The acronym STP stands for Straight Through Processing. This is a type of technology used by brokers to electronically transmit trades directly to the market. STP forex brokers execute trades on behalf of their clients by sending them directly to liquidity providers, such as banks or interbank exchange houses. Transactions don't go through a "Dealing Desk" - they go straight to the market.
STP brokers are a type of NDD (No Dealing Desk) brokerage, which means that they don't use a dealing desk to complete transactions. Dealing desk brokers, known as market makers, fulfill the other end of a client's transaction. They do this either by finding another client to take the opposite side or by taking on the trade themselves.
Since market makers aren't directly connected to the broader market, the number of clients who can take the opposite side of your trade is limited. Therefore, the broker will often buy the stock you are selling, for example, by making the market himself.
Regulated STP forex brokers have slightly different licenses than market makers. They are known as A-book brokers, while market makers are known as B-book brokers. (What is the A Book and the B Book of forex brokers?)
Another type of NDD broker is an ECN (Electronic Communication Network) broker. They are similar to STP brokers in that they both send your trades directly to the market. However, ECN brokers act as a center of liquidity, bringing together banks and financial institutions that compete to take the opposite side of your trade.
Retail traders often prefer STP brokers. Their business model has several advantages:
As STP brokers have most of the features that ECN and market makers offer, the disadvantages are limited:
Figuring out whether a broker is a genuine ECN broker, an STP broker or a market maker can be tricky. Some brokers don't clearly disclose their business model. However, some clues will help you find out for yourself:
STP brokers are those that have the technology to transmit forex trades directly to the market. They offer fast processing times and accurate quotes while allowing for small lot sizes, making them a good choice for retail traders. However, it's not always easy to know if your broker uses an STP model. If you start experiencing slippages, quotes that don't seem to be in line with the market or requotes that don't satisfy you, you can switch to one of the STP brokers in our regulated broker comparison page.
An STP broker routes trades directly to the market using Straight Through Processing technology. It follows an NDD (No-Dealing-Desk) model. STP brokers are generally the preferred choice for traders due to the accuracy of the price quotes and the trade processing speeds.
STP brokers are similar to ECN brokers in that they both use no-dealing-desk models that offer direct market access. However, ECN brokers route transactions to a pool of liquidity providers that they work with. They also tend to offer larger minimum lot sizes (0.1, or 10,000 units of the base currency).
ECN accounts mean faster execution speeds and reduced spreads, like those enjoyed by institutional traders. Your trades will be executed on the live forex market, instead of through a dealing desk. The downside is that ECN accounts often require high minimum deposits and large minimum transaction sizes.
Brokers can make it tricky to identify their exact business model, due in part to the fact that many traders prefer non-dealing-desk brokers. That being said, there are some clues you can look for. For example, strict rules on trading behaviour, very tight spreads and regular re-quotes suggest that it may be a market maker.
Yes, an STP broker is a broker with no dealing desk (NDD). It sends your trades directly to the market rather than going through a Dealing Desk. ECN brokers are another type of NDD brokers. "Dealing desk" brokers are also called market makers.