Why Traders Select STP Brokers & Difference Between STP Brokers & ECN Brokers
Straight Through Processing is the name given to online Forex trading brokers that; when upon receiving a client order they will pass it directly to their Forex Liquidity Provider. Liquidity providers (LP) can include Banks and as such there is no intermediary involved in the order processing in other words the Straight Through Processing model does not filter the orders through a Dealing Desk.
How STP Model Works? - STP Brokers
With the absence of an intermediary process (dealing desk) the Straight Through Processing will be able to process its client's orders instantly without any delays. This makes STP Forex brokers the most recommended Forex broker type because they do not re-quote their clients something that most investors regard as very important. The Straight Through Processing will also in effect will allow its clients to trade during the release of financial news without any restrictions.
Thesebrokers benefit from having several liquidity providers and an increase in the number of liquidity providers in the system means better fills for the client.
Before reading on, spot the difference between these two headings so that the headings below don't seem like a repetition.
- Reasons why Top Brokers prefer this execution
- Reasons why Top Forex Traders prefer this execution
Reasons Why Brokers Choose This Model
As the clients places their orders through the Straight Through Processing platform, the orders are then sent directly to the liquidity providers & as such the STP Broker executes trades efficiently and quickly thus providing better fills for their customers using this model.
Why Traders Choose Straight Through Processing Execution
Client trades obtain better & faster fills through this technique.
The better and faster fills are obtained directly from the many competitive market bids and offers coming through the many LPs, which provide for more liquidity within the forex market and in turn this implies the client gets the best fills.
Client transactions with an STP Forex broker means there is anonymity for the client orders which are instead executed automatically through the interbank market network anonymously.
Another Type of Execution is ECN - ECN Brokers
Electronic Communications Net-work Electronic Communication Network provides traders with real time data quotes straight from the net-work of banks which form the Inter-bank market.
ECN Brokers will show the entire bid and ask offers currently available in the forex trading market from banks. Electronic Communications Network allows investors to place their orders straight through to the market. The liquidity is not provided by the broker but by this inter-bank network of banks. This way traders transactions through an Electronic Communication Network and therefore they can execute trades very quickly and instantly without getting re quoted.
STP Brokers & ECN Brokers Comparison - STP Brokers vs ECN Brokers
Most Investors ask which is the best between the STP Broker & the ECN Broker? & What is the difference between these two? - Compare Forex brokers ECN and STP execution models?
STP Broker
STP Forex brokers many liquidity providers, but chooses the best at any one time automatically for the trader. Therefore when a one places a trade and the orders will be passed direct to this inter-bank.
Therefore Forex STP brokers are like Forex ECN brokers, the only difference is that the Straight Through Processing model automatically selects the best quote, at that particular time of trade execution and does it automatically for the investor.
ECN Broker
ECN Forex brokers have many liquidity providers from which a trader will see all at the same time and then select which one to trade, It is like having 10 Forex brokers to choose from which to trade.
For true Forex ECN brokers, one will have to look at many streaming quotes at the same time and choose one,each will having varying spreads and the investor will try to select the low spread for himself among the 10 displayed for the same currency.
There is no much difference between these two, that is why some traders or some brokers will use the term interchangeably, because the only difference between the 2 is that the STP only chooses to display automatically the best quote chosen from a multiple of liquidity providers while ECN shows all of them at the same time and it is up to the investor to select which one to open an order with - as a trader you may not be able to chose the best as these change very fast.
According to reviews, this execution model also have the low spread, therefore if you are looking for the low spreads it is good to select an STP.
Most online brokers do not want to clutter the platform workspace with multiple currency streaming quotes from various different places which may confuse the trader, especially the beginners who do not know what is what, that's why most online brokers might be implementing an Electronic Communications Network but decide to only display one streaming quote from only one interbank, therefore becoming more of an STP rather than an ECN, but the model of operation is basically one and the same.
If you were to open an account with a Forex ECN broker you would get like 10 quotes of EURUSD from different banks and to trade you would have to chose from one of these banks - 10 currency quotes for every currency pair would make your Forex platform workspace too crowded. Another thing is that you would need a more complex Forex platform to stream this amount of data, this type of platform would not make the best option to trade with. Furthermore if you open an ECN account you will have to pay additional commissions on top of spreads. This is also another reason why to choose STP since they don't charge commissions.
Because most brokers are MetaTrader 4 Forex brokers and they want to make retain the platform as it's which makes it easier to operate and which is why this software is the most popular, these MT4 Forex brokers will only display the low spread only after automatically selecting it using their algorithms, then display this low spread alone at all the time.
STP offer the best execution conditions for clients to make trades
STPs execution method provides for full trade transparency, faster and better order fills. The full transparency means a investors receives the real time data allowing them to enter the forex market directly at the best fill level.
The best forex brokers implement this model because this model is able to process its client's orders without any delay. In addition this model does not re-quote something that most Forex traders regard as a huge advantage.
STP provides the best 24 hour access to market trading execution due to high liquidity which they have from their reliable inter bank partners.
