Choosing a reliable forex broker is always one of the important fundamental factors to achieve success in trading on the foreign exchange market. Besides ECN and MM exchanges, many traders also wonder about STP Forex. The article below from Learn Forex Trading will help you better understand STP Forex. At the same time, explain why this is a solution to guarantee traders’ orders.
Brief overview of STP Forex
Before diving into the detailed explanation of STP Forex, traders should understand an important concept: broker. This is a trading exchange or brokerage exchange in the foreign exchange market.
Clearly different from the stock market, where the broker only acts as an intermediary. Stock prices are managed and priced uniformly. No matter which broker you trade through.
What is the STP forex exchange?
STP (Straight Through Processing) is a liquidity provider and belongs to the NDD (No Dealing Desk) group. The exchange will directly transfer trading orders from customers to liquidity providers. Liquidity providers can be large banks. Are ECNs (ElectronLearn Forex Trading Networks) or other brokers?
- When the exchange receives a market price order, it sends an order of the same volume to the liquidity provider. The order will be sent at the best ask/bid price, on behalf of the STP exchange. When orders are executed by liquidity providers, the client’s order is physically executed with a spread added or subtracted from the market price.
- In the case of a limit order, the exchange will send an order of the same volume. The price is equivalent to the customer’s order price plus/minus the exchange’s spread to the liquidity providers. To provide the best bid/ask price for the given volume on behalf of the STP exchange. Once an order is matched by a liquidity provider, the customer’s order is considered executed.
The bid and ask prices of a currency pair that STP Forex displays to its clients are the best bid/ask prices to date provided by the exchange’s liquidity providers. The greater the number of liquidity providers, the greater the liquidity level of the STP exchange.
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3 variations of STP Forex broker
STP exchanges generate revenue through spreads added to prices from liquidity providers. Some STP brokers offer fixed spreads, while others offer variable spreads. Spread levels may fluctuate depending on forex market conditions. Usually, STP exchanges do not charge commission fees on each transaction. But the spread is usually higher than ECN forex.
There are actually three main types of STP Forex variations :
- White Label exchange: The exchange operates as a White Label to help individuals or organizations gain experience in IB. They have the ability to develop into a Broker brand. White Label exchange is a exchange that allows IB to open with its own brand. Pricing sources, software and management infrastructure are taken from a parent exchange. Regardless of whether the Mother Exchange is a “dealer” or not, when this White Label exchange pushes orders, it is also called an STP.
- Instant order matching exchange: Instant order matching exchange for customers based on available quotes. Push orders immediately to liquidity providers without holding orders. This exchange quickly creates transactions for customers without holding orders.
- Independent exchange: The Independent exchange does not interfere with orders, and does not hold orders. The exchange acts as a clear intermediary step, pushing orders directly to liquidity providers.
Points to note when trading forex on STP
When deciding on an STP Forex, in addition to creating a demo account and exploring Forex demo, there are three important things that you should pay attention to:
Spread of STP Forex
STP brokers can offer both fixed spreads and variable spreads. If the broker has only one liquidity provider or uses an algorithm to calculate fixed spreads. This will usually be a fixed spread. Fixed spreads can be a good choice when the market is highly volatile. To provide more stable spreads compared to fluctuating spreads.
However, there are some people who prefer variable (floating) spreads because of their flexibility. Although STP Forex will often add a small mark-up to compensate for the price difference.
Liquidity provider
The liquidity provider acts as the market’s supply source. For STP exchanges, choosing many reputable liquidity providers is the top priority. This helps ensure competition and prevents price manipulation or requotes if there is only one party providing liquidity.
Order matching mechanism of STP forex exchange
Choosing between Market Execution and Instant Execution is important. Market Execution is often highly appreciated because the exchange has many liquidity providers, is transparent, and has no requotes. At the same time, the speed can be faster than Instant Execution. Although there are cases where the matched price may differ slightly from the quoted price.
On the contrary, Instant Execution often leads to slow order matching speed and is prone to requotes. The exchange can easily “hug” customer orders.
See more: How to register ICMarkets broker account
Benefits when participating in trading on STP Forex
Participating in trading on STP Forex brings many important benefits to traders. Include:
- High liquidity: STP exchanges often connect directly with many liquidity providers. Including major banks and ECNs. This creates a high liquidity environment. To help traders execute buy and sell orders quickly and effectively.
- Competitive spreads: With multiple liquidity providers, STP exchanges often offer competitive spreads. This helps traders receive the best possible price when trading, increasing profits.
- No Requotes: STP exchanges help avoid requotes. Where the order execution price may change due to rapid changes in the market. This helps keep the trader at the expected order price.
- Transparency and honesty: STP exchanges often have transparent and honest trading conditions. Information about price, liquidity, and execution orders are all clearly displayed. This will help traders have a complete view of the market.
- Preventing order slippage: Reputable STP exchanges, often avoid slippage or order execution prices that is significantly different from the trader’s request price.
- Diverse trading opportunities: Joining STP Forex opens up diverse trading opportunities with many different currency pairs and financial instruments. To help traders expand their portfolio.
Conclude
Thus, the above article of Learn Forex Trading has helped traders understand more deeply about STP Forex. Hopefully, this useful information will help you improve your forex knowledge. From there, we can launch effective investment campaigns, earning high profits!
Frequently asked questions
How to choose a suitable STP exchange?
To choose the right STP exchange, you should consider the liquidity provider, trading conditions, spread, transparency, and reputation of the exchange. Reviews from other users are also a very important source of information.
What is the STP exchange?
STP is a type of foreign exchange exchange that uses Straight Through Processing technology. They directly transfer customer trading orders to liquidity providers without going through any other intermediary processing steps.
What is the difference between STP and ECN brokers?
STP exchange and ECN (Electronic Communication Network) exchange are both forms of the NDD (No Dealing Desk) exchange. However, there are some differences in the way they process orders and provide liquidity.
