They take the opposite side of the trade. Dm forex desk brokers are able to profile their clients.
They divide clients into groups systematically with algorithm. Automation for losing clients: Broker automatically take the other side. Losing trades of clients are counter-traded and become brokers’ profit. More losing traders means more profit for the broker. Automation for winning clients: Broker automatically take the other side and then hedge the position in the real market that they have access to. This is also done automatically through algorithm.
Makes money through spreads and when a client loses a trade. Traders can’t see the real market quotes. Transparency of dealing desk brokers differ depending on their own company rules. Providing access to the interbank market without dealing desk.
No re-quotes and no additional pausing when confirming orders. Clients’ orders are executed automatically, immediately and anonymously. There is no dealing desk watching you orders. Because all Participants or liquidity providers compete for prices in a real market. They take the opposite side of your position, and looking to make money by closing this position later in a trade with another party. More LPs usually means more depth in the liquidty pool,thus better spreads. Maintenance costs is lower, but the broker become completely dependent on the one LP.
Most STP Brokers has a predetermined number of liquidity providers. ECN brokers have a large number of liquidity providers. They add small mark-ups on the best bid and ask rates they get from LPs. For example, adding a pip to the best bid price or subtracting a 0.