Types of Market Brokers
Types of Broker Trading
STP or Straight Through Processing, is the name given to gold brokers that, when upon receiving a client trade order they will pass on the orders directly to their gold liquidity provider. XAUUSD Liquidity providers can include Banks & as such there is no intermediary involved in order processing in other words the STP doesn't filter the orders through a Dealing Desk. Absence of a Dealing Desk intervention is what makes this electronic platform a Straight Through Processing(STP).
With absence of an intermediary process (dealing desk) the STP, Straight Through Process execution will be able to process its clients orders instantly without having any delay. This makes STP online brokers the most recommended broker type. The Straight Through Processing XAUUSD Brokers will also not send re-quotes to its clients something that most traders regard as very important. The Straight Through Process execution will also in effect will allow its clients to trade during the release of gold news without any restrictions.
Straight Through Processing(STP)STP xauusd brokers benefit from having several liquidity providers and an increase in the number of providers in the trade system means better fills for the client. A big number of STP 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 headings below don't seem like a repetition.
- Reasons why XAUUSD Brokers select STP execution
- Reasons why Traders Choose STP execution
Reasons why XAUUSD Brokers choose to be STP
In addition to the fact that most traders prefer Straight Through Processing due to the fact that a client's losses are not a brokers profit. It's therefore in broker 's interest for the Client to make profitable trade transactions, a STP trade execution model often implies that there is No Dealing Desk (NDD) & 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 transaction. As most liquidity providers of STP execution are banks on the Interbank market, the majority of which offer fixed spreads this allows the STP XAUUSD Brokers to provide both fixed and/or variable spreads to its clients.
Every time a client trades through a STP platform, the STP will always make a trading profit. As STP brokers add a small markup to the spread they receive from their provider when getting quoting of bid/ask rate. The STP Online Broker will apply this markup by a certain amount of fractional pips to the bid & ask price that it receives from its best bid/ask liquidity provider before passing these rates onto their client via the straight through processing STP electronic platform.
As the client places the trade order through the STP platform, the orders are then sent directly to the liquidity provider & as such the STP executes the same orders as the client at a slightly better price which is the markup.
Reasons why Traders Select STP online brokers
Clients often choose to execute trades via an STP as it often implies there no Dealing Desk, which in turn means that the online broker is more transparent with clients.
The Traders enter trades into a true market instead of an artificial market that might 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 & offers coming through the Straight Through Processing(STP) liquidity providers, which provides for more liquidity within the market and in turn this implies lower execution prices for the client.
Client transactions with an STP broker means that there is anonymity for the client because there's no Dealing Desk DD monitoring the trade transactions of orders coming in from each client. Orders are instead executed automatically through the market network anonymously.
Another Type of Online Broker is ECN
What's an ECN?
Electronic Communications Net-work - ECN broker provides traders with real time streaming data trading quotes straight from the net-work of banks that trade Gold- The Interbank market. Since these ECN XAUUSD Brokers offer real-time data quotes from these net-work via their own ECN Broker net-work which connects direct to the Interbank net-work of banks, they are known as ECN technology brokers, short form is ECN.
ECN will show the entire bid and ask offers currently available in the market from banks. An ECN will allow traders to open their orders straight through to the market. The liquidity is not provided for by online broker but by this inter bank network of banks. This way traders trading through an ECN XAUUSD 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 & the ECN? and What's the difference between these two?
STP
Has many liquidity providers, but selects the best at any one time automatically for the trader. Therefore when trader places a trade the trading orders will be passed direct to this inter bank.
Therefore STP is like ECN the only difference is that the STP Brokers automatically chooses the best one at that particular time and does it automatically for the trader.
ECN
Has many liquidity providers from which one will see all at same time and select which to trade, It is like having 10 XAUUSD brokers to select from which to trade.
The ECN one will have to look at many live quotes at the same time and choose one, this streaming quote will have varying spreads & a trader chooses the low spread.
There is no much difference between ECN & STP, that's why some traders or some 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's upto the trader to choose which liquidity provider to select from while trading.
According to reviews, these brokers also have the low spreads, therefore if you're looking for the low spreads it's good to choose an STP.
Most online brokers do not want to clutter the traders work space with multiple gold streaming quotes from various different places which may confuse the trader, especially the beginner traders who don't know what is what, that's why most brokers might be ECN but only select to display only one realtime quotes from only one inter-bank, thenceforth becoming more of an STP rather than an ECN, but model of operation is basically one & the same.
If you were to open a account with an ECN you would get like 10 quotes of price from different banks and to trade you would have to chose the quote from one of the banks. 10 quotes for every trading symbol would make your platform workspace too crowded (An ECN Lists Spreads from many liquidity providers). Another thing is that you would need a more complex platform to live stream these multiple gold quotes, this type of platform would not make the best trading software 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 unlike ECN, STP don't charge commissions. This means that the ECN is not the cheapest execution method & will charge traders extra commissions adding on to your transaction costs.
STP XAUUSD Brokers offer the best liquidity conditions for clients to make trades
STP brokers don't have a dealing desk and henceforth this provides for full trade transparency, faster & better order fills. Full transparency means this type of gold broker does not create an artificial market for clients, but instead displays a trader the real time data quote from an electronic network of banks & allows the trader to enter into the real market conditions created by various different market participants.
STP - is the name given to gold brokers that: upon receiving of a client order they will pass on the orders directly to the network of banks and as such there is no intermediary that will be involved in the trade order execution in other terms the STP Execution will not be filtering orders through a Dealing Desk. Absence of a Dealing Desk is what makes the electronic communication network the best choice for many traders.
With absence of such an inter-mediary process such as the dealing desk the STP is able to process its client's trading orders without any delays. In addition these brokers do not send re quotes to their clients something that most traders regard as a huge advantage.
This also enables the STP XAUUSD Brokers to allow its clients to trade during the release times of financial news without any restrictions. Other online brokers may not have the liquidity of an STP and may in turn lock out trading for a couple of minutes before & after a news release.
STP XAUUSD Brokers provide the best 24-hour execution and access to order execution due to high internal liquidity rate and reliable inter-bank partners they have.
Types of Brokers in XAUUSD - Types of Brokers in Market - Types of Market Brokers - Type of Broker in Trade - Types of Brokers - Types of Broker Gold Trading.
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