STP means Straight-Through Processing, and in the context of Forex (Foreign Exchange) trading refers to a type of order execution adopted by Forex brokerage firms.

Modern Forex brokers, however, generally adopt a hybrid execution model. While STP is a significant aspect of their operations, they also often incorporate elements of ECN (Electronic Communication Network) and even the Market Maker model. This blended approach enables brokers to offer various account types, each highlighting a different execution style to accommodate a range of trading preferences.

Although ‘STP broker’ is a term widely used for simplicity, it’s more precise to discuss the variety of execution methods that brokers can prioritise.

Nonetheless, for the purposes of this guide and to maintain a common terminology, we will refer to the STP Forex broker as a specific category and delve into its unique features and the advantages of its execution methodology.

Table of Content

What does Straight Through Processing mean?

“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.

What is an STP Forex broker?

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.

How do STP Forex brokers work?

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.

How do trading fees work on STP brokers?

Straight Through Processing (STP) brokers typically charge markup fees on spreads. They receive raw spreads from liquidity providers, and they stream these raw spreads to their clients, but with an added markup.

The markup is usually between 0.3 and 1 pip on major Forex pairs. For instance, if the raw spread for a major currency pair like EUR/USD is 0.5 pips, the STP broker might add a markup of 0.5 pips, making the total spread offered to the client 1 pip.

STP Forex broker vs ECN vs Market Maker

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.

How do STP brokers make money?

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.

Are there risks in trading with STP brokers?

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.

Pros and Cons of STP Forex brokers

STP brokers have several advantages, but also a number of disadvantages of which you need to be aware. Below is a list of the pros and cons of STP Forex brokers:

Pros of STP brokers:

  • 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.

Cons of STP brokers:

  • 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.

What are the best STP brokers?

The brokerage firms considered to be among the top regulated STP Forex brokers are:

  1. Pepperstone
  2. Admirals
  3. FP Markets
  4. Vantage
  5. Dukascopy

These are only five of the brokerage firms recognised as the best STP Forex brokers around, although there are also many others.

What is the best STP trading platform?

The best platforms for trading with STP brokers are the popular MetaTrader 4 (MT4), MetaTrader 5 (MT5) and cTrader, considering third-party platforms.

However, many STP brokers have also developed proprietary trading platforms, which are thus broker-specific.,

Who should choose an STP broker?

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.


filippo ucchino

About The Author

Filippo Ucchino
Co-Founder - CEO - Broker Expert
Filippo is the co-founder and CEO of InvestinGoal.com. He has 15 years of experience in the financial sector and forex in particular. He started his career as a forex trader in 2005 and then became interested in the whole fintech and crypto sector.
Over this time, he has developed an almost scientific approach to the analysis of brokers, their services, and offerings. In addition, he is an expert in Compliance and Security Policies for consumers protection in this sector.
With InvestinGoal, Filippo’s goal is to bring as much clarity as possible to help users navigate the world of online trading, forex, and cryptocurrencies.

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