Why Traders Choose STP Brokers and Difference Between STP Indices Brokers and ECN Indices Brokers
Straight Through Processing is the name given to online indices brokers that; when upon receiving a client order they will pass it directly to their Indices Liquidity Provider. Liquidity providers (LP) can include Banks and as such there is no intermediary involved in the order processing in other words the Straight Through Processing model does not filter the indices orders through a Dealing Desk.
How STP Model Works
With the absence of an intermediary process (dealing desk) the Straight Through Processing will be able to process its clients orders instantly without any delay. This makes STP indices brokers the most recommended indices broker type because they do not re-quote their clients something that most investors regard as very important. The Straight Through Processing will also in effect will allow its clients to trade during the release of financial news without any restrictions.
These brokers benefit from having several liquidity providers and an increase in the number of liquidity providers in the system means better fills for the client.
Before reading on, spot the difference between these two headings so that the headings below don't seem like a repetition.
- Reasons why Top Indices Brokers prefer this execution
- Reasons why Top Indices Traders prefer this execution
Reasons Why Indices Brokers Choose This Model
As the clients places their indices orders through the Straight Through Processing platform, the stock indices orders are then sent directly to the liquidity providers and as such the STP Broker executes trades efficiently and quickly thus providing better fills for their customers using this model.
Why Traders Choose Straight Through Processing Execution
Client trades obtain better and faster fills through this method.
The better and faster fills are obtained directly from the many competitive market bids and offers coming through the many LPs, which provide for more liquidity within the stock indexes trading market and in turn this implies the client gets the best fills.
Client transactions with an STP indices broker means there is anonymity for the client orders which are instead executed automatically through the interbank market network anonymously.
Another Type of Execution is ECN
Electronic Communications Network provides traders with real time data quotes straight from the network of banks that form the Interbank market.
ECN Indices Brokers will show the entire bid and ask offers currently available in the stock indexes trading market from banks. Electronic Communications Network allows investors to place their indices orders straight through to the stock indexes trading market. The liquidity is not provided by the indices broker but by this Interbank network of banks. This way traders transactions through an Electronic Communication Network and therefore they can execute trades very quickly and instantly without getting re-quoted.
STP Brokers and ECN Brokers Comparison
Most Investors ask which is the best between the STP Broker and the ECN Broker? And What is the difference between these two? Compare indices brokers ECN and STP execution models?
STP Broker
STP indices brokers many liquidity providers, but chooses the best at any one time automatically for the indices trader. Therefore when a one places a trade and the stock indices orders will be passed direct to this interbank.
Therefore Indices STP brokers are like Indices ECN brokers, the only difference is that the Straight Through Processing model automatically selects the best quote, at that particular time of trade execution and does it automatically for the investor.
ECN Broker
ECN indices brokers have many liquidity providers from which a indices trader will see all at the same time and then select which one to trade, It is like having 10 indices brokers to choose from which to trade.
For true Indices ECN brokers, one will have to look at many streaming quotes at the same time and choose one, each will having varying spreads and the investor will try to select the lowest spread for himself among the 10 displayed for the same indices chart.
There is no much difference between these two, that is why some traders or some brokers will use the term interchangeably, because the only difference between the two is that the STP only chooses to display automatically the best indices trading quote chosen from a multiple of liquidity providers while ECN shows all of them at the same time and it is up to the investor to select which one to open an order with - as a indices trader you may not be able to chose the best as these change very fast.
According to reviews, this execution model also have the lowest spreads, therefore if you are looking for the lowest spreads it is good to choose an STP.
Most online brokers do not want to clutter the platform workspace with multiple indices trading streaming quotes from various different places which might confuse the indices trader, especially the beginners who do not know what is what, that is why most brokers might be implementing an Electronic Communications Network but decide to only display one streaming indices trading quote from only one interbank, therefore becoming more of an STP rather than an ECN, but the model of operation is basically one and the same.
If you were to open an account with a Indices ECN indices broker you would get like 10 quotes of each indices instrument from different banks and to trade you would have to chose from one of these banks - 10 stock indexes price quotes for every indices chart would make your indices trading platform workspace too crowded. Another thing is that you would need a more complex indices trading platform to stream this amount of data, this type of platform would not make the best option to trade with. Furthermore if you open an ECN account you will have to pay additional commissions on top of spreads. This is also another reason why to choose STP since they do not charge commissions.
Because most brokers are MT4 indices brokers and they want to make retain the platform as it is which makes it easier to operate and which is why this software is the most popular, these MetaTrader 4 indices brokers will only display the lowest spread only after automatically selecting it using their algorithms, then display this lowest spread alone at all the time.
STP offer the best execution conditions for clients to make profitable trades
STPs execution method provides for full trade transparency, faster and better order fills. The full transparency means a investors receives the real time data allowing them to enter the stock indexes trading market directly at the best fill level.
The best indices brokers implement this model because this model is able to process its client's orders without any delay. In addition this model does not re-quote something that most Indices investors regard as a huge advantage.
Straight Through Processing provides the best 24-hour access to market execution due to high liquidity they have from their reliable interbank partners.
