The Forex market is known to have a wide range of categories of Forex brokers, one of them being the Straight Through Processing (STP) forex brokers. The Straight Through Processing (STP) system is a system that aims at making trade possible for capital markets and the payment of transactions made in an electronic manner, making re-keying unnecessary. It was this predicate that led to the development of Straight Through Processing (STP) category of Forex brokers.
Who Are Straight Through Processing (STP) Forex Brokers?
STP Forex brokers are Forex brokers who operate by sending orders that they have received from clients through their platform to liquidating providers. These liquidating providers may include larger banks, financial institutions and in some occasions larger brokers. It is also important to note that these orders are not passed through a desk and this in turn ensures that the order is processed with ease, avoiding re-quote situations.
The Foreign Exchange Market is a virtual market-place with no actual physical location with transactions and trade executions being carried out electronically. STP brokers know that they have the sole task of matching orders as soon as they are placed by the traders. This means that the order is matched with that of a counterparty ready to accept it and trade at the agreed price. The counterparty in this case could be a liquidity supplier, a fellow trader or even a market maker broker.
In STP forex brokerage there is an allowance for a market marker to come in and purchase a large amount of the trades from the buy or sell market side. The main reason why this is done stems from traders often having low capital and therefore needing liquidity. The market marker eventually ends up dividing the positions that they had purchased and provide currency to any trader who would now want to buy or bid for these position.
STP Forex brokers are also known to charge commissions for allowing the traders to connect straight to the interbank market where they now have the opportunity to access liquidity providers. It is important to note that these brokers do not adopt or adhere to present market making models and by doing so allow deeper market access. To add to this, traders are able to make their own independent decisions, devoid of any external influences when making their market executions during the trading process.
It is beneficial to use this system of brokerage as the STP brokers in trading create a situation of no conflict of interest in the mapping out process involving the execution pattern. The brokers here do not benefit from the losses of their clients as is common among other retail Forex brokers as they only act as counterparties to their clients.
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