STP Brokers definition and how stp brokers make money
STP Broker is a type of a Market Making broker. This broker, most of the time, displays its own quotes (which are correlated to the actual inter-banking quotes).
Now here is the real complexity: sometimes this broker routes your orders to the market (acts as an STP broker) but sometimes it doesn’t (acts as a Market Maker).
For instance, successful traders or successful trading algorithms will be automatically routed to the market while small or losing clients will not. This way the broker profits twice: once by clients’ losses and another by not losing money to successful traders (of course this never works 100% but it does most of the time).
This way the STP broker’s commission comes from two sources: unsuccessful clients’ losses and commission arbitrage on routed orders – when you trade at 2 pips with this broker for example, it routes your orders to another broker or the inter-banking market thus making 1 pip without assuming any risk.
This model is also responsible for all the re-quotes and order rejections. When you open a large order the broker routes it to the market, but the prices there might have already changed (the market does move very fast sometimes) – so the broker is faced with two options: either rejecting the order asking for you to adjust prices or completing the order by taking the risk that it might end up a successful trade meaning the broker will have to pay you from its pockets.
True stp broker /ECN brokers recommendation
Trading with Pepperstone
- Pepperstone holds AFSL #414530
- Regulated by ASIC
- Professional Indemnity Insurance with Lloyds of London
- Client accounts maintained with Australian Banks
