STP stands for Straight Through Processing and is a forex model where client orders are sent directly to a pool of liquidity providers via the STP forex broker. An STP forex broker will typically have a liquidity pool made up of banks and large forex providers who trade on Interbank spreads. The deeper the depth of this liquidity pool, the faster and more reliable the trade execution of the STP forex broker.

STP Forex Broker Comparison

Going the STP forex broker route offer various advantages to the private investor. For a start, Interbank spreads are not usually offered outside of institutional trading circles as these spreads are much lower than those offered to retail clients, but require substantial trading volumes. Much like the Interbank lending rates where interest rates charged for loans between banks are much lower than interests rates on retail loans, but the amounts involved are staggering.

Using an STP forex broker is a good way to access the Interbank spreads without having to trade huge volumes. The STP forex broker acts like a clearing house, grouping all their client orders into one large transaction and then routing this to their liquidity providers.

This is a very effective model and one of the preferred trading styles for most successful traders. Trading the forex markets successfully depends greatly on the broker handling your transactions. An STP forex broker is more transparent, offers tighter spreads and much faster execution. These aren’t the only benefits of an STP forex broker however.

One of the key benefits to be found by trading with an STP forex broker is the lack of a dealing desk. No Dealing Desk or NDD as they are commonly referred to, describes a forex broker that doesn’t place any trades on their own behalf. No dealing desk means the broker isn’t trading the markets so their is no conflict of interest with their client trades.

When you place a trade with a dealing desk forex broker, the broker is typically taking the opposite trade. You are in fact trading against the broker. If your trades are profitable, then the opposite holds true for the dealing desk broker. You profit, they lose. On the flip-side, you lose, they profit.

This explains where the frequent re-quotes encountered with dealing desk brokers come into play. You place a trade, this moves in your favour and when you try to close this out for a profit, the broker re-quotes. Again and again until the trade can be closed with a profit for the broker – not you.

With an STP forex broker however, this won’t happen. STP forex brokers don’t trade against you so there is no risk to offset. There is no dealing desk to manage or hedge any possible risk, so there is no need to re-quote you.

Trading has been rightly characterized as a net zero game. For somebody to profit, somebody has to lose. With a dealing desk broker, the game is between you and them. With an STP forex broker, your opponent is the market.

How Does an STP Forex Broker Benefit?

So where does the money come from then? How does an stp forex broker make money out of the services they offer?

Well an STP forex broker usually operates on a fee per trade. This can be either a markup on the spreads they offer or a fixed commission per traded lot. This markup will usually represent something like 1 Pip per traded lot. On the EUR/USD pair for example, the fee charged by an STP forex broker would typically be $10 per traded lot.

This is one of the reasons an STP forex broker is more attractive to day-traders and scalpers. Typical dealing desk brokers won’t allow scalping, as this creates a lot of trades which are difficult to hedge properly. For an STP forex broker there is no risk to hedge, so scalping would be allowed on all markets.