What is an STP broker and is it better or is it an ECN broker?
We are all accustomed to believing that today the best broker option is ECN brokers, which use an electronic order execution system (Electronic Communication Network) in their work.
But there is an equally interesting, alternative option, which also involves the use of the NDD trading system - an STP broker.
STP (Straight Through Processing) is a form of direct transaction processing, which means that upon receiving a trade order from a trader, the broker immediately transmits it directly to his liquidity provider.
Liquidity providers can be: banks, hedge funds, investment groups, interbank market, currency exchanges.
In addition, when using Straight Through Processing, traders' orders are executed without any restrictions, even with increased market volatility.
Comparison of STP brokers with companies using Dealing Desk technology
DD (Dealing Desk) is a technology in which client transactions are not taken to the external market, but are executed within the brokerage company.
Since Forex operates continuously 24 hours a day, 5 days a week, exchanges continually experience changes in liquidity and trading volume.
Because of this, the DD broker cannot find buyers and sellers for the same volume every time. Therefore, in most cases, such companies will act as the second party to the transaction, that is, if you buy, they sell and vice versa, when selling, the broker makes a purchase.
Very often, the income of such companies, in addition to commissions for opening transactions, is also the trader’s deposit itself. Market maker brokers use various tricks to extract as much money as possible from the client.
Therefore, it is almost impossible to make a profitable transaction with a broker using Dealing Desk technology.
At the same time, STP brokers have no conflicts with clients. They are just intermediaries, transmitting orders from traders via the STP protocol.
Thus, the main source of income for the STP site is the spread or commission. Thanks to this, both parties benefit, the trader receives fair trading, and the broker does not risk being accused of fraud.
Comparison of STP and ECN brokers
STP and ECN brokers are quite similar, and both execute trades on the No Dealing Desk without acting as a second party to the trades. But many traders prefer STP in its pure form, because when opening accounts of this type there will be no commission for the transaction.
While ECN brokers very often receive commissions calculated as a percentage per lot traded.
Therefore, scalpers will prefer ECN accounts due to lower fees and often faster trade execution.
However, there is also a category of traders who choose to trade with a spread on STP accounts instead of paying a commission for each trade.
Therefore, if you like to trade without commission, then the STP account is suitable for you.
In terms of transaction speed, ECN also has an advantage over regular STP accounts because it sends orders directly to liquidity providers.
While STP trades may go through an intermediary, this causes orders to be passed on to larger brokers or liquidity providers, which can result in trading slowdowns and requotes.
If we talk about my personal opinion, I would still choose an ECN broker for trading, especially since they can also offer ECN accounts without commission for transactions, with only one spread.
Popular ECN brokers , accounts from 10 dollars.