Types of Brokers in Indices
Type of Broker in Indices Trading
STP or Straight Through Processing, is the name given to indices brokers that, when upon receiving a client order they will pass on the indices orders directly to their indices liquidity provider. Stock Indexes 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 indices brokers the most recommended Stock Indexes broker type. The Straight Through Processing Indices Brokers will also not send re-quotes to its clients something that most investors regard as very important. The Straight Through Processing execution will also in effect will allow its clients to trade during the release of indices news without any restrictions.
Straight Through Processing indices brokers benefit from having several liquidity providers and an increase in the number of providers in the system means better 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 headings below don't seem like a repetition.
- Reasons why Indices Brokers choose Straight Through Processing execution
- Reasons why Traders Choose Straight Through Processing execution
Reasons why Indices Brokers choose to be STP
In addition to the fact that most indices traders prefer Straight Through Processing 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 profitable trades, a Straight Through Processing execution often implies that there is No Dealing Desk (NDD) and subsequently has less expenses through its staff salaries.
An STP is compensated through a markup on the spread it obtains from its liquidity provider and/or commissions imposed for each trade. As most liquidity providers of STP execution are banks on the Interbank market, the majority of which offer fixed spreads this allows the STP Stock Indexes Brokers to provide both fixed and/or variable spreads to its clients.
Each time a client trades through a Straight Through Processing platform, the STP will always make a profit. As STP indices brokers add a small markup to the spread they receive from their provider when getting quoting 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 indexes price that it receives from its best bid/ask liquidity provider before passing the rates onto the client via the straight through processing electronic platform.
As the client places the order through the Straight Through Processing platform, the stock indices orders are then sent directly to the liquidity provider and as such the STP executes the same orders as the client at a slightly better stock indexes price which is the markup.
Reasons why Indices Traders Choose STP indices brokers
Clients often choose to execute trades via an STP as it often implies there is no Dealing Desk, which in turn means that the indices broker is more transparent with the clients.
The Traders enter trades into a true market instead of an artificial market that may be created by a market maker. Client trades obtain better and faster fills through an STP.
The better and faster fills are obtained directly from the many competitive market bids and offers coming through the Straight Through Processing liquidity providers, which provide for more liquidity within the indices market and in turn this implies lower execution indices prices for the client.
Client transactions with an STP means there is anonymity for the client as there is no Dealing Desk monitoring the transactions of orders coming in from each client. The trading Indices orders are instead executed automatically through the stock indexes trading market network anonymously.
Another Type of Online Stock Indexes Broker is ECN
What is an ECN?
Electronic Communications Network- ECN provide traders with real time data quotes straight from the network of banks that trade Indices- The Interbank market. Since these ECN Stock Indexes Brokers offer real time data quote from these network via their own ECN Indices Broker network which connects directly to the Interbank network of banks, they are known as ECN technology indices brokers, short form is ECN.
ECN will show the entire bid and ask offers currently available in the stock indexes trading market from banks. An ECN will allow traders 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 indices traders trading through an ECN Stock Indexes Broker gets high liquidity and execute trades very quickly and instantly without getting re-quoted.
Most Traders ask which is the best between the STP and the ECN? And What is the difference between these two?
Has many liquidity providers, but chooses the best at any one time automatically for the trader. Therefore when a trader places a trade the stock indices orders will be passed direct to this interbank.
Therefore STP is like ECN the only difference is that the STP Indices Brokers automatically chooses the best one at that particular time and does it automatically for the trader.
Has many liquidity providers from which a trader will see all at the same time and choose which to trade, It is like having 10 Stock Indexes brokers to choose from which to trade.
The ECN a trader will have to look at many streaming quotes at the same time and choose one, this streaming quote will have varying spreads and a trader chooses the lowest spread.
There is no much difference between ECN and STP, that is why some traders or some indices brokers will use the term interchangeably, because the only difference between STP execution from the ECN execution is that the STP only chooses to have only one liquidity provider while ECN implements a wide variety of liquidity providers and it is up to the trader to choose which liquidity provider to choose from while trading.
According to reviews, these indices brokers are also have the lowest spreads, therefore if you are looking for the lowest spreads it is good to choose an STP.
Most online indices brokers do not want to clutter the traders workspace with multiple indices streaming quotes from various different places which might confuse the indices trader, especially the novice indices traders who do not know what is what, that is why most Stock Indexes brokers might be ECN but only choose to display only one streaming quotes 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 a account with an ECN you would get like 10 quotes of Indices price from different banks and to trade you would have to chose the quote from one of these banks. 10 indices quotes for every indices pair would make your Indices platform workspace too crowded (An ECN Lists Spreads from many liquidity providers). Another thing is that you would need a more complex trading platform to 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 account you will have to pay additional commissions on top of spreads. This is also another reason why to choose STP since unlike ECN, STP do not charge commissions. This means that the ECN is not the cheapest execution method and will charge traders extra commissions adding onto your transaction costs.
STP Stock Indexes Brokers offer the best liquidity conditions for clients to make profitable trades
STP indices brokers do not have a dealing desk and therefore this provides for full trade transparency, faster and better order fills. The full transparency means this type of indices broker does not create an artificial market for clients, but instead shows a trader the real time data quote from an electronic network of banks and allows the trader to enter the true market conditions created by the various indices market participants.
STP - is the name given to indices brokers that; upon receiving of a client order they will pass on the indices orders directly to the network of banks and as such there is no intermediary who will be involved in the order execution in other words the STP Execution will not be filtering orders through a Dealing Desk. The absence of a Dealing Desk is what makes the electronic communication network the best choice for many traders.
With the absence of such an intermediary process such as the dealing desk the STP is able to process its clients trading orders without any delay. In addition these indices brokers do not send re-quotes to their clients something that most Indices investors regard as a huge advantage.
This also enables the STP Stock Indexes Brokers to allow its clients to trade during the release times of financial news without any restrictions. Other online stock indexes brokers might not have the liquidity of an STP and might in turn lock out trading for a few minutes before and after a news release.
STP Stock Indexes Brokers provide the best 24-hour execution and access to order execution due to high internal liquidity rate and reliable interbank partners they have.
Types of Indices Brokers in Stock Indexes - Types of Brokers in Stock Indexes Market - Types of Stock Indexes Market Brokers - Type of Broker in Indices Trading - Types of Stock Indexes Brokers - Types of Broker Indices Trading.