The Market Maker Model and Its Conflict of Interest
A market maker platform acts as the counterparty to your trades — it takes the other side of your position. When you buy, the platform effectively sells to you from its own book; when you lose, the platform gains. This creates a structural conflict of interest that regulators acknowledge but permit, provided it is disclosed. The practical implication is that a market maker has a financial incentive to widen spreads at moments of volatility, requote prices when your target is about to be reached, and structure its fee model to capture value from losing positions. This does not mean every market maker acts on these incentives — many operate responsibly — but it means you should check the platform's execution policy document for explicit statements about how conflicts of interest are managed.
Straight-Through Processing: Partial Resolution
Straight-through processing platforms route your order directly to a liquidity provider — a bank or institutional market maker — without taking the other side themselves. This removes the direct conflict of interest on individual trades. However, STP platforms still earn their revenue from the spread, which may include a mark-up added to the liquidity provider's raw spread. The quality of execution — how close your fill price is to the price you saw when you placed the order — depends on the quality and number of the platform's liquidity providers and on its own technology infrastructure. An STP platform with a single liquidity provider may produce worse execution in volatile conditions than a well-run market maker with sophisticated internalisation tools.
ECN Execution and What It Means in Practice
An electronic communications network platform aggregates prices from multiple liquidity providers and routes each order to the best available price at the time of submission. This model offers the tightest spreads in normal conditions, and because the platform charges a fixed commission rather than embedding a spread mark-up, the conflict of interest is structurally minimised. The practical trade-off is that commission costs are explicit rather than embedded, which can make a cost comparison with spread-based platforms feel less intuitive. For high-frequency or high-volume traders, ECN execution typically reduces total cost over time. For low-frequency traders making larger individual positions, the commission structure may or may not be more economical than a spread-based model — the answer depends on the specific commission rate and the specific spread, calculated for your actual position size and holding period.