ECN vs STP: What Is The Difference?
ECN vs STP: What Is The Difference?
ECN and STP are two types of brokerages that have become very popular in the Forex industry.
A broker can either be a STP or an ECN. Although both types have the same goal, which is to provide liquidity and give you access to as many markets as possible, they are different in a few ways. If you’re new to Forex or if you’ve just bought your first piece of trading software or platform, it can sometimes become confusing when deciding on which type of broker you should use.
Here we’ll have a look at what these two terms mean and how they differ from each other. Make sure you’re paying close attention to the practical differences because you may think you’re signed up with an ECN brokerage only to find out that your account is actually at an STP brokerage. This can come as a shock and will make a big difference to your trades, so let’s make sure we don’t confuse one for the other!
What is an ECN broker?
ECN brokers are a type of trading platform that connects buyers and sellers of securities. They’re also known as electronic communications networks or electronic communication networks, which is why they’re often abbreviated ECN.
ECNs allow traders to access real-time prices from multiple market participants rather than relying on one price in a single order book. The system is designed to facilitate the trading of large blocks of stock, but it’s also widely used by retail investors who want to trade small amounts of money.
ECNs have been around since the early 1990s. They use computer algorithms to match buyers and sellers based on price and other factors such as volume or time. Some ECNs also let traders place orders anonymously—a feature that appeals to high-frequency traders looking for an edge over their competition.
What is an STP broker?
STP brokers are known as “straight-through processing” brokers. They take orders from clients and place them directly with market makers, rather than routing them to a pool of order books that match buyers and sellers.
In an STP brokerage, the traders on the other side of your trade don’t actually see your order until it’s already been executed. This means that you don’t have to worry about an STP broker front-running your orders—that is, placing their own orders ahead of yours in order to take advantage of market movements before you can make a trade. You also don’t have to worry about any other kind of manipulation or other shady practices that might occur when dealing with brokers who are not using STP.
How does an ECN Forex broker work?
The ECN Forex broker serves as an intermediary between its customers and the global currency markets by providing clients with quotes and facilitating trades when they are placed.
When you place an order with an ECN Forex broker, it will be filled immediately at the best available price in the market at that time. If there is no trade available at this price, then your order will be posted for other traders to see and potentially fill. This is why some people say that ECNs offer faster execution speeds than STPs; however, this can also vary depending on how much liquidity is present in any given market at any given time.
How does a STP Forex broker work?
In an STP Forex trading environment, the trader’s orders are sent directly to their partner banks, which then execute the trades on their behalf. The broker doesn’t have to wait for any confirmation from their partner banks before they can send out these orders. So, even if there is a delay in getting confirmation from their partner bank, this does not impact the trader at all.
The best thing about STP Forex brokers is that there are no transaction fees involved in executing trades through them because they don’t charge any commission fee on your account balance or profits earned from trading activity conducted through their platform.
ECN brokers will match your orders privately with other investors, major banks, other traders, and brokers paired directly with them.
ECN brokers will match your orders privately with other investors, major banks, other traders, and brokers paired directly with them. They get this information through the ECN network of dealers, and they then execute those trades in a very fast manner. This is why you can get such low spreads when using an ECN broker.
This also means that the order book is not visible to anyone else on the market until it has been executed. Once this happens, the price for each side of the trade becomes visible to everyone in real-time.
STP brokers will pass your orders directly onto third-party liquidity providers.
STP stands for Straight-Through Processing. A STP broker is one that has cost-effective access to liquidity pools, so they can pass orders directly onto these pools rather than routing them through an ECN network first. The benefit of using an STP broker is that it’s easier for them to provide you with faster execution times at low costs because they don’t have to pay commissions on their transactions like ECN brokers do.
ECN brokers tend to use a fixed commission per trade for their profits.
ECN brokers tend to use a fixed commission per trade for their profits. These brokers typically do not charge you anything extra when you make a trade, but they may have other fees that are associated with your account. For example, some ECN brokers will charge you an account fee if you don’t meet certain minimum requirements in your account balance or trading volume within the last 3 months. Other ECN brokers may charge you a monthly fee for maintaining an active account with them.
STP brokers tend to use a mark-up spread for their profits.
The main difference between STP and ECN brokers is that STP brokers use a mark-up spread for their profits, while ECN brokers charge commission fees instead.
A mark-up spread is the difference between what a trader pays for a trade and what the broker charges for executing it. For example, if you buy 1 share of Apple Inc., which costs $100 at the time of your purchase, and you pay $105 to buy it (with $5 going to your broker), then you have paid a mark-up spread of 5%.
When looking at ECN vs STP brokers, they will both have no dealing desks.
ECN brokers are broker-to-client, meaning that when you place an order with an ECN broker, the order is sent straight to the market and your broker doesn’t take a position on it. The other type of broker is called a STP broker, or Straight Through Processing. In this case, your order goes through the centralized system and then is executed by another trader at another firm. This means that there is always some risk associated with using STP brokers because you don’t know who is actually trading your orders and what their intentions are.
There are a couple of key differences to be aware of between ECN brokers and STP brokers.
While there are certain subtle differences between ECN and STP, don’t compare apples to oranges. These two kinds of brokers have their own strengths and weaknesses, which render them suitable for different traders. While it may seem like a simple decision, choosing the right broker requires due diligence on your part. Look carefully at the specific features and services that each company has to offer.
Both broker types have advantages and disadvantages, but the right one for you will depend on your personal needs.
Choosing an ECN or STP broker neither fraught nor a bad decision. And choosing one over the other shouldn’t be done lightly, for both have their advantages and disadvantages. Price is certainly something traders will consider when choosing an ECN vs STP, but it’s by no means the only factor to add to the equation. After all, price might appear to be a stand-out advantage at first glance, but it shouldn’t necessarily be seen as a decisive factor until everything has been considered.