Key takeaways
- Market makers deal on own account; STP brokers pass orders on.
- Market-maker permissions need more capital and a risk function.
- Hybrid models need the wider (market-maker) permission.
- Be precise in the application; regulators check the model against reality.
The difference
A market maker takes the other side of client trades and manages the resulting risk. An STP/agency broker routes orders to liquidity providers and earns spreads or commissions. Most retail brokers run a hybrid model, which requires the market-maker permission.
What it changes
| Market maker | STP/agency | |
|---|---|---|
| Permission | Dealing on own account | Reception and transmission / agency dealing |
| Capital | Highest category | Lower category |
| Risk management | Dedicated function | Lighter |
| Conflicts of interest | Must be managed and disclosed | Fewer |