Differences between ECN and STP brokers

If you are searching for your first broker, or even already trading with a top forex broker, it is easy to find yourself confused about exactly what’s the difference between ECN and STP brokers even if you have plenty of trading experience.

Here we will not only cover the key differences in ECN/STP brokers so you can choose the best ecn stp forex brokers for you, but also address some of the most important questions about Dealing Desk, and No Dealing Desk broker types.

Let’s get started.

What’s the difference between ECN and STP brokers?

While both of these broker types require a no dealing desk environment which allows them to connect your orders directly with liquidity providers and therefore giving you more direct access to the market which is very positive, there are a couple of key differences that can be distinguished between the two.

The way in which your orders are passed on is the first difference. With ECN brokers this is more specifically targeted. Your orders will be directly matched within a network of private investors, major banks, other traders, and brokers that they have set up. In the case of STP brokers though, your orders are simply passed directly to third-party liquidity providers.

How the two make a profit can also differ. ECN brokers will tend to add a fixed commission per trade where STP brokers rely on a mark-up spread for their profits.

ECN vs STP: Which one is better?

Which option is the best for you will really depend on our goals as a trader. The spreads do tend to be tighter with ECN brokers. This is ideal for forex trading and makes them an extremely popular choice with scalpers who rely on the tightest possible spreads.

If scalping interests you then you can read our analysis and broker recommendation through this ECN forex brokers scalping guide for more.

An STP broker will often provide for faster, and smoother order execution with reduced settlement risk and typically no commission even though the spread can be higher. These kinds of brokers tend to be popular not only for forex trading but also in stocks and other assets that are passed along to stock exchanges for execution.

Straight Through Processing (STP)

Going more in-depth on straight-through processing and the STP broker methodology, with this type of broker you will find that liquidity providers compete against one another for the best bid/ask spread. This ensures the broker is able to select the best spreads and in turn offer those to you as a trader.

On top of these highly competitive spreads, they will also add their own mark-up which as we have mentioned above, is the main profit source for STP brokers. With STP brokers it is also important to note that they will not be a counterparty to your trade. This means no additional benefit for the broker whether you are winning or losing trades.

Electronic Communication Network (ECN)

Looking closer at ECN brokers we can see that they provide for all of the participants in the network like major brokers, individual traders, and liquidity providers to trade against the other to get the orders. This creates not only a high liquidity environment with the best spreads but also ensures your orders are executed almost instantly in most cases. They do not however provide for micro lot trading, aiming more at higher volumes in most cases.

The price you see listed at an ECN broker will also match the prices listed on the actual market. In the vast majority of cases, they will also make sure you get the very best spread shown. If liquidity is unavailable at this level, then the second best will be selected with no mark-up spread to ever consider.

Instead of a mark-up spread, an ECN broker may charge other fees and add commissions that act as their main source of revenue. You also tend to find that ECN brokers require higher deposits for you to get started trading.

Hybrid model: Where ECN and STP merge

It is becoming more and more common where you will now see combined hybrid ECN STP brokers. This will typically be reflected in the type of accounts the broker offers with both types usually available and relatively easy to distinguish given that ECN accounts often have very low spreads close to 0 pips.

Ultimately, your broker being a hybrid allows them to optimize their offering and create fully automated systems in regard to pricing, execution, and order entry which allows them more resources to dedicate to other areas with traders often finding improved customer service, education, and market analysis.

You can take a look here at our best ecn-stp forex brokers list for help in making your next choice.

Dealing Desk (DD) vs No Dealing Desk (NDD)

Stepping back to a broader view, there are of course many broker types available to fit your needs. At the most basic level, these can be broken down to dealing desk, and no dealing desk brokers. Once you have made sure that your broker is well-regulated then you can look more closely at this.

For help making your choice, we have created a guide of best forex brokers you can take a look at.

Dealing desk brokers are brokers who create their own market internally and essentially provide their own liquidity to handle and execute your trades themselves. This does mean they will be on the opposite side of your trade and they will profit from your losses. It is a point that does not always sit well with traders due to the conflict of interest, but they are in the position to offer fixed spreads that many find beneficial.

No Dealing Desk brokers are basically intermediaries for liquidity providers and clients. They facilitate your order and pass it along to the market in the way we have examined with ECN and STP brokers which are both no dealing desk broker types. This gives you access to market prices with no interference or conflict of interest. It also typically means orders will be executed faster, and at better prices with no requotes.

ECN vs STP FAQs

Which is better ECN or STP?

The answer here really depends on your preference and objectives in trading. Both though can provide you more direct access to the market, and the actual market price without interference. Depending on your needs STP brokers will typically have lower minimum deposits which the ECN broker spreads can be tighter.

What’s the difference between ECN and STP?

The important differences between the two you will find depend on the precise account types but one of the major points is that STP orders are sent to liquidity providers with a mark-up spread while ECN trades are offered to the internal electronic network liquidity providers with a commission attached.