Why Traders Choose STP Brokers and Difference Between STP CFD Brokers & ECN CFDs Brokers
Straight Through Processing is the name given to online cfd brokers that; when upon receiving a client order they will pass it directly to their CFD Trading 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 cfd orders through a Dealing Desk.
STP Brokers
With absence of an inter-mediary process (dealing-desk) the Straight Through Processing will be able to process its client's orders instantly without any delay. This makes STP cfds trading brokers the most recommended cfd broker type because they do not re-quote their clients something that most investors regard as very important. 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 2 headings so that the headings below do not seem like a repetition.
- Reasons why Top CFD Brokers prefer this execution
- Reasons why Top CFD Traders prefer this execution
Reasons Why CFD Brokers Choose This Model
As the clients places their cfd orders through the Straight Through Processing platform, the cfd orders are then sent directly to the liquidity providers and as such the STP Broker executes trades efficiently & 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 cfd market and in turn this implies the client gets the best fills.
Client transactions with an STP cfds trading broker means there is anonymity for the client orders which are instead executed automatically through the interbank market network anonymously.
ECN Brokers
Electronic Communications Net-work ECN provides traders with realtime data quotes straight from net-work of banks that form the Interbank markets.
ECN CFD Brokers will show the entire bid and ask offers currently available in the cfds market from banks. Electronic Communications Network allows investors to place their cfd orders straight through to the cfds market. Liquidity is not provided by the broker but by this interbank net-work 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 CFD Brokers vs ECN CFD Brokers
Most Investors ask which one is the best between the STP Broker and the ECN Broker? & What is the difference between these two? - Compare cfd brokers ECN & STP execution models?
STP Broker
STP cfd brokers many liquidity providers, but chooses the best at any one time automatically for the trader. Therefore when a one places a trade and the cfds orders will be passed direct to this interbank.
Therefore CFD Trading STP brokers are like CFD Trading 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 cfd brokers have many liquidity providers from which a trader will see all at the same time and then select which one to trade, It is like having 10 cfds brokers to select from which to trade.
For true CFD Trading 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 low spread for himself among the 10 displayed for the same cfd.
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 cfd 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 trader you might not be able to chose the best as these change very fast.
According to reviews, this execution model also have the low spread, therefore if you are looking for the low spread it's good to choose an STP.
Most online brokers don't want to clutter the platform work space with multiple cfd streaming quotes from various different places which might confuse the trader, especially the beginners who don't know what is what, that is why most brokers might be implementing an Electronic Communications Network but decide to only display one streaming cfd 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 CFD Trading ECN cfd broker you would get like 10 quotes of each cfd trading instrument from different banks and to trade you would have to chose from one of these banks - 10 cfds price quotes for every cfd instrument would make your cfd trading platform workspace too crowded. Another thing is that you would need a more complex cfd 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'll have to pay additional commissions on top of spreads. This is also another reason why to select STP since they do not charge commissions.
Because most brokers are MT4 cfd brokers & they want to make retain the platform as it is which makes it easier to operate & which is why this software is the most popular, these MT4 cfd brokers will only display the low spreads only after automatically choosing it using their algorithms, then display this low spread alone at all the time.
STP offer the best execution conditions for clients to make 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 cfd market directly at the best fill level.
The best cfd 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 CFD Trading traders regard as a huge advantage.
Straight Through Processing provides the best 24 hour access to market execution due to the high liquidity that they have from their reliable inter bank partners.
