Wondering what an STP forex broker is. In this guide, we will discuss all about the STP brokers and how they differentiate from market makers and ECN.
What is an STP broker?
STP (Straight Through Processing) is a forex trading model in which client orders are sent to the market without going through a dealing desk. STP forex brokers pledge to provide a straightforward trading platform free of conflicts of interest for their clients. s
STP brokers are similar to ECN brokers in that all client positions are sent directly to the market through liquidity providers like banks. We’ll mention difference between STP and ECN brokers later in details. An example of STP Forex broker is FXCC which has a true STP Execution.
Difference between STP and market makers
Market maker brokers are dealing desk firms that take client orders and then pass them on to other clients or take the other side of the trade.
Traders are not linked to a global liquidity pool or an interbank exchange by market makers or dealing desk brokers. As a result, all orders are distributed among clients, and the broker can fill or reject orders from their clients based on market liquidity.
STP is implemented using a bridge that links a trader’s terminal to a liquidity provider or an interbank. Smaller brokers use STP bridges to link their traders to larger brokers, who can either choose to connect the trader directly to the market or absorb the trades internally.
Furthermore, since they typically do not have a conflict of interest with their customers, STP forex brokers are more transparent in their offerings.
All client orders are sent directly to the liquidity supplier, and the markets typically absorb the order without the need for a broker’s involvement. STP brokers profit from the spreads paid on each deal, which is advantageous to all parties in terms of fair and honest trading.
Difference between STP and ECN
STP and ECN share many similarities, but some traders prefer STP in its purest form because ECN accounts usually charge a fee per transaction. Many institutional traders open ECN accounts to benefit from tighter spreads in exchange for a fee per transaction depending on the number of traded lots.
Scalpers are also known to trade under ECN conditions in order to get in and out of the markets as quickly as possible while also benefiting from tighter spreads and improved market execution.
On the other hand, some retail traders are more comfortable with higher STP spreads than with paying for each trade’s commission. As a result, if commission-free trading is essential to you, STP accounts may be preferable to ECN accounts.
Advantages of STP forex brokers
- Orders are handled instantly
- Currency rates are precise
- Orders are immediately executed
- Quotes can be avoided on STP platforms
- STP broker clients are never permitted to lose their trades
- The risks involved are smaller than with other types of brokers
- Clients are given live market movements
Whether you select an STP, market maker, or an ECN broker, always choose a forex broker administered by a reliable regulatory authority and has a strong reputation in the market.