Types of Commodities Trading Market Brokers
Types of Broker Commodity Trading
STP or Straight Through Processing, is the name given to commodity brokers that, when upon receiving a client order they will pass on the commodity orders directly to their commodity liquidity provider. Commodities Trading Liquidity providers can include Banks & as such there is no inter-mediary involved in order processing in other words the STP does not filter the commodity orders through a Dealing Desk. Absence of a Dealing Desk intervention is what makes this electronic 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 commodity brokers the most recommended Commodities Trading broker type. The Straight Through Processing Commodities Trading Brokers will also not send re-quotes to its clients something that most investors regard as very important. The Straight Through Process execution will also in effect will allow its clients to trade during the release of commodity news without any restrictions.
Straight Through Processingcommodity trading brokers benefit from having several liquidity providers and an increase in the number of providers in the system means better fills for the client. A large number of STP commodity brokers will use banks trading on the inter bank market as their liquidity providers.
Before Reading Spot the difference between these two headings so that the headings below do not seem like a repetition.
- Reasons why Commodities Brokers select Straight Through Process execution
- Reasons why Traders Select Straight Through Process execution
Reasons why Commodities Trading Brokers choose to be STP
In addition to the fact that most traders prefer Straight Through Processing due to the fact that a client's losses are not a commodity brokers profit. It is therefore in Commodity Trading broker 's interest for the Client to make profitable trades, a STP execution model often implies that there is No Dealing Desk (NDD) & subsequently has less expenses through its staff salaries.
An STP is compensated through a markup on the spread it obtains from its liquidity provider and/or commissions imposed for each trade. As most liquidity providers of STP execution are banks on the Interbank market, the majority of which offer fixed spreads this allows the STP Commodities Brokers to provide both fixed and/or variable spreads to its clients.
Each time a client trades through a Straight Through Processing platform, the STP will always make a profit. As STP commodity brokers add a small markup to the spread they receive from their provider when getting quoting of bid/ask rate. The STP Commodity Trading Broker will apply this markup by a certain amount of fractional pips to the bid and ask commodity price that it receives from its best bid/ask liquidity provider before passing the rates onto the client via the straight through processing electronic platform.
As the client places the trading order through the STP platform, the commodity orders are then sent directly to the liquidity provider and as such the STP executes the same orders as the client at a slightly better commodity trading price which is the markup.
Reasons why Commodity Traders Choose STP commodity trading brokers
Clients often choose to execute trades via an STP as it often implies there is no Dealing Desk, which in turn means that the broker is more transparent with clients.
The Traders enter trades into a true market instead of an artificial market that may be created by a market maker. Client trades obtain better and faster fills through an STP.
The better and faster fills are obtained directly from the many competitive market bids & offers coming through STP liquidity providers, which provide for more liquidity within commodity market and in turn this implies lower execution commodity prices for the client.
Client transactions with an STP means there is anonymity for client as there is no Dealing Desk monitoring the transactions of orders coming in from each client. The Commodity Trading orders are instead executed automatically through the commodities trading market network anonymously.
Another Type of Online Commodities Trading Broker is ECN
What's an ECN?
Electronic Communications Network- ECN provide traders with real-time data quotes straight from network of banks that trade Commodity Trading - The Interbank market. Since these ECN Commodities Trading Brokers offer real-time data quotes from these net-work via their own ECN Commodity Trading Broker net-work which connects directly to the Inter bank net-work of banks, they are referred to as ECN technology commodity brokers, short form is ECN.
ECN will show the entire bid & ask offers currently available in the commodities trading market from banks. An ECN will allow traders to place their commodity orders straight through to the commodities trading market. Liquidity isn't provided by the broker but by this inter-bank net-work of banks. This way commodity traders trading through an ECN Commodities Trading Broker gets high liquidity & execute trades very quickly & instantly without getting re quoted.
Most Traders request which is best between the STP & the ECN? And What is difference between these two?
STP
Has many liquidity providers, but chooses the best at any one time automatically for the trader. Therefore when trader places a trade the commodity trade orders will be passed direct to this interbank.
Therefore STP is like ECN the only difference is that the STP Commodity Brokers automatically chooses the best one at that particular time & does it automatically for the trader.
ECN
Has many liquidity providers from which a trader will see all at same time and choose which to trade, It is like having 10 Commodities Trading brokers to choose from which to trade.
The ECN a trader will have to look at many streaming quotes at the same time and select one, this streaming quote will have varying spreads and a trader chooses the low spread.
There's no much difference between ECN & STP, that is why some traders or some commodity brokers will use the term interchangeably, because the only difference between STP execution from the ECN execution is that the STP only chooses to have only one liquidity provider while ECN implements a wide variety of liquidity providers & it is upto the trader to select which liquidity provider to choose from while trading.
According to reviews, these commodity brokers are also have the low spreads, therefore if you are looking for the low spreads it's good to choose an STP.
Most online commodity brokers don't want to clutter the traders work-space with multiple commodity streaming quotes from various different places which might confuse the trader, especially the novice commodity traders who do not know what is what, that's why most Commodities Trading brokers might be ECN but only select to display only one streaming quotes from only one interbank, therefore becoming more of an STP rather than an ECN, but the model of operation is basically one and the same.
If you were to open a account with an ECN you would get like 10 quotes of Commodity Trading price from different banks and to trade you would have to chose the quote from one of these banks. 10 quotes for every trading instrument would make your Commodity Trading platform workspace too crowded (An ECN Lists Spreads from many liquidity providers). Another thing is that you would need a more complex software to stream these multiple commodity quotes, this type of platform would not make the best platform to trade with. Furthermore if you open an ECN account you will have to pay additional commissions on top of spreads. This is also another reason why to choose STP since unlike ECN, STP don't charge commissions. This means that ECN is not the cheapest execution method and will charge traders extra commissions adding onto your transaction costs.
STP Commodities Brokers offer the best liquidity conditions for clients to make trades
STP commodity brokers do not have a dealing desk and therefore this provides for full trade transparency, faster and better order fills. The full transparency means this type of commodity broker does not create an artificial market for clients, but instead shows a trader the realtime data quote from an electronic network of banks & allows the trader to enter the true market conditions created by the various commodity market participants.
STP - is the name given to commodity brokers that: upon receiving of a client order they will pass on the commodity orders directly to the network of banks and as such there is no intermediary who will be involved in the order execution in other words the STP Execution will not be filtering orders through a Dealing Desk. Absence of a Dealing Desk is what makes the electronic communication network the best choice for many traders.
With absence of such an inter-mediary process such as a dealing desk the STP is able to process its client's trading orders without any delay. In addition these commodity brokers do not send re-quotes to their clients something that most Commodity Trading traders regard as a huge advantage.
This also enables the STP Commodities Trading Brokers to allow its clients to trade during the release times of financial news without any restrictions. Other online brokers might not have the liquidity of an STP and might in turn lock out trading for a few minutes before and after a news release.
STP Commodities Brokers provide the best 24-hour execution & access to order execution due to high internal liquidity rate and reliable interbank partners they have.
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