STP and ECN Broker
Straight Through Processing Brokers and Electronic Communications Network Brokers
STP or Straight Through Processing, is the naming given to brokers that, when upon receiving a trader order they'll pass on the orders directly to their xauusd trading liquidity provider. XAUUSD 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 orders through the Dealing Desk. The 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 traders orders instantly without having any delay. This makes STP brokers the most recommended broker type. Straight Through Processing Brokers also will not send re-quotes to its clients something that most traders regard as very important. The Straight Through Process 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 Processingxauusd brokers benefit from having several liquidity providers & this increased number of liquidity providers in their system means better order fills for the client. A large number of STP brokers will use banks trading on the interbank markets as their liquidity providers.
Before Reading Spot the difference between these 2 headings so that the two headings below don't seem like a repetition.
- Reasons why Brokers choose Straight Through Process execution - STP Execution Model
- Reasons why Traders Choose Straight Through Process execution - STP Execution Model
Why Brokers Choose STP Execution Model
In addition to the fact that most traders prefer STP brokers due to the fact that a client's losses are not a xauusd brokers profit. It's therefore in 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 broker has less expenses through its staff salaries.
An STP Broker is compensated through a markup on the spread it obtains from its liquidity providers and/or commissions imposed for each trade. As most liquidity providers of STP 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 Broker will apply this markup by a certain amount of fractional pips to the bid and ask gold 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 orders are then sent directly to the liquidity provider & as such the STP broker executes the same orders as the client at a slightly better price this is the markup.
Why Traders Choose STP Brokers
Traders often select to execute their 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 clients.
The traders enter trades into a true market instead of an artificial market that may be created by a market maker trading broker. Client trades obtain better and faster fills through an STP execution model.
The better and faster fills are obtained directly from the many competitive xauusd market bids and offers coming through the STP liquidity providers, which provide for deeper liquidity within the online xauusd market and in turn this leads to lower execution prices for the trader.
Client xauusd trades with an STP broker means there is anonymity for client as there is no Dealing Desk monitoring the trade orders coming in from each client. Xauusd orders are instead executed automatically through the inter bank markets net-work anonymously.
Another Type of Broker is ECN Broker
What is an ECN Broker?
Electronic Communications Network- ECN broker provide xauusd traders with real time price data quotes straight from the network of banks that trade XAUUSD- The Interbank Market. Since these ECN brokers offer real-time 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 brokers, short form is ECN Brokers.
ECN brokers will show the entire bid and ask offers currently available in the market from banks. An ECN gold broker will allow gold traders to set their xauusd orders straight through to the market. Liquidity isn't provided by online broker but by this inter-bank net-work of banks. This way traders xauusd through an Electronic Communication Network gets high liquidity and executes trades very quickly and instantly without getting re quoted.
