How do ECN and STP brokers work?

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In the competitive environment of Forex traders, choosing a reliable broker is one of the fundamental factors for success. Among brokers working on the A-book model, there are two main types – ECN (electronic trading network) and STP (straight-through processing). How do they differ from each other and what determines the choice of certain brokers?

ParadTrade examines the main features of ECN and STP brokers.

ECN: speed and volatility

An ECN (Electronic Communication Network) broker is a type of forex broker that directly connects traders with liquidity providers such as banks, hedge funds and other institutional traders. Unlike traditional brokers, who act as dealers and set their own prices, ECN brokers act as intermediaries, providing access to the interbank market at real-time market prices.

Features of ECN brokers:

  • Direct access to liquidity providers. As mentioned above, the main characteristic of ECNs is that they provide traders with direct access to the interbank market, where orders are executed at market prices.
  • Real-time market rates. Accordingly, traders have access to market quotes without broker intervention, which ensures maximum trading transparency.
  • Access to the information. ECN brokers offer a high level of transparency, giving traders access to market information and the “book of the market” where buy and sell orders from other market participants are displayed.\

What should you consider when working with an ECN broker?

  • Higher commissions and spreads as traders pay for direct market access.
  • Volatility. The interbank market can be characterized by high volatility, which is not suitable for all traders.
  • Limited liquidity. In some cases, especially during unusual market conditions, ECN brokers may have limited liquidity, which may result in orders being rejected or execution delays.

STP: simplicity with potential for slippage

An STP (Straight Through Processing) broker, in turn, acts as an intermediary between traders and liquidity providers. Unlike ECN brokers, which connect traders directly to the market, STP brokers route orders through their dealing desk before they enter the interbank market.

Features of STP brokers:

  • Lower fees. STP brokers typically charge lower commissions and spreads than ECN brokers, making them more cost-effective for traders.
  • Higher margin leverage. STP brokers often offer higher leverage compared to ECN brokers, which can be attractive to traders who want to maximize their trading capital.
  • Ease of use. STP brokers are generally easier to use for new traders because they do not require a deep understanding of market structure.

Worth considering:

  • Lack of direct access to the market. STP brokers do not provide direct access to the interbank market, which means traders do not see real-time market quotes.
  • Price manipulation. In some cases, STP brokers may manipulate prices or requote orders, which may result in trades being executed at less favorable prices.
  • Slipping. Due to the presence of an additional link – a dealing center – working with STP traders may be irrelevant for scalper traders.

What do you pay attention to when choosing ECN or STP?

Why do some traders choose brokers with the ECN model, while others choose brokers with the STP? In fact, it all depends on the potential client’s own conditions and capabilities:

Trading style. ECN brokers are more suitable for active traders who value speed and direct access to the market. STP brokers, in turn, may be more attractive to beginners or conservative traders.

Expenses. ECN brokers charge higher commissions and spreads, but at the same time they provide more accurate order execution through direct market access. STP brokers may have lower commissions and spreads, but you should be more careful in choosing a company, since in this case there is a possibility of manipulation of prices or requotes by the broker.

Execution speed and slippage. ECN brokers offer faster order execution and low slippage. STP brokers may have lower execution speeds and higher slippage than ECN brokers.

ParadTrade ECN account

Do you want to try your hand at trading using the ECN model or combine it with other strategies? ParadTrade offers its clients a convenient and simple option – an ECN account, which is suitable for traders who value transparency in order execution and high speed of execution.

Register on ParadTrade and open an ECN account through your personal account.


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