Is Pepperstone a genuine STP broker?

Pepperstone is one of Australia's biggest brokers. Known for its Razor account, which offers institutional-grade variable spreads as low as 0 pips, Pepperstone has become a top choice for traders everywhere. However, some people wonder: is Pepperstone a real ECN broker?

Pepperstone may be classified as an ECN broker with a "no-dealing desk" policy, but not necessarily as a "true ECN broker". 

Mixed reviews have been found on the internet
When looking for an answer on the web, you may find conflicting results from multiple sources. Some say: "Yeah, Pepperstone is a real ECN broker". Others say "Nope, Pepperstone is an STP broker".

Well, the answer isn't simple, technically speaking.

First of all, Pepperstone offers two types of accounts. One of them is an STP account, while the other one adheres to ECN standards.

Second, Pepperstone relies on an innovative STP framework to produce ECN prices. This frame belongs to the STP category, but is unique in its own way. Accordingly, the answer to the question "Is Pepperstone a real ECN broker?" will highly depend on what you consider a true ECN broker.

Pepperstone's response:
Pepperstone has responded to this claim in the FAQ section of its website. Here is a direct quote they issued yesterday:

"Is Pepperstone an ECN/STP broker or a market maker? This question is often asked. Part of the difficulty in answering it is that the terms "ECN" and "STP" are marketing terms derived from 'listed market regime and that different providers in the industry give them different meanings.

"A true ECN or STP broker is an introducing broker or a broker who uses someone else's system under a white label agreement."

"We are the issuer of the products we supply and we have control over the systems we use, because we prefer that our traders have a direct relationship with us."

"That geing said, we can be considered an 'ECN' broker as we don't handle any trading on our own. Instead, we obtain our prices from external liquidity providers (prices are not provided by us or by a person related to us) via an electronic communication network, and these prices are transmitted to you and to our other traders without the intervention of a dealing desk."

"Hedging each individual trade increases the risk of something happening in the second leg of the trade, which would impact the first leg. This is why we don't hedge every position with our liquidity providers. third parties, as we want to provide you with a better product by giving you price certainty and speed in how we deal with you Please know that we take our risk management practices very seriously and closely monitor our exposure to ensure that we aren't exposed to undue risk."

"We consider a 'market-making broker' to be someone who operates a dealing desk and creates their own prices, which may be based on their own trading positions or risk exposure. We don't currently operate this way, so although we have market maker permissions on our AFS license (like any other issuer of licensed products in Australia), we don't consider ourselves a market maker."

Pepperstone has admitted to being an ECN/STP broker and not a market maker. At the same time, they did not clearly state whether they were an STP or ECN broker.

Why should we consider Pepperstone an ECN broker?
Traders typically choose an ECN broker for several important features: low spreads, fast execution, and transparent pricing through depth of market. We consider Pepperstone an ECN broker because it offers these features on their Razor accounts, even though they don't operate on an ECN framework.

Pepperstone offers two types of accounts (Standard & Razor) and three types of trading platforms (cTrader, MT4, & MT5). The Standard account is an STP type trading account, with no commission fees and an average spread of 0.8 pips on EUR/USD. In contrast, the Razor account perfectly mirrors an ECN account.

Pepperstone's Razor account promises institutional grade spreads with zero margins. The average spread on EUR/USD can be as low as 0.0-0.3 pips. Most orders are executed in less than 35 milliseconds (based on order processing time once received in Pepperstone's bridge). You can also access DOM functionality on cTrader and MT5.

All this isn't cheap. But the Razor account commission fees are not the most expensive in the industry. They are only 7 AUD$ per round for 100k traded (may vary depending on your preferred platform and base currency). Overall, we can choose Pepperstone's Razor account as an ECN account that is suitable for scalping and algo trading.