STP Forex Brokers
Straight Through Processing (STP) forex brokers are a category of brokers that operate in the forex market. These are brokers who send the orders that have been placed by their clients on their platforms directly to the liquidity providers (banks or larger brokers) without passing these orders through a dealing desk. This provides a means of ensuring that orders are processed in a “straight-through” fashion, devoid of delays and requotes. Thus the word “straight-through” is used more aptly to describe the process by which orders are handled.
Top STP Forex Brokers 2014:
We have compiled a list of STP forex brokers that you can use for your business. Feel free to choose any one of these brokers that satisfies your yearnings in the STP execution model.
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How does STP Work?
At a daily turnover of $5.3trillion a day, the forex market has the reputation of being the biggest and the largest market of all, open 24/7 round clock.
To understand how Straight Through Processing works, it is pertinent for traders (especially those who are just starting out) to answer the question: what happens to my orders? What is behind the mechanism of placing and order and seeing it executed on the charts? Who are the other parties in the entire arrangement?
Every brokerage operation has a front-end and a back end. The front end is what the trader sees on the platform: the platform itself, charts, order buttons, his account size, open orders, etc. But behind all this, there is a back end. Platforms have become quite advanced from the early days. So data transfer from the front end part to the back end and back to the front end, is a process which occurs in milliseconds or even micro and nano seconds. There are several parties in the process of placing an order and obtaining executions for those orders.
a) There is a buyer. In a sell trade, the buyer is the counterparty.
b) There is a seller. In a buy trade, the seller is the counterparty.
c) There is the broker who brings these two parties together.
d) There is a liquidity provider (usually a major bank) who provides pricing for the participants.
Unlike the stock market, the forex market does not have a physical location, and there is no physical record of all trade executions and transactions. Everything is electronic and virtual. What STP brokers do when an order is placed by the trader, is to locate and match the order a counterparty who is ready to pick up the order at the agreed price.
The counterparty in each forex trade can be
– Another trader
– A market maker broker
– A liquidity provider.
In the first two cases, it is hard to eliminate conflict of interest because of the way the market making model of forex is structured. The market is populated by traders with low capital. The market needs liquidity. A liquidity provider will not sell to such traders with low capital. It would cost too much and is not efficient. So a market maker comes in, buys up large volumes of trades on the buy/sell side of the market, splinter these positions up and then offer the currency to those traders who want to buy and bid for positions from those who want to sell. When the trader agrees (essentially by clicking the order button on his platform), the deal is done and processed in micro seconds.
What does an STP broker do? Rather than adopting the market making model, the broker allows the trader access to the interbank market where several liquidity providers are offering the currency at different prices. Usually, volumes have to be large enough to support the process, and traders would have to pay for the cost of this service which is run on highly specialized platforms. STP brokers therefore charge commissions and also allow spreads to vary according to the bid/offer strength in the market. So the order does not pass through a dealing desk: it goes “straight through” to the interbank market.
Advantages of STP Forex Brokers
No conflict to interest – One big advantage with STP brokers is the elimination of conflict of interest in the execution pattern. By not acting as counterparties to the traders’ positions, STP forex brokers do not profit from the losses of their clients. They profit only from adding a small commission, or markup to the spread.
Anonymity – Scalpers can apply their trading style to all their orders without being penalized with slippages, re-quotes and outright ban.
Deeper Market Access – STP brokers give traders deeper market access by providing a pathway to a deeper liquidity pool i.e. getting pricing from several liquidity providers in the interbank market. This gives traders better choice and better market executions.
What You See is What You Get – With STP brokers, what you see is what you get. There are no delays in order fulfillment and no re-quotes.