The difference between ECN and STP brokers
If you are searching for a broker it is easy to get overwhelmed about the difference between ECN and STP Brokers. Here will cover the difference between ECN and STP brokers so you can choose the best ecn or stp forex broker for you.
What’s the difference between ECN and STP brokers?
As we previously cover these type of brokers require no dealing desk environment which means that connects the orders of the client directly with liquidity providers and therefore giving to the clients a direct access to the market.
STP Forex Brokers
The Straight Through Processing (STP) technology requires no dealing desk. The main feature of an STP broker is that is sending liquidity providers directly to their clients and these providers have access to the interbank market. In other words, the STP broker is the silent connection provider between the market and the trader instead of dealing with desk processing trades.
Benefits of using an STP Broker
Usually, the retail traders often prefer STP brokers. The benefits of using an STP Broker are as follow:
– Speed: The trade execution is done digitally and at high speeds. There are some market maker brokers that are using software to process the tradess while there are others that they executing them manually through a Dealing Desk. This process, though, can be slow and can lead in trade denials nottifications if the market is too volatile.
– Quotes: Since STP brokers trade directly with the market, the price quotes are accurate. Market makers can sometimes offer artificial quotes to improve their margins.
– No Conflicts: Market maker brokers often take the opposite side of the trade, thus profiting from the loss of their clients. Therefore, this may cause some brokers to operate in ways that may compete with their clients’ profitability.
The Cons of STP Broker
– Spreads: STP brokers usually offer wider spreads than dealing desk brokers. This is because dealing desk brokers profit from client losses.
– Hybrid Models: Some brokers are using a hybrid model. They can pass part of a trade to the market and take the other side of the trade for other trades. It can be difficult to know which brokers behave this way and you may need to get in touch with them for details on how they proceed.
ECN Forex Brokers
ECN Brokers have many similarities with STP brokers. However, the way in which the orders are passed is different. The orders will be directly matched within a network of private investor, major banks, other traders and brokers, that they have set up. While with STP brokers, the orders are processed directly to third-party liquidity providers.
In addition, the way they make a profit is also different. ECN brokers usually add a fixed commission per trader while STP brokers rely on spreads for their profits.
Conclusion: STP vs ECN – Which one to choose?
This is completely up to you. It really depends on your goals. With ECN brokers the spreads are tighter and this is ideal among scalpers who are depended on the tightest possible spreads.
With an STP broker will often provide a faster and smoother order execution and in most case without a commission however the spreads tend to be higher.
