An ECN label does not answer who is the counterparty to your CFD. Separate the client contract, the firm’s handling of exposure and the tariff. A narrow spread with commission does not prove agency execution, while being a market maker does not prove misconduct. Read the product-specific documents and compare actual prices and charges.

How does a market maker fill your order?

A market maker quotes buy and sell prices and stands ready to trade on specified terms; the process can be automated. In a principal CFD relationship, the firm takes the other side of your trade. A hypothetical client long EUR 100,000 exposure leaves the firm short that exposure before any hedge. A manual dealing desk is not necessary, and the client contract is distinct from the firm’s external transactions.

A broker may hedge client exposure externally, retain it or combine both approaches under its execution and risk policy. A hedge can reduce directional exposure but does not make its own result independent of the client contract: fill differences, timing, costs and residual risk remain.

With an unhedged client contract, a client gain is a liability for the firm and a client loss can improve that contract’s result. The firm’s aggregate result also depends on other positions, hedges, prices and costs. The proportion of losing retail accounts does not identify its hedge book or prove its profitability. Internalisation can match offsetting flows before the firm hedges residual exposure.

How does ECN differ from a market maker mechanically?

An ECN is an electronic matching network; STP describes processing or routing. Retail account labels do not establish the legal counterparty or prove agency execution. Read the actual execution policy to identify whether the firm acts as principal, agent or both, and check its current commission basis and minimums.

An agency fee may be independent of the client’s directional result, but an ECN label alone does not prove this revenue model or eliminate all conflicts. Check the legal role, hedging policy and charges. External routing can still involve rejection, partial fills or slippage; it does not guarantee execution.

A hedge matches size, not the execution price

Two positions can offset market direction while leaving a cost caused by different entry prices.

Scroll sideways to see the full diagram

A hedge matches size, not the execution priceIn this hypothetical model, the client buys 100,000 EUR of exposure at 1.1000 and the broker hedges at 1.1002. Both close at 1.1010. The client gains 100 USD and the external hedge gains 80 USD; the broker's combined result is −20 USD before costs.Two contracts of 100,000 EUR eachBoth close at 1.1010 in this modelClient contractBuy: 1.1000Client +100 USDBroker hedgeBuy: 1.1002Hedge +80 USDBroker's result across both contracts−100 + 80 = −20 USDSame hedged size; different fill prices.
Assumptions: hypothetical CFD and external hedge with equal notionals; no subsequent size change, commissions or funding. The specified prices are execution prices, so no separate spread is added. This models a price difference, not any firm's financial results. IC Markets EU's policy, section 4 distinguishes being a CFD counterparty from hedging exposure; it does not guarantee identical prices for both contracts.
Equal hedge notionals do not remove the difference between the two contracts' fill prices.

Where does the conflict of interest really arise?

Conflicts need assessment in every model: retained market exposure, turnover-based remuneration and routing incentives can differ. Oversight and disclosures are relevant, but do not prove that misconduct is economically impossible or that a conflict has disappeared.

  • Check the applicable duties. EU MiFID II provides best-execution and policy requirements for covered services. Other jurisdictions need their own rules. A stated duty does not establish that the firm complied on a particular trade.
  • Investigate the firm’s actual controls. Identify its supervisor, contract and explanation of rejection or price differences. Residence in another jurisdiction does not by itself establish no oversight or manipulation. The guide to how stop-hunt mechanics work distinguishes a price event from evidence of misconduct.
  • A provider using external routing — verify its contractual role and conflicts disclosures. An ECN label does not remove every incentive conflict or execution risk.

Much FX trading is over-the-counter (OTC), without one central exchange price for every participant. For an OTC CFD, inspect how the provider constructs its bid and ask from the relevant references. A difference between two charts alone is not proof of abuse; product definitions, quote side and timing must be comparable.

Which model is cheaper for your trading style?

The following hypothetical tariff comparison uses one EUR/USD round trip of 100,000 EUR on a USD account, with one pip of 0.0001 worth USD 10. Assume each spread is unchanged between entry and exit, no midpoint movement, funding or slippage. Account A quotes 1.2 pips without commission; Account B quotes 0.2 pips plus USD 7 round-turn commission. These prices do not identify either account’s legal execution model.

Cost of one round-trip 1-lot EUR/USD trade (hypothetical example)
Account A — spread 1.2 pips12 USD
Account B — spread 0.2 pips2 USD
Account B — commission per round trip7 USD
Account B — total cost (spread plus commission)9 USD
Difference on a single round trip3 USD in favour of Account B

Account A costs USD 12 and Account B costs USD 9 under these assumptions. The break-even spread for A is 0.2 + 7/10 = 0.9 pips: equality gives USD 9 each. One hundred comparable round trips at unchanged size and rates produce a hypothetical USD 300 difference. This is accumulated cost, not observed investment performance. Smaller size scales both costs only if the commission has no minimum or different rounding rule.

Under linear rates, fewer trades do not make Account A cheaper; they simply reduce the total dollar difference. Minimum commissions, funding, varying spreads and execution can change a comparison. Use the actual instrument, size, time and holding period. The guide on how a broker’s spread affects scalping connects the cost model with those checks.

What actually matters for you?

Some retail brokers combine internal risk handling and external hedging. The mix and decision criteria vary; client profitability and position size alone do not establish how a particular order is handled. Read the contracted entity’s policy and compare measured costs and fills.

Compare costs for the actual contract, including any conversion and funding, and reconcile the embedded spread once. Assess execution quality using requested and actual prices, fills, rejections and comparable periods. Verify transparency through the firm, permissions, role and complaints procedure. See choosing between a wider spread and spread plus commission, order execution time and the choosing-a-broker section.

What to do before you pick a broker

  1. Read the relevant documents. Identify principal or agency status for the product, execution venues, fees and conflicts. EU MiFID II requires appropriate policy information for covered services; confirm the applicable rules elsewhere.
  2. Compare actual tariffs and conditions. Calculate both sides, minimums, funding and conversion for your size and holding period. A pricing comparison alone cannot establish the legal model or live quality.
  3. Verify entity and permissions. Check the supervisor and authorised service. A public policy may describe how risk is managed without disclosing the precise current hedge book.
  4. Analyse comparable executions. Preserve order IDs, quote references, sizes and every fill or rejection. A few trades around news cannot certify honesty; use existing records and ask for explanations of documented discrepancies.