-FX Provider / October, 2012

Looking at the relative merits of the new DMA, ECN and STP brokerage model versus the traditional way that most brokers have managed risk - internally as a market maker - Graeme Watkins, head of new business development EMEA and Asia at oneZero Financial’s brand new London office, observes that the DMA, ECN and STP models allow a brokerage to smooth their income streams to a consistent, predictable level, since there is a guaranteed profit for each executed trade.  “Lately there has been a growing interest in releasing equity from brokerages, and this is much more likely to be possible in brokerages with consistent earnings and limited downside risks,” Watkins comments. “The DMA, ECN and STP model also releases a brokerage from the need to support a dealing desk, which can be expensive, and it furthermore reduces the regulatory requirements a firm will face.” Tom Higgins, CEO at Gold-i, says that traditional market making, also referred to as flow internalisation,...continued

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