STP (Straight Through Processing) is a popular trading model used in the forex market. It is a type of execution model that allows traders to execute their trades directly with liquidity providers, without any intervention or manipulation from the broker. STP is a preferred trading model for traders who want fair and transparent trading conditions, as it eliminates the conflict of interest that may arise in other execution models.
In STP execution, the broker acts as an intermediary between the trader and the liquidity providers. The broker’s role is to provide a trading platform, process orders, and connect the trader to the liquidity providers. The liquidity providers, on the other hand, are financial institutions that offer liquidity to the market, such as banks, hedge funds, and other large financial institutions.
When a trader places an order in the STP model, the order is forwarded to the liquidity providers, who then execute the trade at the best available price. The broker earns a commission on the spread, which is the difference between the buy and sell prices offered by the liquidity providers. The trader, in turn, gets access to the best available prices in the market, as the orders are executed directly with the liquidity providers.
The STP model is different from other execution models, such as market makers and dealing desks. In a market maker model, the broker acts as the counterparty to the trader’s trades, which means that the broker takes the other side of the trade. This creates a conflict of interest, as the broker may have an incentive to manipulate prices or delay order execution to benefit their own interests. In a dealing desk model, the broker acts as the market maker and executes trades on behalf of the trader, which may lead to delays in execution and requotes.
The STP model, on the other hand, offers transparent and fair trading conditions, as it eliminates the conflict of interest that may arise in other execution models. Traders can be assured of getting the best available prices in the market, as the orders are executed directly with the liquidity providers. The STP model also offers faster order execution and tighter spreads, as there is no delay or manipulation of prices.
There are different types of STP execution models, such as STP ECN (Electronic Communication Network) and STP DMA (Direct Market Access). In an STP ECN model, the orders are executed on an electronic trading network, which connects traders to multiple liquidity providers. This allows traders to access a larger pool of liquidity and get better pricing. In an STP DMA model, the orders are executed directly on the exchange, which offers even faster order execution and tighter spreads.
In conclusion, STP is a popular trading model used in the forex market, which offers transparent and fair trading conditions to traders. It eliminates the conflict of interest that may arise in other execution models, and allows traders to execute their trades directly with liquidity providers. STP offers faster order execution and tighter spreads, and is preferred by traders who want the best available prices in the market.
