Various Types of Brokers - Difference Between STP and ECN - STP vs ECN Broker
Types of Brokers: STP Brokers - Types of Brokers: ECN Brokers
Most forex trader ask what is the difference between the STP and ECN?
STP Broker
STP has many liquidity providers, but selects the best one at any one time automatically for the trader. Therefore when a trader places a trade the orders will be passed direct to this interbank network of liquidity providers - after the liquidity provider with the low spread is selected automatically by the STP execution model.
Therefore STP broker is like ECN broker the only difference is that the Straight Through Processing Brokers automatically chooses the best fill at that particular time of trade execution and does it automatically for the trader.
ECN Broker
ECN broker has many liquidity providers from which a trader will see all at the same time and choose which liquidity provider to trade with, It is like having 10 brokers forex quotes to select from which to trade - these ten quotes are for the same forex instrument - each quote from a different liquidity provider.
ECN broker quotes model means a trader will have to look at many streaming forex quotes at the same time & choose one, this streaming quote will have varying spreads markups and a trader selects the low spreads.
There is no much difference between ECN broker and STP broker, that is why some forex traders or some forex brokers will use the term interchangeably, because the only difference between Straight Through Processing execution from Electronic Communication Network execution is that STP broker only chooses to have display only one liquidity provider with the best markup at the time of trade while ECN implements a wide variety of liquidity providers and displays all of their quotes to the traders and it is upto the trader to choose which liquidity provider to select from while trading.
According to broker reviews, these ECN and STP brokers are also have the lowest forex spreads, therefore if you're looking for the low spread it is good to select an STP broker or an ECN broker.
Most online forex brokers do not want to clutter the traders workspace with multiple streaming quotes from various different liquidity providers for the same forex instrument at the same time because this might confuse forex traders, especially the novice traders who do not know what is what from what, that is why most forex brokers might be ECN brokers but only choose to display only one streaming price quotes from only one interbank liquidity provider, therefore becoming more of an STP broker rather than an ECN broker, but the model of trade execution operation is basically one & the same.
If you were to open a account with an ECN broker you would get like 10 different quotes of EURUSD from different liquidity providers & to trade you would have to chose the forex quote from one of these liquidity provider. 10 quotes for every instrument would make your platform workspace too crowded (An ECN Broker Lists Spread from many liquidity providers). Another thing is that you would need to have a more complex platform to live stream these many forex quotes, this type of platform would not make the best platform software to trade with. Furthermore, if you open an ECN account you will have to pay additional commissions on top of forex spreads. This is also another reason why to choose STP broker since unlike ECN broker, STP broker do not charge commissions on top of spreads. This means that the ECN broker execution is not the cheapest execution technique & will charge forex traders extra commissions on top of spread adding on to your forex transaction costs.
STP Brokers offer the best liquidity for traders to make trades
STP brokers do not have a forex dealing desk and therefore this provides for full trade order transparency, faster & better order fills. The full order transparency means this type of STP broker doesn't create an artificial trading market environment for traders, but instead shows a trader the real time price data quotes from an electronic network of banks and allows the trader to enter the true market conditions created by various forex market participants.
Straight Through Processing Brokers- is the name given to brokers that: upon receiving of a order they will pass on the forex orders directly to the network of banks through liquidity providers & as such there is no intermediary who will be involved in the order execution in other words the Straight Through Processing Execution Model will not be filtering trade orders through a Forex Dealing Desk. The absence of a Forex Dealing Desk is what makes the STP execution model the best choice for many online forex traders.
With the absence of such an inter-mediary process such as the forex dealing desk the STP broker is able to process its clients forex orders without any delays. In addition STP brokers don't send requotes to their clients something which most traders regard as an advantage.
This also enables the Straight Through Processing Brokers to allow traders to trade during the release times of financial news without any restrictions. Other online brokers might not have the liquidity of an STP broker and might in turn lock out forex trading for few minutes before and after a forex news release.
Straight Through Processing Brokers provide the best 24 hour order execution and access to trade order execution due to high internal liquidity rate provided by multiple liquidity providers & reliable inter-bank partners they have.
Various Types of Brokers - The Difference Between STP and ECN - Difference Between STP Broker and ECN Broker - Types of Brokers: STP Brokers - Types of Brokers: ECN Brokers.
