STP or Straight Through Processing is a type of forex order execution where in the trade orders placed by you are executed directly. Under the STP execution model, the STP forex broker simply acts as an intermediary to relay the orders to the liquidity providers.
STP forex brokers make their profits by either charging a commission or a certain part of the spread. STP forex brokers are a level ahead compared to market makers but a step below ECN brokers. This is because of the costs associated with STP execution. When a forex broker partners with one or more liquidity providers they need to guarantee a certain volume of trades.
With STP brokers, the counter-party to your trades are the liquidity providers themselves. For example, if an STP forex broker has a couple of liquidity providers, then in all likelihood, the bid and ask prices you get could be based on Liquidity Provider A offering the best bid price and Liquidity Provider C offering the best ask price. Likewise, when you place your trades, they are processed directly with the liquidity provider.
Trader Order Execution with STP Brokers
Under the STP forex execution model, there is no conflict of interest and neither is there a dealing desk involved. However, some forex brokers require a certain number of lots in order for your trades to be executed via STP. This makes for a major loophole as forex brokers tend to advertise themselves as STP forex brokers, but if you look into the fine print, usually found by reading the ‘Order execution policy’ or similar document you will realize that unless you trade a certain number of lots, in most likelihood the trade is executed via a dealing desk.
In most cases, when placing an instant order execution, the STP broker acts as a counter party to your trade and hedges their position with the liquidity providers. On the other hand when placing a market order execution, the STP broker can process your trade directly to the liquidity provider.
List of STP Forex Brokers
|Broker||Account Type||Min. Deposit||Leverage*||EURUSD Spreads||Orders||Commission|
|All Accounts||$50||1:400||From 2 Pips||Instant Order||In Spread||Register|
|Standard||$500||1:300||From 0.4 Pips||Market Order||$5/mil||Register|
|Standard||$200||1:400||From 0.3 Pips||Market Order||AUD$3.5/mil||Register|
|Pro Accounts||$300||1:300||From 0.3 Pips||Instant/Market||$3/mil||Register|
|Standard||500**||1:200||From 0.3 Pips||Instant/Market||$3/mil||Register|
*Indicates Max Leverage
**Base Units, EUR/USD/GBP
How to identify a true STP Forex Broker
The first step is to look into the account types mentioned by the forex broker. In most cases, STP accounts are offered for a higher initial deposit requirement.
Secondly, read through the legal documentation, usually called the ‘Order Execution Policy‘ or ‘Conflict of Interest‘ these or similar sounding documents gives you information as to how your orders are executed from the forex broker that you trade with.
Bear in mind that such documents are required by only regulated forex brokers. So in the event you do not find such legal documents, you are better off stay away from the forex broker in question.