STP and ECN Brokers

Straight-through processing

An STP broker has agreements with one or more liquidity providers. Your order is routed to whichever quotes the best price, and the broker adds a small mark-up to the spread as its fee. Because it is not your counterparty, it has no interest in whether you win or lose, only in how much you trade.

Electronic communication networks

An ECN aggregates quotes from many participants into one order book and matches buyers with sellers. The spread you see is the raw market spread, often close to zero in the majors, and the broker charges a fixed commission per lot. Many ECN brokers show depth of market, the ladder of prices and volumes available, which is useful for larger orders.

Trade-offs

A caution on labels

ECN and STP are marketing terms as much as technical ones, and some brokers describe an internal matching engine as an ECN. A broker that is regulated somewhere with disclosure rules will state its model in the client agreement; that document, not the homepage, is where to check. The following lesson explains the A-book and B-book split that sits underneath all of these labels.

Key takeaways

• STP routes orders to liquidity providers and earns a spread mark-up.
• ECN matches orders in a shared book and charges a commission on a raw spread.
• Neither is your counterparty, which removes the market maker's conflict.
• Verify the model in the client agreement rather than the marketing.