STP brokers are good but i think it is best to for broker that are both ECN and STP so as to get the best like profiforex and others.
Thanks everyone, i have no real direction at the moment. I’m using cmc markets and really like their charts, tools and ease of navigation through the whole platform, but I’m hearing I should be looking for straight through dealers to try and stop anything being manipulated. But like everything else it’s a minefield again and could do with some direction. Thanks (newbie)
I am also not clear between STP and ECN, i often see STP/ECN broker, how do they process trader orders?
Good way to test your broker is to open orders in high volatility times and see how it goes - are there any stop-hunting, excessive slippage, market gaps etc. On flat market orders are executed relatively the same on vast platforms, so broker testing is a ticklish problem…
At every stage in this business someone is making a market, at one point I believed that the key market makers were banks but that is not exactly true, while Goldman Sachs and Citi are still major players most of their orders go to HFT firms who can provide better liquidity (And Front run you, stop hunt, etc).
So the key difference between STP and ECN is… With an STP I could be a white label for market maker Forex for e.g. and tell you that I ma an STP broker (technically I am because I just pass orders on), I could also be an STP that passes orders to say Citi bank (Every STP will claim they do this there is no way of checking who gets the order).
An ECN broker on the other hand sends orders through an ECN to a bank in most cases hence infrastructure is different with these brokers. These brokers will publish on their website who the order goes to in most cases it will be the named banks dark pool, the ECN is getting quotes from the bank and the ECN then accumulates several buy and sell orders and sends it as one bulk order, this ensures to some degree there is no tampering at least in the order fill point or at the quote level once in the Dark pool then the bank can do with the order as it pleases (A whole other financial adventure). To avoid order tampering at the quote and fill stage you pay a commission normally $45 per million traded, in most cases the spread is on average 0.8 pips - 3 pips depending on pair, spreads are unavoidable but take a JPY pair in some cases the spread is 5-7 pips on a fixed or floating spread MM or STP, if I widen the spread by 10 pips you are none the wiser I could clear a few stops or exit you out of a trade. So eventually you end up paying more for the trade. On an ECN I am guaranteed that my spread will be 1-2 pips + commission I am roughly paying the equivalent of 3 pips on that trade with a more stable spread not affected by news, etc and also my order is hidden in the ECN at all times free from tampering.
Hope this expanded a bit, forgive any grammar issues, can’t be bothered to proof read…
informative link from idude, and a good explanation with straight example from emeraldorc. I think both explanation are explain everything, a clear view upon STP and ECN. truly helpful, many thank’s
I cannot access it, sound my ISP blocked my from the link.
and thank emeraldorc, even my reading skill is not good but it actually helps me clear some points.
STP brokers aren’t all they are cracked up to be these days - be careful! market makers are actually more able to withstand extreme market volatility. i never would have believed it myself if i hadnt seen it after the snb crisis. or perhaps best to find a hybrid broker - then you get the best of both worlds!
So does everyone here really think that with a $2000 “ECN” account you are trading directly in the interbank market and being matched against prime brokers and banks? That is just plain rubbish to think that!
Basically STP and ECN don’t have many differences, would say for retail trader they are the same in terms of platform performance. Personally tend to use STP brokers, according to my observation less requotes are occurring there, though communication capability of ECN may boast with better liquidity. Currently I’m with Hotforex STP broker, but tend to diversify my capital, trading with other brokerages, sometimes with ECN type too.
I guess I will be the cheerleader for the MMs out there. There are those who say that MMs are shady swindlers. We have all seen FXCM’s commercial with the guy trading against a dude in a ski mask who is pocketing all the cash on the table. Ha!
I love FXCM, I trade with them. That commercial makes me laugh every time. Hilarious!
But look, if anyone is going to start trading and they think that trading with a market maker is much like trading against a dude in a ski mask stealing all the money, they have been sorely misinformed.
If you have ever traded a NYSE stock, you were using a market maker. The New York Stock exchange has been a house full of market makers for 200 years. They used to call them Specialists. Now they call them DMMs (Designated Market Makers).
What is funny, is that in the stock world, the convential street wisdom is that trading in “dark pools” “off the exchange” away from the designated market makers is dangerous. FX marketing has tried to give fx traders the opposite view, that market makers are evil and everyone should trade in an ECN environment.
The truth is: no matter who takes the opposite side of your entry, they are a trader taking a trade against you and there is only a tiny chance that he is wearing a ski mask. It was already said:
Market makers are good for traders using market orders (most fx traders). If you use stop orders, the stop price is the trigger for a market order. Once triggered, you have a market order in the market. Do you want that filled with the current limit order from another trader or would you like the market maker to come in a little closer to your trigger? Asked another way, do you want to pay more or less? Do you want to sell for more or less?
With spreads being so low and competition pushing them lower, all of this matters less and less. Don’t be afraid of market makers, the fear-mongering is nothing more than marketing.
-Adrian
Very helpful explanations, a MM is also more safe than the ECN or STP right ?
if you comfortable with higher spread then you good to go. the main idea is the lower the spread the better for any strategies to applied. but once again, it’s all depend on trader’s strategy. quick sample is, method A had 50 entry trades a months, 30 winning, 20 losing trades. put a comparison when these method implemented both at MM account and ECN type. which one are more profitable then…
Of course the spreads will be higher but what about high volatility times or like the SNB event? that is what worries me.
yeah most people would like remember that day, very well. but obviously they bit worries of rare event, a decade anomaly of market movement, but take a good stall with higher transaction which happen at daily trade activity.
I see where you going with this ontario and most probably you are right, this event made the traders worry too much but at the end of the day i think it’s better to be safe than sorry.
Can a STP broker scam their client? Like edit the orders before processing it straight to the market?
i would say that every broker can scam you…we will never know how their platforms are programmed…so we cannot know what really happens after entering our orders…
yeah, these swissy cheese been around the net all the time, often makes new traders are to afraid even with demo account :).
upon my years activity, there’s been similar event happen. last time are with the yen, when tsunami hit their country, and the currency are going nuts in early morning trading session. I know that’s not quite epic as SNB, but most people do suffer of losing trade.
good thing is, most broker now offer such prevention :).