Why Traders Select STP Brokers & Difference Between STP Commodity Brokers & ECN Commodities Trading Brokers
Straight Through Processing is the name given to online commodities trading brokers that; when upon receiving a client order they will pass it directly to their Commodity Trading Liquidity Provider. Liquidity providers (LP) can include Banks & as such there is no intermediary involved in the order processing in other words the Straight Through Processing model does not filter the commodity orders through a Dealing Desk.
How STP Model Works?
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 commodities trading brokers the most recommended commodity broker type because they don't 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 & 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 do not seem like a repetition.
- Reasons why Top Commodity Trading Brokers prefer this execution
- Reasons why Top Commodities Traders prefer this execution
Reasons Why Commodity Trading Brokers Choose This Model
As the clients places their commodity orders through the Straight Through Processing platform, the commodity orders are then sent directly to the liquidity providers & 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 & faster fills through this technique.
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 commodity market and in turn this implies the client gets the best fills.
Client transactions with an STP commodities trading 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 Net-work ECN provides traders with realtime data quotes straight from net-work of banks that form the Interbank markets.
ECN Commodity Trading Brokers will show the entire bid and ask offers currently available in the commodities trading market from banks. Electronic Communications Network allows investors to place their commodity orders straight through to the commodities market. The liquidity isn't 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 Brokers and ECN Brokers Comparison
Most Investors ask which one is the best between the STP Broker & the ECN Broker? & What is the difference between these two? - Compare commodities trading brokers ECN and STP execution models?
STP Broker
STP commodities trading 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 commodities trade orders will be passed direct to this interbank.
Therefore Commodity Trading STP brokers are like Commodity 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 & does it automatically for the investor.
ECN Broker
ECN commodities trading 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 commodities trading brokers to select from which to trade.
For true Commodity 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 commodity.
There is no much difference between these two, that's why some traders or some brokers will use the term interchangeably, because the only difference between the 2 is that the STP only chooses to display automatically the best commodity 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're looking for the low spread it is good to select an STP.
Most online brokers do not want to clutter the platform work space with multiple commodity streaming quotes from various different places which might confuse the trader, especially the beginners who do not know what is what, that is why most online brokers might be implementing an Electronic Communications Network but decide to only display one streaming commodity 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 Commodity Trading ECN commodity broker you would get like 10 quotes of each commodity trading instrument from different banks and to trade you would have to chose from one of these banks - 10 commodities trading price quotes for every commodity instrument would make your commodities trading platform workspace too crowded. Another thing is that you would need a more complex commodities 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 commodities trading 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 MT4 commodities trading 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 commodity market directly at the best fill level.
The best commodity 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 Commodity 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.
