Trades with an STP forex broker without the need for a dealing desk
Some of you reading this will be wondering what an STP Broker is. STP stands for Straight Through Processing, and this means that STP Forex broker sales orders are sent directly to liquidity providers such as banks or major brokers without having to go through a dealing desk. There are a number of activities associated with this type of platform, including no unnecessary delays in orders and no requotes.
Another big advantage of using STP Forex brokers is that an STP broker only makes money by adding a small commission or marking the spread. Unlike standard brokers, who derive a profit from their client’s losses, an STP broker gets the same rating regardless of whether the customer wins or loses. This also means that there is no conflict of interest, which will only be positive. STP forex brokers benefit more when their clients win their trades because they can charge a higher fee.
These are the benefits of using STP Forex brokers:
- Orders are executed quickly
- The offered currency prices are correct
- Automatic execution of orders
- Quotes can be avoided on STP platforms
- Customers of STP brokers should never lose their trades
- Compared to other types of brokers, the risks are lower
- Live market trends are made available to customers
What can an STP forex broker offer?
There are a number of things that differentiate an STP forex broker from other types of brokers.
- STP forex brokers do not trade against their clients.
- There is no dealing desk and therefore no dealer intervention. Orders are sent to a specific number of liquidity providers such as banks and other brokers.
- An STP broker can provide real-time market prices.
- A larger number of liquidity providers, which is good for the client as there are probably better fills.
If you are new to the world of forex trading , it will be important to understand how the platform works. Let’s look at what happens to an order when placed with an STP broker.
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How STP forex brokers work
The forex market is one of the biggest markets for today’s modern investor. The daily turnover is over $ 5.3 trillion, and the market is open around the clock. Understanding how STP works is critical to new traders. A good way to explain this is to look at the mechanism behind placing orders and how they are executed in the charts. We will also look at all parties involved in the whole arrangement.
Every broker has a front and backend. In the front-end are the platform, order buttons, charts, a trader account, open orders and a few more. Behind the scenes is the back-end operation. Today, platforms are technologically advanced and data transfer from the back-end to the front-end is almost instantaneous. The processes take place in milliseconds, microseconds and even nanoseconds.
There are a number of parties involved in the processing, placement and execution of transactions. There is obviously a buyer and seller. But there is also a broker that brings buyers and sellers together. And there is also a liquidity provider, often a big bank that offers the prices. There is no physical marketplace such as the stock market and no physical records of trades and executions. It is purely electronic when you trade in the forex market. An STP broker locates and compares orders with a counterparty willing to pay an agreed price. The counterparty could be another trader, a liquidity provider or a market maker broker.
STP brokers are a kind of market-making broker
In most cases, an STP broker will display its own quotes, which are comparatively linked to real interbank quotes. There are two different ways an STP broker can go. These can forward orders to the market and act as a true STP broker. Alternatively, they may decide not to choose this path, which they often do with small or losing customers. In this way, the broker has the opportunity to profit twice from the transaction. On the one hand, by not losing money to successful traders and, on the other, by losing the client. Mostly this works very well for STP forex brokers, but not always 100%.
The STP model is not only doubly profitable, but also responsible for a large number of requotes and the rejection of orders. When you open a large order, the broker can decide to lead the job through the market. However, it is possible that prices have already changed. In this case, the broker has two options. Decline the order and ask the customer to adjust the prices, or take a risk and complete the order.
How to recognize the differences between market makers, ECN and STP brokers
An ECN broker is easy to spot. There are only minimal capital requirements, the bid / ask prices will be clearly visible, along with the amounts on both sides of the price. These are known as depth levels.
Explaining the difference between a market maker (MM) and an STP broker is not that easy, and most brokers tend to use a combination of both. What may worry some traders is that MM and STP brokers will benefit from their losses, which will always be a bit worrying and worrying. However, we consider it appropriate to point out that the use of a regulated US or UK broker will eliminate this concern. A broker regulated in the UK or US will not trade you. At least not so that you lose money. And not for the reason that they prefer to act morally superior. But because they would have problems with their license if they acted that way.