The Difference Between An Stp And An Ecn Forex Broker Explained
Forex broker, also called retail forex brokers, is an indispensable part of the forex trading market. The brokers conduct transactions on behalf of their clients. In other words, forex activities like exchange, purchase, and sale are completed by the forex brokers. The primary benefit of an ECN forex broker is that the clients can access the market at any hour of the day. Additionally, they can speculate on the market and receive gains even from the slightest market movements.
Selecting an ideal forex broker is crucial as they directly influence the trading style, gains, and many more aspects. However, the forex market is constantly evolving and catering to traders’ needs; the brokers have been differentiated into multiple categories.
Typically, the forex brokers are categorized into two different categories. These are as follows:
- Reputable brokers (licensed brokers)
- Non-reputable brokers (non-licensed brokers)
Other than the license, the brokers are also divided as per the availability of trading platforms. These are as follows:
- MetaTrader 4 brokers
- MetaTrader 5 brokers
- Forex brokers with proprietary trading platforms
- MT4 and MT4 brokers
Order execution methods
- Dealing desk brokers
- Non-dealing desk brokers
As mentioned above, forex brokers are divided into several categories. Some other famous forex trading brokers are STP brokers and ECN brokers. Some traders go ahead with STP forex brokers, while some select ECN brokers. They both are different, and the traders must know their difference. Here you’ll find a list of trusted Forex Brokers that require a deposit between $1 and $20.
Who are STP forex brokers?
STP stands for Straight Through Processing. The method does not demand any dealing desk. Generally, the financial transactions are routed to the broker’s liquidity providers. The prices are typically determined at the bid/ask rates offered by the liquidity providers. There lies a silent connection between the forex market and the traders.
The significant benefit of selecting STP forex brokers is that traders can access the direct market. It is also called DMA and is highly favored by many traders across the globe. In DMA, the broker generally routes the client’s order to the liquidity pool. The orders are filled with the best price, accounting for only a slight mark-up spread. The traders who prefer scalping and trade as per the current happenings must opt for STP forex brokers as no requotes are included, making it perfect for them.
Who are ECN forex brokers?
The general difference between the STP forex brokers and ECN forex brokers is the routing. Typically, the STP forex brokers have the right to select the liquidity pool, and therefore they can work with several liquidity providers. On the other hand, ECN brokers are a complete hub. The hub is highly effective and efficient as it comprises different financial institutions, significant market players, hedge funds, and more.
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The hub and brokers connect and find ideal counterparties for the orders when they can’t handle them internally. Furthermore, the other significant difference between the ECN forex brokers and STP forex brokers is that ECN trading is typically capped at 0.1 minimum lot size. Hence, it is challenging for new or inexperienced forex traders to work with different ECN brokers. Besides, the traders who trade small amounts also find it difficult to coordinate with ECN forex brokers.
What to opt for?
Therefore, the experts usually recommend going ahead with STP forex brokers rather than the ECN forex brokers. However, a new model known as Hybrid Model has been developed to offer more convenience. The model consists of elements of both STP forex brokers and ECN forex brokers. Hence, it is ideal for the traders to opt for the other model rather than a single broker selection. The traders can overcome several market situations by selecting the hybrid model.
The Bottom Line
Selecting an ideal forex broker is essential because they link the market and the trader. They offer leverage, trading account, margin call, and multiple other features that directly influence the trading behavior and style of the traders. Besides, they carry out different transactions and other forex-related activities. A quality forex broker ensures more gains and more minor losses. Hence, the broker that best suits the needs and requirements must be selected. The traders can choose from ECN forex brokers, STP forex brokers or a mixture of both called the Hybrid model as per their comfort and convenience.