Two Different Types of Commodity Trading Brokers

Straight Through Processing Commodity Brokers & Electronic Communications Network Commodity Trading Brokers

STP or Straight Through Processing, is the name given to brokers that, when upon receiving a client order they will pass on the commodity orders directly to their commodity trading liquidity provider. Commodity Trading Liquidity providers can include Banks and as such there is no inter-mediary involved in the order processing in other words the Straight Through Processing doesn't filter the commodity orders through a Dealing Desk. Absence of a Dealing Desk intervention is what makes this electronic trading software a Straight Through Processing.

With the absence of an intermediary process (dealing desk) the STP, Straight Through Process execution will be able to process its clients orders instantly without any delay. This makes STP brokers the most recommended Commodities broker type. The Straight Through Processing Commodity Trading Brokers will also not send re-quotes to its clients something that most traders regard as very important. Straight Through Process 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 commodity 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 commodity brokers will use banks trading on the inter bank markets as their liquidity providers.

Before Reading Spot the difference between these two headings so that the 2 headings below do not seem like a repetition.

• Reasons why Commodity Brokers select Straight Through Process execution - STP Execution Model
• Reasons why Commodities Traders Select Straight Through Process execution - STP Execution Model

Why Commodities Trading Brokers Choose STP Execution Model

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

An STP Commodity Trading Broker is compensated through a markup on the commodity trading spread it obtains from its liquidity providers and/or commissions imposed for each trade. As most liquidity providers of STP commodity 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 Commodity Trading Broker will apply this markup by a certain amount of fractional pips to the bid and ask commodities 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 commodity 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 commodities price this is the markup.

Why Commodities Traders Choose STP Brokers

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

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

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

Client commodity trades with an STP broker means there's anonymity for the client as there is no Dealing Desk monitoring the commodity trade orders coming in from each client. The commodity orders are instead executed automatically through the inter bank markets network anonymously.

Another Type of Commodity Trading Broker is ECN Broker

What is an ECN Commodity Trading Broker?

Electronic Communications Network- ECN commodity broker provide commodity traders with real time commodities price data quotes straight from the network of banks that trade Commodities- The Interbank Market. Since these ECN brokers offer real time commodities 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 commodity brokers, short form is ECN Brokers.

ECN commodity brokers will show the entire bid and ask offers currently available in the commodity market from banks. An ECN commodities broker will allow commodities traders to place their commodity orders straight through to the commodities trading market. The liquidity isn't provided by the broker but by this interbank net-work of banks. This way commodity traders commodity trading through an Electronic Communication Network gets high liquidity and executes commodities trades very quickly and instantly without getting re quoted.