What is an STP broker in Forex?
In this article
STP representatives act as independent brokers in the same way that ECN merchants do. All customer positions are passed directly to the market through interbank trading houses or liquidity providers like banks. Forex dealers who offer STP guarantee an exceptionally straightforward and uncomplicated trading climate with their clients. Let’s discuss what an STP broker is in Forex!
What is an STP account?
An STP account (Straight through Processing) is a no-dealing-desk service using direct market access (DMA) to route all trading orders directly to liquidity providers. In an STP account, all trades are routed to the liquidity pool first, and then all orders are filled at the best price.
In contrast to ECN accounts, STP records should not be considered a valid option. ECN accounts represent a non-managing work area model, allowing merchants to send orders directly to the market and continue exchanging their business sectors.
As a whole, STP accounts can be seen as a combination of ECN and market creator accounts (managing work area). As a whole, STP accounts for Forex trading are now more appealing than traditional dealing workstation accounts because of various advantages. However, STP accounts also have a few disadvantages compared to ECN accounts.
STP Forex brokers
An STP Forex broker does not use a Dealing Desk to process client orders, so there are no middlemen. The absence of a Dealing Desk makes the electronic trading platform Straight through Processing.
The brokers can instantly fulfil their clients’ orders due to an intermediary and don’t have to send them requisitions. Customers can use this service without any restrictions, which is advantageous.
Reasons why brokers choose to be an STP broker
Brokers prefer to be straight through Process Brokers for many reasons. Here are a few of them:
- Hence they incur fewer costs that would otherwise be spent on paying salaries. In addition, as already mentioned, STP brokers reduce their costs by using No Dealing Desk technology.
- An STP broker can offer both fixed and variable spreads to their clients. The reason is they utilise banks as sources of interbank liquidity.
- STP brokers will continually earn a profit in forex trading as long as clients use an STP platform. Since STP brokers do not work against their clients, they need to add a slight markup to the spreads they receive from their providers. That is how they make money.
Reasons why traders choose an STP broker
Here are some reasons why traders choose STP brokers
Reduction in work
There are many risks associated with forex trading, so it may be necessary to hire a risk manager to prevent the firm from losing assets. With STP brokers, such a requirement is not required since orders are directly programmed to liquidity providers. Moreover, it means the brokerage has less work to do.
Accurate Revenue Forecasting
STP forex brokers can establish the number of returns they will be receiving more easily. The STP framework works by having clients submit their orders to brokerages then forward them to liquidity providers.
The liquidity provider provides the brokers with rates, and the brokers, in turn, add a markup to those rates. In short, the broker earns a profit on every trade. In addition, by increasing his client base, a broker can be confident that his business will grow.
Insensitive to market volatility
The returns of an STP broker typically remain constant regardless of market conditions. The models that market makers and other brokers use to forecast the market often produce unsteady revenues in uncertain economic climates.
Every day, dealers face a variety of challenges. Some of these include news events, uncertainties, and scalping. On the other hand, STP traders are only concerned about maintaining their framework’s stability. The broker has an easy time if the traders keep placing orders.
Regulations on STP forex brokers
All Forex brokers must be regulated. Healthy competition is maintained on the Forex market by ensuring no malpractices. Financial Conduct Authority (FCA) is the most well-known regulator for STP Forex brokers.
FCA (Financial Conduct Authority)
The Financial Conduct Authority is an independent regulatory body based in the United Kingdom. As an independent agency, it protects clients’ interests and upholds integrity in the financial markets.
As a result of abolishing the former Financial Services Authority, the Financial Conduct Authority was established on 1st April 2013. As a result, there are now several FCA Forex brokers, including several STP ones.
The Financial Conduct Authority has the following roles:
- The oversight of promotional activities of financial products, i.e., defining the minimum standards that the products should meet
- Enforcement of legal action against marketing violations by brokers
- Making sure that customers are treated fairly
- Identifying and controlling potential risks together with brokers
- Stimulate a healthy competitive environment
- A registration system for brokers
- Maintaining the security of public documents
- The acceptance of annual returns
How to choose an STP broker?
It is crucial to take a keen interest in several factors before choosing an STP broker. For this reason, they play an essential role in your Forex trade. Therefore, several factors need to be considered when selecting an STP Forex broker.
A strong foundation
It is essential to do a background check on STP forex brokers because of the growing number. Before entering into any agreement, find out who the broker works with. It influences different aspects of the trade, including leverage. The leverage provided by other institutions varies, so it is essential to know what kind of institution you will be dealing with.
Illegitimate brokers keep increasing as well as the number of STP brokers. Be sure the broker is regulated and registered by a recognised organisation if you want to work with a legitimate broker. For more information on a broker, one can also browse their website. Brokers who do not meet these requirements should be avoided.
Your Forex trade’s success depends on the quality of a broker’s spreads. To maximise your profits, choose an STP broker with the lowest spreads.
Leverage is the key to the Forex market’s benefits. To maximise trading efficiency, traders need to confirm that their broker offers a variety of leverage options. In addition, traders can benefit from using both high and low leverage options.
A trader with a small capital could benefit from high leverage since it entails more considerable risk. Alternatively, lower leverage would be best with adequate capital.
The trading platform is an integral part of the Forex trade process, as this is the means through which clients can conduct transactions. Therefore, it is good to ensure the trader uses a reliable and popular platform.
Also, the platform can be customised to fit the trader’s needs. Technology should be integrated to offer various options, such as mobile trading. Forex traders should be able to maximise their profits through the platform.
Different types of accounts
A good STP Broker will provide different account options to accommodate different trading needs. Generally, a broker that offers multiple account types is preferable.
Providing customer support
A trader could suffer significant losses due to unreliable customer support. Therefore, you should ensure the broker provides you with 24/7 customer service to assist you if you encounter a technical issue.
Scams in STP forex brokerage
Everything is done electronically in a Straight Through Processing transaction. However, STP brokerage has been subject to scams over time. Fraudulent or fake STP brokers send orders to other brokers who grossly overpriced the rate; the bogus broker makes money from the overpriced rate.
Furthermore, they ship clients’ orders to a pseudo-system owned by the same company. As a trader, you are not interacting with the actual forex market but with a market maker attempting to represent themselves as an STP broker. You should be aware that market makers work against you.
Most popular STP Forex brokers
These are the two well-known STP Forex brokers.
Thanks to its STP trading model, this award-winning broker delivers a world-class trading experience to its clients. With its user-friendly interfaces, it provides a variety of platforms for forex trading.
Additionally, FXCM offers Forex educational programs that give traders the knowledge and skills necessary for success in the market. Finally, the brokerage ensures that its traders receive 24/7 customer support of the highest quality.
FXFair is an STP Forex broker that offers various trading accounts that can be customised to meet the specific trading needs of individuals.
MT4 is the same trading platform on both versions, and the features are identical. The FSA regulates brokerage. Trader funds are deposited in separate accounts by the broker to prevent their funds from being used for unintended purposes.
To simplify the trading process and make it easier for the traders to execute transactions, bank wires, credit cards, and Fasapay are used for deposits and withdrawals. Additionally, FXFair has a reliable customer support team that is available at any time to assist traders.
Difference between STP Forex brokers and market makers?
Representatives of market producers are responsible for managing the work area organisations that ingest orders from customers, either passing them inside to different customers or taking them outside the exchange.
Managers of work areas or market producers do not interface dealers with a global liquidity pool or interbank trading. Consequently, all orders are distributed among the customers, and the dealer can either accommodate requests from the customers or reject them entirely depending on the market’s liquidity.
As the FX market operates 24 hours a day, representatives are subject to volatility in liquidity and conflicting volumes throughout the day. As a result, most intermediaries take the opposite side of their intermediary’s position when finding buyers and dealers for a similar book without fail.
FX markets tend to give more winners than losers, so expedites, as a rule, benefit from the unfortunate decisions of their clients. In addition to the spreads, customers’ disappointments are the fundamental source of income for managing work area representatives.
All managing work area merchants are in an irreconcilable situation with their clients since everything they do makes money from their customers’ misfortune. Due to the dealers’ desire to bring in cash from their customers have devised many tricks and unfair practices.
The majority of market makers use strategies such as cost control, disengaging the cost controls, expanding the spreads, handling requests at ominous value levels, and in any case, modifying customer orders without their consent. Consequently, most brokers will lose money in dealing with market producers.
For the most part, STP Forex intermediaries are more transparent in their contributions because their customers are not in an irreconcilable situation.
The liquidity provider receives all orders directly from the customer, and the business sectors generally ingest the requests without intermediaries. As for the two participants, STP representatives gain cash from spreads charged for each exchange, usually beneficial to both parties.
Model for STP Forex brokers
Straight through Processing (STP) forex brokers generally offer fully automated dealing systems to their clients. You may know it as no-dealing-desk brokers because they do not work with a dealing desk. This brokerage model is also known as the A-Book forex brokerage model.
In the STP system, each trade is processed electronically and entered directly and anonymously into a group of liquidity providers, i.e., participants in the Interbank Forex market, for execution at competitive prices.
With an STP broker, there is no human error, no delay, and cost since traders do not need to deal with other persons to complete transactions.
When considering the type of Forex broker that best meets your needs, there are several factors to consider, each of which offers a different advantage. The type of trading strategy you prefer and the capital available to you are typically factors in deciding on the most suitable Forex broker for your trading needs.
Using an STP broker is also advantageous because prices are acquired from several market participants instead of just one source. Compared to the service provided by a Forex broker that relies on a single source for quotations, this results in better fills, tighter dealing spreads, and more accurate quotes.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst