In this article, we explain what an STP broker is, its characteristics, advantages and disadvantages, and how they work. STP brokers send orders directly to liquidity providers, offering transparency and avoiding conflicts of interest.
Straight Through Processing (STP) brokers are an alternative in the investment world, as there are different types of brokers through which buy and sell orders for assets can be executed.
This post aims to illustrate what an STP broker is, its characteristics, advantages and disadvantages, and other aspects that demonstrate the importance of STP brokers when investing.
What types of brokers exist?
In the market, there are various types of brokers, including:
- Direct market access brokers, also called No Dealing Desk brokers or Straight Through Processing (STP) brokers.
- Market makers, also known as Dealing Desk (DD) brokers.
- Electronic Communication Network (ECN) brokers
What is an STP broker?
The term STP is the acronym for Straight Through Processing, which in Spanish would be something like “Direct Procedure.” The acronym uses the term “Direct,” which gives a clue as to how these brokers operate.
The Straight Through Processing (STP) broker directs its clients’ operations directly to providers, which are usually financial institutions or other brokers. Thus, it functions as an intermediary in the operations, without intervening in the prices indicated by the liquidity providers.
How do STP brokers work?
STP brokers direct users’ orders directly to liquidity providers, meaning financial institutions, banks, Market Maker brokers, among others.
The orders go directly to the prices offered by the providers, acting as an intermediary in the operations. In summary, their function is to find the best price options and show them to the trader.
What are the characteristics of STP brokers?
These brokers theoretically seek the best bid price and the best ask price from all their providers, and they do so independently, so that a bid can be obtained from one broker and an ask from another.
In the process, different prices from various providers can be obtained, which means the best possible price for the client is always achieved. Sometimes negative spreads can also occur with liquidity providers’ prices, but in practice this doesn’t happen for the trader because when the STP broker adds the mark-up, the spread for the client is positive.
STP brokers cannot offer market depth. Also, the spreads that these brokers offer are variable, as they must always be in line with market conditions, which are extremely variable, meaning that their liquidity providers will always be changing their bid and ask prices depending on the specific market situation.
Another characteristic of STP brokers is that they don’t have the problem of requotes, which have always been the subject of complaint from many traders with some Market Maker brokers.
What are the advantages and disadvantages offered by STP brokers?
STP or Direct Processing brokers send traders’ orders directly to providers. When trading, a series of advantages and disadvantages can be observed.
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Do STP brokers charge commissions for opening and closing trading positions?
STP brokers don’t charge trading commissions, but rather add a mark-up or spread to the price provided by the providers. This type of broker seeks the best market prices, both ask and bid, and the spreads they offer are usually positive.
What are the benefits of using STP Brokers?
One of the benefits of using STP brokers is that they are not subject to requotes. The main principles of STP are to shorten order execution times. This leads to a reduction in slippage and requotes and allows you to have access to the best possible prices.
You can have a small profit margin on each operation and this will vary from one broker to another. This is how an STP broker will make money. You need to have a larger amount of trading capital with an STP broker.
What commissions or fees do STP brokers charge?
In some way, STP brokers offer competitive commissions and fees when trading with them. Something important to know is that STP brokers don’t charge a cent for depositing and withdrawing funds. However, it is recommended to check this case with your broker once you decide to trade.
What deposit and withdrawal options are available with STP Brokers?
There are several ways in which you can deposit funds into your STP broker trading account. Each STP broker platform is slightly different in this regard.
STP brokers offer a large number of accepted payment method options. Below are the most frequently accepted payment methods:
- Credit and debit cards
- Bank transfer
- Electronic wallets
The following is a list of recommended STP brokers: The best STP Forex brokers
