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STP – forex broker

The last of of four brokers is termed the STP or Straight Through Processing broker, and here again there tends to be some confusion as to where a market maker broker ends and an STP broker starts.

STP forex brokers

The STP broker is a hybrid of many things and is probably more akin to a market maker than the other $orex brokershave reviewed so far in this analysis. In simple terms an STP broker will display his or her own quotes most of the time, which are based on the interbank rates, in much the same way as a market maker. Now where the STP broker differs is in the handling of your orders into the market, and it is almost as though there is a fork in the road, with some orders going in one direction, and others taking an alternative route. In the case of the STP broker, some orders are routed into the interbank liquidity pool, whilst others will be held by the STP broker and either hedged or traded against, as with the market makers we looked at earlier. This raises several questions, not least of which is how do you recognise which brokers are STP and which are market makers, and if you are trading with an STP broker, how do you know where your orders will be routed or managed? If we take the second of these questions first, there is always much debate about this, but it is generally agreed that the A book clients ( the successful traders ) will be routed to the interbank market, whilst the B book clients ( the small losing traders ) will be held in house. The reasons behind this are relatively simple to understand. The A book clients are more successful and will generally be trading in larger lot size, so routing these orders into the market for a guaranteed spread in return is a low risk way of managing these trades, for a guaranteed return. The B book clients on the other hand will generally be small orders, probably losing trades, and the STP broker has the option to trade against the client, or hedge in the market, but on a small size of trade and therefore lower risk. In this way the STP broker profits from losing trades from his B book clients and from earning commissions on successful trades routed into the market.

The next questions is of course how we as forex traders can differentiate between all the different types of forex brokers, and this is where it becomes more complicated. The easiest to spot are the two extremes with an ECN at one end and a market maker broker at the other. The ECN broker will charge commission, will have a complex platform which will include market depth, and probably not offer any charts or additional services. Spreads quoted will be variable according to market conditions, and the ECN broker will allow all forms of $orex tradingategies. The maket maker will offer a simple forex trading platform, free charts, free trading, and free streaming news feeds, along with a wide range of trading signals and forex forecasts to help you to trade. The spread will be fixed, and trading strategies will be limited. The other two types, the NDD and STP ate very difficult to identify and even though you ask the right questions, it may not be clear as to which group the broker you are considering ultimately belongs. The simple answer is to ask, and check in the forex forums to see what other traders are saying about the broker you are considering for your $orex demoount, but at least I hope you have an idea of the questions to ask from the above information.