STP Broker: definition, how it works, pros and cons

“STP” stands for Straight Through Processing, a system where orders are automatically processed and sent directly to liquidity providers without broker intervention.

The concept of “Straight-Through Processing” (STP) emerged with the advent of electronic trading, revolutionizing how transactions are processed in the financial world. Originally, STP was a broad term applied across various industries, primarily focused on streamlining transaction processing to enhance efficiency and accuracy.

In the realm of electronic trading, STP signifies the capability to process trades – from entry to clearance and settlement – entirely electronically. This automation is a significant shift from traditional manual processing, which involved extensive paperwork and was prone to human error.

However, in the context of retail Forex trading, the term STP has been adapted to represent a specific brokerage model. In this setting, STP refers to the way brokers route their clients’ orders directly to liquidity providers (like banks and larger brokers) without a dealing desk intervention. That’s why they are also referred to as No-Dealing Desk brokers.

This model is praised for its transparency, as it allows Forex traders to access the market directly and receive real-time prices from the liquidity providers. The broker’s role in this model is more of a facilitator, ensuring smooth order execution and providing the technological infrastructure for trading.

An STP (Straight-Through Processing) Forex broker is a type of broker that hedges client orders directly with liquidity providers, avoiding any dealing desk intervention, thus facilitating faster execution and reducing potential conflicts of interest.

An STP broker is in fact also called a Non-Dealing Desk broker.

This type of broker typically has a network of liquidity providers, like banks and financial institutions, which enables them to offer competitive pricing and quicker trade execution. The absence of a dealing desk means there’s less likelihood of price manipulation and re-quotes, which is beneficial for retail traders.

It is important to note that using an STP Forex broker still means using a CFD provider. When a trade is opened, you are always opening a Contract For Difference in which the counterparty is always the broker itself. The trader’s profits will always be losses for the broker, and vice versa. An STP broker will then hedge the risk of this trade (i.e. opening the same trade) using one of its liquidity providers, aligning its interests with those of its clients.

In this model, the interests of brokers and traders coincide, and the risks of conflicts of interest are nullified.

An STP (Straight Through Processing) Forex broker operates through a series of steps, beginning with the receipt of pricing and data from various liquidity providers. These liquidity providers are typically large financial institutions or banks that offer buy and sell prices for currency pairs.

The STP broker aggregates this pricing information to provide its traders with the best available spreads. The aggregation process involves the broker selecting the tightest spreads from the pool of prices provided by the liquidity providers. This ensures that traders are offered competitive rates, which are close to the real market prices.

When a trader decides to open a trade with an STP broker, they are essentially entering into a CFD (Contract for Difference) with the broker. This CFD reflects the movement of the underlying currency pair’s price, allowing traders to speculate on Forex market fluctuations without actually owning the underlying asset.

Once the trader opens a trade, the STP broker then hedges this trade with one of its liquidity providers. Hedging in this context means that the broker takes an equal position in the market to neutralize the risk associated with the trader’s position. If the trader buys a currency pair, the broker buys the same amount with the liquidity provider, and vice versa (this is known as A Book model, as opposed to B Book model)

The losses that the broker will suffer from a trader’s profitable trade will be offset by the profits of the trade that the broker has opened with the liquidity provider, and vice versa.

This process is typically done automatically and instantaneously, ensuring that the broker’s risk is managed effectively while providing traders with fast and reliable execution of their trades.

The STP model allows for this seamless process, aligning the interests of the broker with their clients, as the broker profits from the markups on the spread rather than trading against the client.

Trading fees work on STP brokers through a layered structure combining spread markups, conditional commissions, overnight financing charges, and execution-related costs that accumulate during and after order processing, creating multiple revenue streams for the broker while impacting trader profitability across different timeframes.

• Spread: Trading fees work on STP brokers by applying markup spreads to the raw interbank pricing received from liquidity providers. STP brokers receive bid and ask prices from banks and financial institutions, then add their own spread markup before streaming these prices to retail clients. Major currency pairs like EUR/USD typically carry spreads ranging from 0.6 to 1.2 pips on STP accounts, with the broker retaining the difference between their quoted spread and the tighter interbank spread. This markup system allows STP brokers to generate consistent revenue from each transaction without charging separate commission fees. The floating nature of STP spreads means costs fluctuate based on market volatility and liquidity conditions, such as during major economic announcements, earnings releases, or overnight sessions.
• Commission: Transaction-based charges supplement core spreads through commission models that vary significantly across account types and trading volumes. Commission-based STP accounts typically charge $5 to $7 per round-trip transaction for standard lot sizes, while offering tighter spreads that can start from 0.1 pips on major pairs. High-volume traders and institutional clients often access tiered pricing structures where commission rates decrease as monthly trading volumes exceed specific thresholds, such as 100 lots or $10 million in notional value. Some STP brokers implement hybrid models where clients choose between spread-only accounts with wider bid-ask differentials or commission-plus-spread accounts with reduced markup costs. Account minimums, leverage ratios, and platform access further influence the fee structure clients encounter when executing market and limit orders.
• Overnight financing charges: Time-dependent costs accrue through swap rates charged on positions held past the daily rollover time, typically occurring at 5:00 PM Eastern Standard Time. Swap calculations reflect interest rate differentials between currency pairs, with EUR/USD long positions incurring approximately $7.51 per lot while short positions earn $3.07 per lot based on current interbank rates. Wednesday rollovers carry triple swap charges to account for weekend market closures, significantly impacting position-holding costs for swing traders and carry trade strategies. STP brokers typically add a 2.5% markup to raw swap rates obtained from their liquidity providers, creating additional revenue streams from clients who maintain overnight exposure. Islamic account holders can access swap-free trading arrangements, though brokers may substitute administrative fees ranging from $2 to $10 per lot to compensate for lost swap revenue.
• Execution quality and slippage costs: Ancillary costs emerge from execution quality factors, particularly slippage during volatile market conditions when STP brokers employ pre-trade hedging mechanisms. STP execution involves brokers securing matching orders with liquidity providers before confirming client trades, potentially causing price differences between order placement and final execution. Genuine STP brokers maintain execution speeds between 80 to 140 milliseconds, though network latency and Virtual Private Server proximity can add 1-4 seconds of additional delay, increasing slippage probability during news events or market gaps. Market depth limitations during low-liquidity periods can force partial fills at multiple price levels, creating unfavorable execution costs that compound the effective trading expense beyond stated spreads and commissions. Professional traders often factor in average slippage costs of 0.1 to 0.3 pips per transaction when calculating total trading expenses.

These layered fees collectively determine the true cost of trading through STP brokers, where spread markups provide baseline revenue, commissions offer volume-based pricing flexibility, swap rates generate overnight income, and execution quality affects hidden transaction costs. Understanding this multi-tiered expense framework becomes essential when evaluating STP brokers against ECN providers with raw spread access or Market Maker models with fixed spread guarantees, as each broker type structures its revenue model differently to serve distinct trader segments and trading strategies.

Following is a comparison of the STP Forex broker’s main characteristics with the other main types of Forex brokers, i.e. ECN broker and Market Maker broker.

• Market Access: STP brokers route orders to a few external liquidity providers; ECN Forex brokers connect traders with a broad network of market participants for direct order matching; Market Maker brokers typically create and control their own internal markets.
• Transparency: STP offers moderate transparency by forwarding trades to external providers; ECN provides high transparency with market depth visibility; Market Makers generally have the least transparency, controlling order fulfilment internally.
• Spreads and Fees: STP has variable spreads often with mark-ups added by the broker; ECN typically offers tighter variable spreads with a commission on trades; Market Maker brokers usually offer fixed spreads, making money from the spread itself.
• Cost Calculation: For STP, costs involve the spread and potential mark-ups; ECN costs include the spread plus a commission fee; Market Maker costs are mainly through the spread.
• Market Insight: STP provides limited market insight compared to ECN; ECN offers comprehensive Depth of Market data; Market Makers generally provide less market insight due to their internalised operations.
• Liquidity Sources: STP utilises a selection of external liquidity providers; ECN connects to a wide array of market participants for liquidity; Market Makers act as the primary liquidity source within their own markets.
• Initial Deposits: STP and Market Maker accounts often require lower initial deposits, making them more accessible; ECN accounts usually require higher initial deposits due to more sophisticated trading platforms and services.
• Complexity: STP platforms offer a balance between complexity and user-friendliness; ECN platforms are typically more complex, catering to professional traders; Market Maker platforms are generally the most user-friendly, designed for new or casual traders.

STP (Straight Through Processing) Forex brokers primarily generate revenue through spread markups and non-trading fees, like withdrawal and inactivity fees.

STP brokers work by adding a markup to the raw spreads they receive from liquidity providers. This markup on the spread, which varies between currency pairs, forms a significant part of the broker’s income.

They also supplement their earnings by applying swap fees to overnight positions maintained by traders.

Additionally, they earn from non-trading fees, which include charges for services not directly related to trading activities. These can encompass withdrawal fees, account inactivity fees, and other administrative charges.

Such fees are typically outlined in the broker’s fee structure and can vary widely among different brokers, but are in general very common ways Forex brokers make money.

Trading with a Straight Through Processing (STP) broker in the Forex market subjects traders to the universal risks associated with Forex trading. These include factors like market volatility, geopolitical influences, and macroeconomic changes that can affect currency values. These risks are a fundamental part of trading in the Forex market and remain consistent, regardless of the choice of broker.

When specifically trading through an STP broker, there are some unique risks to consider.

One of the main risks is wider spreads during periods of volatility. Since STP brokers route orders directly to liquidity providers, the spreads are variable and can widen significantly in volatile market conditions. This can increase trading costs and affect profitability, particularly for strategies that rely on tight spreads.

Another risk is slippage. This occurs when an order is executed at a different price than expected, typically during periods of high market volatility or when large orders are executed. Slippage can lead to trades being executed at less favorable prices, impacting the overall trading results.

Finally, while STP brokers offer more transparency than Market Makers, they still provide only partial transparency. The exact depth and breadth of the market won’t be fully visible, which can be a disadvantage for traders who rely heavily on complete market depth information for their trading strategies.

The advantages of STP Forex brokers are listed below.

• Direct Market Access: STP brokers provide direct access to the interbank market, which can result in better and more transparent pricing.
• No Dealing Desk Interference: Since there’s no dealing desk, there is less likelihood of price manipulation and delays in order execution.
• Variable Spreads: STP brokers typically offer variable spreads that reflect real market conditions, which can be narrower during times of high liquidity.
• Automated Order Processing: Orders are automatically processed and routed to liquidity providers, leading to faster execution speeds.
• Suitable for Various Trading Styles: STP brokers usually do not restrict trading strategies, making them suitable for scalping, day trading, and other strategies.
• Reduced Conflict of Interest: As STP brokers profit from spreads and not from clients’ losses, there is a reduced conflict of interest compared to Market Makers.

The disadvantages of STP Forex brokers are listed below.

• Wider Spreads during Volatility: Spreads with STP brokers can widen significantly during volatile market conditions, potentially increasing trading costs.
• Slippage: The risk of slippage can be higher with STP brokers, especially in fast-moving markets or at times of major economic announcements.
• No Fixed Spreads: Unlike Market Makers, STP brokers do not offer fixed spreads, which can make cost management more challenging for some traders.
• Dependency on Liquidity Providers: The quality of trade execution depends on the broker’s liquidity providers, which can vary.
• Less Predictable Costs: The variable nature of spreads means that trading costs can be less predictable compared to the fixed spreads offered by Market Makers.

The best STP brokers include Pepperstone, XM, and FP Markets. These 3 platforms consistently deliver superior STP execution quality, maintain robust regulatory frameworks, and offer trader-friendly cost structures that optimize trading performance across global markets. The features of Pepperstone, XM, and FP Markets as best STP brokers are listed below.

• Pepperstone: Pepperstone operates with interbank spreads from 0.0 pips and serves over 750,000 retail clients worldwide with $320 billion in monthly trading volume. The broker routes orders through institutional-grade liquidity providers using no dealing desk and ECN trading conditions.
• XM: XM maintains extensive regulatory coverage through multiple financial authorities and offers tiered account structures that accommodate varying lot sizes and trading volumes. The broker provides negative balance protection and comprehensive educational resources that support both novice and experienced traders.
• FP Markets: FP Markets maintains deep liquidity pools through its Raw ECN account structure and consistently achieves low latency on STP trade routing since its establishment in 2005. The Australian broker offers competitive raw-spread pricing starting from 0.0 pips and supports diverse funding methods including PayPal, Skrill, and bank wire transfers. FP Markets earned Best in Class honors for Commissions and Fees in the 2024 Annual Awards and holds two Tier-1 licenses plus one Tier-2 license.

These five STP brokers represent the current gold standard for STP execution because each platform demonstrates measurable advantages in trade routing efficiency and regulatory compliance. Individual trading requirements, particularly preferred execution platforms and account minimums, should guide final broker selection as traders evaluate their specific scalping strategies and order flow management needs.

The best STP trading platforms are MT4, MT5, and cTrader. MT4 remains the most widely supported platform among over 1000 brokers worldwide, while MT5 delivers enhanced multi-asset functionality across 21 timeframes, and cTrader provides superior ECN-optimized execution with average speeds of 80 milliseconds. Platform selection hinges on balancing broker availability, analytical depth, and algorithmic compatibility against specific strategy demands.

MetaTrader 4 dominates STP broker integration through its 20-year market presence and extensive third-party ecosystem, consuming minimal system resources while supporting over 1000 forex brokers globally. The platform delivers typical execution speeds of 200 to 400 milliseconds with established reliability, though MetaQuotes discontinued software updates in 2018. MetaTrader 5 contrasts sharply by offering comprehensive multi-asset trading across forex, stocks, commodities, and cryptocurrencies, featuring 38 built-in indicators and advanced market depth functionality. MT5’s multi-threaded architecture enables faster order processing between 60 to 200 milliseconds while supporting both hedging and netting position management systems. cTrader distinguishes itself through genuine STP/ECN infrastructure with execution speeds averaging 19 to 80 milliseconds, comprehensive depth-of-market displays showing three market depth types, and advanced order routing transparency powered by C# programming capabilities. The platform provides over 70 pre-installed technical indicators, sophisticated charting tools, and extensive interface customization options that surpass both MetaTrader versions. Platform optimization ultimately depends on individual priorities such as execution speed requirements, analytical complexity preferences, and algorithmic development flexibility.

MT4’s universal broker compatibility, MT5’s enhanced analytical capabilities, and cTrader’s ECN-optimized execution each address distinct trading priorities within STP environments. Traders should evaluate these comparative strengths against their chosen STP broker’s specific platform offerings, execution infrastructure, and commission structures, ensuring alignment between platform capabilities and individual trading methodology requirements for optimal performance outcomes.

Traders who prefer fast execution, variable spreads reflecting real market conditions, and minimal broker interference, such as scalpers, high-frequency, and day traders, should choose an STP Forex broker.

An STP (Straight Through Processing) Forex broker is especially suitable for traders who prioritize speedy and direct trade execution without the intervention of a dealing desk. This feature is particularly beneficial for scalpers and high-frequency traders, who depend on quick order execution to capitalize on small price movements within very short time frames. Additionally, day traders who hold positions for a short duration can take advantage of the rapid execution to exploit short-term market opportunities.

Variable spreads offered by STP brokers are another key advantage. These spreads change according to real market conditions, providing a more transparent trading environment. This aspect is crucial for traders who rely on technical analysis, as it allows them to strategize based on more accurate market data.

Moreover, STP brokers are a suitable choice for those concerned about the potential conflicts of interest inherent in the Market Maker model. Since STP brokers pass orders directly to liquidity providers, there is less likelihood of price manipulation or re-quotes, offering a more straightforward and reliable trading experience.

Finally, traders using automated trading systems, such as Expert Advisors (EAs) in platforms like MetaTrader, may find STP brokers more compatible with their strategies. The combination of fast execution, minimal slippage, and accurate pricing aligns well with the needs of automated trading systems, ensuring efficiency and effectiveness in trade execution.