Types of Brokers in Oil Trading
Type of Broker in Oil Trading
STP or Straight Through Processing, is the name given to oil brokers that, when upon receiving a client order they will pass on the oil orders directly to their oil liquidity provider. Crude Oil Trading Liquidity providers can include Banks & as such there is no intermediary involved in order processing in other words the Straight Through Processing doesn't filter the oil orders through a 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 clients orders instantly without any delay. This makes STP oil brokers the most recommended Crude Oil Trading broker type. Straight Through Processing Oil 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 oil news without any restrictions.
Straight Through Processingoil 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 oil brokers will use banks trading on inter bank market as their liquidity providers.
Before Reading Spot the difference between these 2 headings so that the headings below do not seem like a repetition.
- Reasons why Crude Oil Brokers choose STP execution
- Reasons why Traders Select STP execution
Reasons why Oil 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 oil brokers profit. It is therefore in Oil Trading broker 's interest for the Client to make profitable trades, a Straight Through Process execution model often implies that there is No Dealing Desk (NDD) and 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 Crude Oil 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 oil brokers add a small markup to the spread they receive from their provider when getting quoting of bid/ask rate. The STP Oil Trading Broker will apply this markup by a certain amount of fractional pips to the bid and ask crude oil 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 order through the STP platform, the oil orders are then sent directly to the liquidity provider & as such the STP executes the same orders as the client at a slightly better crude oil price which is the markup.
Reasons why Oil Traders Choose STP oil brokers
Clients often select 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 the 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 the oil market and in turn this implies lower execution oil prices for the client.
Client transactions with an STP means there is anonymity for the client as there is no Dealing Desk monitoring the transactions of orders coming in from each client. The trading Oil Trading orders are instead executed automatically through the crude oil market network anonymously.
Another Type of Online Crude Oil Trading Broker is ECN
What is an ECN?
Electronic Communications Network- ECN provide traders with real-time data quotes straight from network of banks that trade Oil Trading - The Interbank market. Since these ECN Crude Oil Trading Brokers offer realtime data quotes from these net-work via their own ECN Oil Trading Broker net-work which connects direct to the Inter bank network of banks, they are referred to as ECN technology oil brokers, short form is ECN.
ECN will show the entire bid & ask offers currently available in the crude oil market from banks. An ECN will allow traders to place their oil orders straight through to the crude oil market. Liquidity is not provided by the broker but by this inter-bank network of banks. This way oil traders trading through an ECN Crude Oil Trading Broker gets high liquidity and execute trades very quickly & instantly without getting re quoted.
Most Traders ask which is the best between the STP & ECN? And What is the 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 oil orders will be passed direct to this inter-bank.
Therefore STP is like ECN the only difference is that the STP Oil Trading 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 the same time & choose which to trade, It is like having 10 Crude Oil Trading brokers to select from which to trade.
The ECN a trader will have to look at many streaming quotes at the same time & choose one, this streaming quote will have varying spreads and a trader selects the low spread.
There is no much difference between ECN and STP, that is why some traders or some oil 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 up to the trader to select which liquidity provider to select from while trading.
According to reviews, these oil brokers are also have the low spreads, therefore if you are looking for the low spreads it's good to select an STP.
Most online oil brokers don't want to clutter the traders work-space with multiple oil streaming quotes from various different places which may confuse the trader, especially the novice oil traders who do not know what is what, that is why most Crude Oil Trading brokers might be ECN but only choose 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 & the same.
If you were to open a account with an ECN you would get like 10 quotes of Oil Trading price from different banks and to trade you would have to chose the quote from one of these banks. 10 oil quotes for every oil pair would make your Oil Trading platform workspace too crowded (An ECN Lists Spreads from many liquidity providers). Another thing is that you would need a more complex trading software to stream these multiple oil quotes, this type of platform would not make the best software 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 the ECN is not the cheapest execution method & will charge traders extra commissions adding on to your transaction cost.
STP Crude Oil Brokers offer the best liquidity conditions for clients to make trades
STP oil 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 oil 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 oil market participants.
STP - is the name given to oil brokers that: upon receiving of a client order they will pass on the oil orders directly to the network of banks & 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. The absence of a Dealing Desk is what makes the electronic communication network the best choice for many traders.
With the absence of an inter-mediary process such as the dealing desk the STP is able to process its client's orders without any delays. In addition these oil brokers do not send requotes to their clients something that most Oil Trading traders regard as a huge advantage.
This also enables the STP Crude Oil Trading Brokers to allow its clients to trade during the release times of financial news without any restrictions. Other online crude oil 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 Crude Oil Brokers provide the best 24-hour execution & access to order execution due to high internal liquidity rate & reliable inter-bank partners they have.
Types of Oil Trading Brokers in Crude Oil Trading - Types of Brokers in Crude Oil Trading Market - Types of Crude Oil Trading Market Brokers - Type of Broker in Oil Trading - Types of Crude Oil Brokers - Types of Broker Oil Trading.
