Two Different Types of Stock Indices Brokers

Straight Through Processing Stock Indices Brokers and Electronic Communications Network Indices Brokers

STP or Straight Through Processing, is the name given to brokers that, when upon receiving a client order they will pass on the indices orders directly to their indices liquidity provider. Stock Indices Liquidity providers can include Banks and as such there is no intermediary involved in the order processing in other words the Straight Through Processing does not filter the indices orders through a Dealing Desk. The absence of a Dealing Desk intervention is what makes this electronic trading platform a Straight Through Processing.

With the absence of an intermediary process (dealing desk) the STP, Straight Through Processing execution will be able to process its clients orders instantly without any delay. This makes STP brokers the most recommended Stock Indices broker type. The Straight Through Processing Indices Brokers will also not send re-quotes to its clients something that most indices traders regard as very important. The Straight Through Processing execution model will also in effect allow clients of the STP broker to trade during the release of economic news without any restrictions.

Straight Through Processing indices brokers benefit from having several liquidity providers and this increased number of liquidity providers in their system means better order fills for the client. A large number of STP indices brokers will use banks trading on the Interbank market as their liquidity providers.

Before Reading Spot the difference between these two headings so that the two headings below don't seem like a repetition.

• Reasons why Indices Brokers choose Straight Through Processing execution - STP Execution Model
• Reasons why Indices Traders Choose Straight Through Processing execution - STP Execution Model

Why Indices Brokers Choose STP Execution Model

In addition to the fact that most indices traders prefer STP indices brokers due to the fact that a clients losses are not a indices brokers profit. It is therefore in the Indices broker 's interest for the client to make profit when trading, STP execution often implies that there is No Dealing Desk (NDD) and subsequently the indices broker has less expenses through its staff salaries.

An STP Stock Indices Broker is compensated through a markup on the indices spread it obtains from its liquidity providers and/or commissions imposed for each stock indices trade. As most liquidity providers of STP stock indices brokers are banks on the Interbank market, the majority of which offer fixed spreads this allows the STP Brokers to provide both fixed and/or variable spreads to its clients.

Each time a client trades through the STP platform, the STP broker will always make a profit. As STP brokers add a small markup to the spread they receive from their liquidity provider when getting quotes of bid/ask rate. The STP Indices Broker will apply this markup by a certain amount of fractional pips to the bid and ask stock indices price that it receives from its best bid/ask liquidity provider before passing the rates onto the client through their STP electronic platform.

As the client places an order through the STP platform, the indices orders are then sent directly to the liquidity provider and as such the STP broker executes the same orders as the client at a slightly better stock indices price which is the markup.

Why Indices Traders Choose STP Brokers

Indices traders often choose to execute their stock indices trades through an STP broker as it often implies there is no Dealing Desk, which in turn means that the STP indices broker is more transparent with the clients.

The Indices traders enter trades into a true market instead of an artificial market that may be created by a market maker indices broker. Client stock indices trades obtain better and faster fills through an STP execution model.

The better and faster fills are obtained directly from the many competitive indices market bids and offers coming through the STP liquidity providers, which provide for more liquidity within the online interbank indices market and in turn this leads to lower execution indices prices for the client.

Client indices trade transactions with an STP broker means there is anonymity for the client as there is no Dealing Desk monitoring the indices trade orders coming in from each client. The indices orders are instead executed automatically through the interbank market network anonymously.

Another Type of Stock Indices Broker is ECN Broker

What is an ECN Indices Broker?

Electronic Communications Network- ECN indices broker provide indices traders with real time stock indices price data quotes straight from the network of banks that trade Indices- The Interbank Market. Since these ECN brokers offer real time stock indices price data quotes from these interbank network via their own Electronic Communication Network - which connects directly to the Interbank network of banks, they are known as ECN technology indices brokers, short form is ECN Brokers.

ECN indices brokers will show the entire bid and ask offers currently available in the stock indices trading market from banks. An ECN indices broker will allow stock indices traders to place their indices orders straight through to the stock indices market. The liquidity is not provided by the indices broker but by this Interbank network of banks. This way indices traders trading indices through an Electronic Communication Network gets high liquidity and executes stock indices trades very quickly and instantly without getting re-quoted.