Two Types of XAUUSD Brokers
Straight Through Processing XAUUSD Brokers and Electronic Communications Network XAUUSD Brokers
STP or Straight Through Processing, is the name given to brokers that, when upon receiving a client order they will pass on the gold orders directly to their gold liquidity provider. XAUUSD Liquidity providers can include Banks and as such there is no intermediary involved in the order processing in other words the Straight Through Processing does not filter the gold orders through a Dealing Desk. The 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 Processing execution will be able to process its clients orders instantly without any delay. This makes STP brokers the most recommended XAUUSD broker type. The Straight Through Processing XAUUSD Brokers will also not send re-quotes to its clients something that most gold traders regard as very important. The Straight Through Processing 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 gold 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 gold brokers will use banks trading on the Interbank market as their liquidity providers.
Before Reading Spot the difference between these two headings so that the two headings below don't seem like a repetition.
- Reasons why XAUUSD Brokers choose Straight Through Processing execution - STP Execution Model
- Reasons why Gold Traders Choose Straight Through Processing execution - STP Execution Model
Why XAUUSD Brokers Choose STP Execution Model
In addition to the fact that most gold traders prefer STP gold brokers due to the fact that a clients losses are not a gold brokers profit. It is therefore in the Gold broker 's interest for the client to make profit when trading, STP execution often implies that there is No Dealing Desk (NDD) and subsequently the gold broker has less expenses through its staff salaries.
An STP XAUUSD Broker is compensated through a markup on the gold spread it obtains from its liquidity providers and/or commissions imposed for each xauusd trade. As most liquidity providers of STP xauusd 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 Gold Broker will apply this markup by a certain amount of fractional pips to the bid and ask xauusd 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 gold 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 xauusd price this is the markup.
Why XAUUSD Traders Choose STP Brokers
Gold traders often choose to execute their xauusd trades through an STP broker as it often implies there is no Dealing Desk, which in turn means that the STP gold broker is more transparent with the clients.
The Gold traders enter trades into a true market instead of an artificial market that may be created by a market maker gold broker. Client xauusd trades obtain better and faster fills through an STP execution model.
The better and faster fills are obtained directly from the many competitive gold market bids and offers coming through the STP liquidity providers, which provide for more liquidity within the online interbank gold market and in turn this leads to lower execution xauusd prices for the client.
Client gold trade transactions with an STP broker means there is anonymity for the client as there is no Dealing Desk monitoring the gold trade orders coming in from each client. The gold orders are instead executed automatically through the interbank market network anonymously.
Another Type of XAUUSD Broker is ECN Broker
What is an ECN XAUUSD Broker?
Electronic Communications Network- ECN gold broker provide gold traders with real time xauusd price data quotes straight from the network of banks that trade Gold- The Interbank Market. Since these ECN brokers offer real time xauusd 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 gold brokers, short form is ECN Brokers.
ECN gold brokers will show the entire bid and ask offers currently available in the xauusd market from banks. An ECN gold broker will allow xauusd traders to place their gold orders straight through to the gold trading market. The liquidity is not provided by the gold broker but by this Interbank network of banks. This way gold traders trading gold through an Electronic Communication Network gets high liquidity and executes xauusd trades very quickly and instantly without getting re-quoted.
