Two Different Types of Forex Brokers - STP and ECN Forex Broker - Two Types of Forex Brokers

Straight Through Processing Forex Brokers and Electronic Communications Network Forex Brokers

STP or Straight Through Processing, is the name given to brokers that, when upon receiving a client order they will pass on the orders directly to their forex liquidity provider. Forex Liquidity providers can include Banks & as such there's no inter-mediary involved in the order processing in other words the Straight Through Processing doesn't filter the orders through a Dealing Desk. Absence of a Dealing Desk intervention is what makes this electronic trading platform a Straight Through Processing.

With the absence of an intermediary process (dealing desk) the STP, Straight Through Process execution will be able to process its clients orders instantly without any delay. This makes STP brokers the most recommended Forex broker type. The Straight Through Processing Forex Brokers will also not send re-quotes to its clients something that most traders regard as very important. Straight Through Process execution model will also in effect allow clients of the STP broker to trade during the release of economic news without any restrictions.

Straight Through Processing forex brokers benefit from having several liquidity providers and this increased number of liquidity providers in their system means better order fills for the client. A large number of STP forex brokers will use banks trading on the inter-bank markets as their liquidity providers.

Before Reading Spot the difference between these two headings so that the 2 headings below do not seem like a repetition.

• Reasons why Forex Brokers select Straight Through Process execution - STP Execution Model
• Reasons why Forex Traders Select Straight Through Process execution - STP Execution Model

Why Forex Brokers Choose STP Execution Model

In addition to the fact that most traders prefer STP forex brokers due to the fact that a client's losses aren't a forex brokers profit. It's therefore in the Forex broker 's interest for the client to make profit when trading, STP execution often implies that there is No Dealing Desk (NDD) & subsequently the broker has less expenses through its staff salaries.

An STP Forex Broker is compensated through a markup on the forex spread it obtains from its liquidity providers and/or commissions imposed for each trade. As most liquidity providers of STP forex brokers are banks on the Interbank market, the majority of which offer fixed spreads this allows the STP Brokers to provide both fixed and/or variable spreads to its clients.

Each time a client trades through the STP platform, the STP broker will always make a profit. As STP brokers add a small markup to the spread they receive from their liquidity provider when getting quotes of bid/ask rate. The STP Forex Broker will apply this markup by a certain amount of fractional pips to the bid and ask price that it receives from its best bid/ask liquidity provider before passing the rates onto the client through their STP electronic platform.

As the client places an order through the STP platform, the forex orders are then sent directly to the liquidity provider and as such the STP broker executes the same orders as the client at a slightly better price which is the markup.

Why Forex Traders Choose STP Brokers

Forex traders often choose to execute their forex trades through an STP broker as it often implies there is no Dealing Desk, which in turn means that the STP forex broker is more transparent with their clients.

The Forex traders enter trades into a true market instead of an artificial market that may be created by a market maker forex broker. Client forex trades obtain better and faster fills through an STP execution model.

The better and faster fills are obtained directly from the many competitive forex market bids and offers coming through the STP liquidity providers, which provide for more liquidity within the online interbank forex market and in turn this leads to lower execution prices for the client.

Client forex trades with an online STP broker means there's anonymity for the client as there is no Dealing Desk monitoring the forex trade orders coming in from each client. The forex orders are instead executed automatically through the interbank markets network anonymously.

Another Type of Forex Broker is ECN Broker

What is an ECN Forex Broker?

Electronic Communications Network- ECN forex broker provide forex traders with real time price data quotes straight from the network of banks that trade Forex- The Interbank Market. Since these ECN brokers offer real time price data quotes from these interbank network via their own Electronic Communication Network - which connects directly to the Interbank network of banks, they are known as ECN technology forex brokers, short form is ECN Brokers.

ECN forex brokers will show the entire bid and ask offers currently available in the forex market from banks. An ECN forex broker will allow forex traders to place their forex orders straight through to the FX market. The liquidity isn't provided by the broker but by this inter-bank network of banks. This way forex traders trading forex through an Electronic Communication Network gets high liquidity and executes forex trades very quickly and instantly without getting re quoted.