Various Types of Brokers
Types of Brokers: STP Brokers
Most trader ask what is the difference between the STP & ECN?
STP Broker
STP has many liquidity providers, but selects the best one at any one time automatically for the trader. Therefore when a trader places a trade the stock orders will be passed direct to this interbank network of liquidity providers - after the liquidity provider with the low spread is selected automatically by the STP execution model.
Therefore STP broker is like ECN broker the only difference is that the Straight Through Processing Brokers automatically chooses the best fill at that particular time of trade execution & does it automatically for the trader.
ECN Broker
ECN broker has many liquidity providers from which a trader will see all at the same time & select which liquidity provider to trade with, It's like having 10 brokers quotes to select from which to trade - these ten quotes are for the same indices instrument - each quote from a different liquidity provider.
ECN broker quotes model means a trader will have to look at many streaming indices quotes at the same time & choose one, this realtime quote will have varying spreads markups & a trader selects the low spreads.
There is no much difference between ECN broker & STP broker, that is why some traders or some brokers will use the term interchangeably, because the only difference between Straight Through Processing execution vs Electronic Communication Network execution is that STP broker only chooses to have display list one liquidity provider with the best markup at the time of trade while ECN implements a wide variety of liquidity providers & displays all their quotes to the traders & it is upto the trader to choose which liquidity provider to select from while trading.
According to broker reviews, these ECN and STP brokers are also have the lowest indices spreads, therefore if you're looking for the low spread it is good to select an STP broker or an ECN broker.
Most online brokers don't want to clutter the traders work-space with multiple streaming quotes from various different liquidity providers for the same stock indices at the same time because this might confuse stock traders, especially the novice traders who do not know what is what from what, that's why most brokers might be ECN brokers but only choose to display only one streaming stock price quotes from only one interbank liquidity provider, therefore becoming more of an STP broker rather than an ECN broker, but the model of trade execution operation is basically one & the same.
If you were to open a account with an ECN broker you would get like 10 different quotes of Stock Indices from different liquidity providers and to trade you would have to chose the quote from one of these liquidity provider. 10 quotes for every instrument would make your stock trading platform workspace too crowded (An ECN Broker Lists Spread from many liquidity providers). Another thing is that you would need to have a more complex platform to live stream these multiple indices quotes, this type of platform would not make the best trading platform software to trade with. Furthermore, if you open an ECN trading account you will have to pay additional commissions on top of indices spreads. This is also another reason why to select STP broker since unlike ECN broker, STP broker don't charge commissions on top of spreads. This means that the ECN broker execution is not the cheapest execution technique and will charge traders extra commissions on top of spread adding on to your indices trading transaction costs.
STP Brokers offer the best liquidity for stock traders to make trades
STP brokers do not have a indices dealing desk and therefore this provides for full trade order transparency, faster & better order fills. The full order transparency means this type of STP broker doesn't create an artificial trading market environment for clients, but instead shows a trader the real time stock price data quotes from an electronic network of banks and allows the trader to enter the true market conditions created by various market participants.
Straight Through Processing Brokers- is the name given to brokers that: upon receiving of a order they will pass on the orders directly to the network of banks through liquidity providers and as such there is no intermediary who will be involved in the order execution in other words the Straight Through Processing Execution Model will not be filtering trade orders through a Indices Dealing Desk. The absence of a Indices Dealing Desk is what makes the STP execution model the best choice for many online stock traders.
With the absence of such an inter-mediary process such as the dealing desk the STP broker is able to process its clients stock orders without any delays. In addition STP brokers do not send requotes to their clients something which most traders regard as an advantage.
This also enables the Straight Through Processing Brokers to allow stock traders to trade during the release times of financial news without any restrictions. Other online brokers might not have the liquidity of an STP broker and might in turn lock out indices trading for few minutes before and after a indices news release.
Straight Through Processing Brokers provide the best order execution & access to trade order execution due to high internal liquidity rate provided by multiple liquidity providers and reliable inter-bank partners they have.
Various Types of Brokers - The Difference Between STP Broker and ECN Broker - Difference Between STP Broker and ECN Broker - Types of Brokers: STP Brokers - Types of Brokers: ECN Brokers.
