What is an STP Broker?

This post contains affiliate links. If you use these links to register at one of the trusted brokers, I may earn a commission. This helps me to create more free content for you. Thanks!

If you’re involved in trading, you’ve probably heard of STP brokers. But what exactly are they? In this article, we’ll explore what an STP broker is, how it works, and the advantages and disadvantages of trading with an STP broker.

Introduction

STP stands for Straight Through Processing, which means that trades are executed electronically without any manual intervention. An STP broker is a forex broker that uses this technology to execute trades directly on the market without the need for a dealing desk.

This type of broker is also known as a No Dealing Desk (NDD) broker, as they do not have a dealing desk where orders are processed. Instead, trades are sent directly to liquidity providers, which could include banks or other brokers.

Types of Brokers

To understand what an STP broker is, it’s important to understand the different types of brokers available.

  • Dealing Desk (DD) Broker: A broker with a dealing desk who takes the other side of the trade, often referred to as a market maker.
  • No Dealing Desk (NDD) Broker: A broker without a dealing desk who instead sends orders directly to liquidity providers or the market.
  • Straight Through Processing (STP) Broker: A type of NDD broker that sends orders directly to liquidity providers without any manual intervention.

How Does an STP Broker Work?

An STP broker uses an electronic communication network (ECN) to connect traders directly to liquidity providers. This means that when you place an order with an STP broker, it is immediately executed and filled by one of their liquidity providers.

STP brokers make money by charging a small commission on each trade or by marking up the spread. As they do not take the other side of the trade, there is no conflict of interest between the broker and the trader.

Advantages of Trading with an STP Broker

  1. No Conflict of Interest: As mentioned earlier, STP brokers do not take the other side of the trade, which means there is no conflict of interest between the broker and the trader. This means that the broker is not trading against you and is only making money through commissions or spreads.
  2. Better Spreads: As STP brokers connect you directly to liquidity providers, they can offer better spreads than brokers with dealing desks.
  3. Faster Execution: With STP brokers, orders are executed immediately and filled by a liquidity provider, which means there is no delay in execution.

Disadvantages of Trading with an STP Broker

  1. Slippage: As orders are filled by liquidity providers, there may be slippage, which is the difference between the expected price of a trade and the price at which it was actually executed.
  2. Limited Price Feed: As STP brokers connect you directly to liquidity providers, the number of currency pairs available for trading may be limited compared to brokers with dealing desks.
  3. Higher Trading Costs: As STP brokers charge a commission or mark up the spread, trading costs may be higher than brokers with dealing desks.

Conclusion

In summary, STP brokers are a type of forex broker that uses Straight Through Processing technology to execute trades directly on the market without the need for a dealing desk. They offer a number of advantages over brokers with dealing desks, including no conflict of interest, better spreads, and faster execution. However, there are also some disadvantages, including slippage, limited price feed, and higher trading costs.

Ultimately, whether an STP broker is right for you will depend on your trading strategy and preferences. It’s important to do your research and choose a broker that aligns with your needs and goals.

Still, have no trading account yet? Open an account at one of my trusted brokers suitable for algorithmic trading completely for free and start testing today!

This post contains affiliate links. If you use these links to register at one of the trusted brokers, I may earn a commission. This helps me to create more free content for you. Thanks!