STP brokers or Straight Through Processing brokers, is the name given to brokers that, are sending traders’ orders directly to the market (their liquidity provider) without dealing desk intervention (or NDD) means straight to the liquidity providers the market is consistent of and the ones particular broker cooperating with. Straight Through Processing (STP) brokers basically act as the middle man between the traders and the Liquidity Providers. Liquidity providers can include a Bank, a Hedge Fund, Investment corporations or another broker generating its own bid and ask price and as such no intermediary in the order will be involved – in other words the STP broker will not be filtering the orders through a Dealing Desk. The lack of a Dealing Desk intervention is what makes the broker’s electronic trading platform STP, so the STP broker will be able to process its client’s orders faster and in addition the STP broker will not send re-quotes to its clients something that most investors will regard as an advantage, as the STP broker in effect will allow its clients to trade during the release times of financial news without any restrictions. The better and faster fills are obtained directly from the fact that there are usually a lot of competitive market bids and offers coming via the STP broker’s liquidity provider, which provide for more liquidity within the market and in turn this implies lower and lower obtainable execution prices for the client. In addition client transactions with an STP broker means anonymity for the client since there is no Dealing Desk monitoring the transactions of orders coming in from each client. The orders are instead executed automatically via the market network anonymously. STP brokers benefit from having several liquidity providers as an increase in the number of providers in the system means the better the fills for the client. A large number of STP brokers will use banks, which trade on the Interbank market (the top-level foreign exchange market where banks exchange different currencies) as their liquidity providers.
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