What is an STP (Straight Through Processing) broker?

Brokers STP

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.

No Dealing Desk Vs Dealing Desk

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?)

types of brokers

STP vs ECN

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.

Benefits of using an STP broker

Retail traders often prefer STP brokers. Their business model has several advantages:

  • Processing speed The STP technology used by these brokers means that trade execution is done digitally and at high speeds. Some market maker brokers also use software to process trades, but many execute them manually through a Dealing Desk. This process can be slow and may result in trade denials notifications if the market is too volatile.
  • Quotes reflect the market - STP brokers trade directly with the market, so price quotes refect this and are accurate. Market makers sometimes offer artificial quotes to improve their margins.
  • No conflicts - Market maker brokers profit from their clients' losses, as they often take the other side of the trade. This can cause some brokers to operate in ways that may conflict with their clients' ability to be profitable. For example, they can offer artificial quotes or choose the orders they execute. STP brokers are tied directly to the market and therefore have no profit motives behind client losses. In fact, if their clients make money, they will often invest more with the broker!
  • Lot size - ECN brokers generally have a minimum lot size of 0.1 lots (the equivalent of 10,000 units of the base currency). This is because banks and other financial institutions operate with this minimum lot size. This can be prohibitive for retail traders who prefer to trade smaller volumes. STP brokers can often offer lower minimum lots. Admiral Markets and XTB, for example, both have a minimum lot size of 0.01.

The downside of STP brokers

As STP brokers have most of the features that ECN and market makers offer, the disadvantages are limited:

  • Spreads - STP brokers tend to offer wider spreads than Dealing Desk brokers. This is because Dealing Desk brokers make money from the losses of their clients. Therefore, they don't need to make so much income from spreads. With STP brokers, their income comes solely from the spreads and commissions they offer.
  • Hybrid models - Some brokers adopt a hybrid brokerage model. They can pass on some of your trades to the market and take the other side of the trade on others. It can be hard to know which brokers operate this way. You might just have to call a broker to get more details on how they proceed.

Identifying STP, ECN and Market Maker brokers

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:

  • Minimum lot size - If your broker offers a minimum lot size of less than 0.1, it's probably not an ECN broker. The lowest minimum lot sizes are usually offered by market makers and STP brokers.
  • Spreads - Brokers who claim to be the cheapest and have the tightest spreads of the market may be market makers. They often make money from their clients' losses and therefore don't need to create as much revenue through spreads. On the other end of the spectrum, ECN brokers usually offer tight spreads but charge commissions in order to generate profits.
  • Scalping rules - Scalping is a trading strategy that focuses on market quote inefficiencies to make profits. Traders can earn big returns using scalping strategies, which can hurt a Market Maker's results. More importantly, market makers will struggle to execute orders at the speed required by scalping strategies. Therefore, scalping is often forbidden at market makers while it's accepted at ECN and STP brokers.

Conclusion on STP brokers

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.

FAQ

What is an STP broker?

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.

What's the difference between ECN and STP brokers?

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).

My broker offers ECN accounts, what does this mean?

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.

How can I tell if my broker is a market maker?

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.

Are NDD brokers and STP brokers the same thing?

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.

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