There are three absolute musts for choosing which FX broker to trade with online.
- The broker must be NDD (no dealing desk).
- They must place your trades into an ECN (electronic communication network).
- They must provide STP (straight-through processing).
These standards should be the benchmark by which you judge all forex brokers. We could add offering MetaTrader’s MT4 or MT5 to the list and being authorised and licensed in certain jurisdictions.
MT4 is the most successful retail trading platform, and it’s worth taking time to become familiar and proficient. To be considered credible a forex broker must be licensed by high-level authorities such as CySec in Cyprus, the FCA in the UK and adhere to European MiFID protocols.
Apply this essential scrutiny and satisfying criteria to any FX broker. You can be sure you’ve taken every step necessary to ensure you’re getting the utmost protection and best standards of trading service currently available.
The only risks you should take when you trade are on the actual bets you place into the FX marketplace. You do not have to take a chance on efficiency or efficacy.
Credible brokers should have ensured all the previously mentioned standards are in place. Many FX brokers come up to this level of scrutiny. Don’t second guess it, don’t give a broker a chance or second chance.
What is an STP (straight-through processing) broker?
STP brokers pass on their clients’ orders directly to liquidity providers. This liquidity provision can be the form of an ECN (electronic communication network).
Liquidity providers will include banks, hedge funds and other institutional level providers, operating exclusively on the interbank market. STP avoids the use of dealing desks; the broker will route your order to market ASAP, in a transparent manner with no interference or restrictions.
STP brokers do not send re-quotes to clients, and your order gets matched at the best possible price available from the liquidity pool.
STP brokers have many liquidity providers; an increase in the number of providers in the ECN results in more accurate fills close to the quotes displayed.
Why brokers choose to be STP
STP brokers can market themselves as a transparent alternative, execution-only and non-dealing desk. The credibility this generates cannot get overlooked; STP brokers want and need their clients to be successful.
A client’s losses are not the STP/ECN brokers’ profit. It is in the broker’s interest for a client to be profitable. An STP broker has No Dealing Desk (NDD), its purpose is to concentrate on trade execution only. Therefore, the broker focuses on the speed of execution, tight spreads, good fills and a lack of slippage.
An STP FX broker makes its profit through a mark-up on the spread it obtains from its liquidity provider and or the commission on each trade. STP brokers do not trade against clients, and your losses are not their gains. Instead, they add a small mark-up to the spread they receive from their provider when quoting a bid-ask rate.
The STP broker applies this mark-up by including fractional pips to the bid and ask price it receives from the liquid pool, before passing the rate onto the client.
Why traders choose STP brokers
The broker is transparent with the clients. Trades get funnelled into an actual, accurate and live marketplace. The FX liquidity pools STP brokers operate in are not artificial constructs created by market makers using dealing desks. You consistently obtain better and faster fills through STP brokers.
Better and faster fills occur due to the market volume in the ECN, liquidity pool. At any one time, millions of bids get pooled into the resource looking to get matched ASAP. Your order will be one of the millions.
Your order is anonymous, and you are just a number. There is no preferential treatment based on your order size. Your small order for tens of dollars gets treated the same as an order for millions of dollars.
You have a considerable choice of brokers who satisfy the NDD, STP, ECN model licensed by the top global authorities. You don’t have to take a chance on an unknown broker.
If you get proficient with MT4, you can effortlessly migrate your business elsewhere if the broker doesn’t match up to your exacting service demands. Accept no compromises. You have choices, take them.