ECN/STP forex broker

The foreign exchange market is the decentralized market, where different currencies of different countries are traded. The forex market is increasing at the high pace, because of the less volatility than other type of markets like stock and commodity market. The major players in this market are large commercial banks and it also function as the market makers in the forex market, so it is also known as the interbank market. Small players do not have enough access with the interbank market, so the forex brokers helps them to directly connect with the real market to trade with the best competitive bid/ask rates.

Thus the forex brokers use two types of models that are ECN (Electronic communication network) and STP (Straight through processing) and are also known as the ECN and STP broker respectively. Both are also known as the non dealing desk, as there is no intervention and the broker can place their client orders without any hindrance.

The ECN broker uses the electronic system, where the quotes from their clients are directly displayed to the market, where all other traders are also trading with each other. The ECN brokers just matched the quotes from their clients with various liquidity providers who are connected to the network and process it. This gives the client to trade on the real market prices, thus there is no chance of arbitrage. So, the ECN brokers earn profits only from the commission charged to the user of the network. There are some fixed commissions per transaction, so more the trading volume by their client, more commission ECN brokers will get.  

The STP brokers are somewhat similar to the ECN brokers with the very slight differences. On receiving the orders from their clients, the STP brokers will place this orders to the liquid providers. Now here the different STP brokers are connected to the different liquid providers, so getting access to the limited liquid providers. Such brokers earn profits by charging commission and increasing the spread. The brokers increase the pip of the bid/ask quotes given by their liquid provider by few points and place this quotes to the client, and thus the difference between the pip of liquid providers and the broker is brokers profit.

There are various ECN and STP brokerage companies across the world and each brokerage company has different schemes and programs. There is the quite noticeable difference in the commission rates between different ECN and STP brokers. So select the brokers, where you can get more benefits. The selection of brokers is very tricky, as all STP and ECN brokers are not genuine. Some brokers route their client orders to the artificial market, instead of the real market. So, there is the need of proper research and have to go through the reviews of the company and whether they are using such models before starting with them. You can go with either ECN or STP brokers depending on your requirements, as both are having their own benefits.