Straight-Through-Processing (STP)

Straight-Through-Processing (STP) is a type of execution, where the broker is forwarding the bulk of the flows it receives to the market.

This is mostly to help speed up their respective transaction processing times.

STP provides a means of ensuring that orders are processed in a “straight-through” fashion, devoid of delays and requotes.

As its name suggests, the primary rational of STP is to allow brokers to have the same information be streamlined through a process across multiple points.

Intuitively this helps eliminate manual processing by employees for having to enter information repeatedly or checking to ensure a transaction is fully processed.

Unlike stock markets, the FX market does not boast a physical location. Consequently, there is physical record of all trade executions and transactions.

Instead, everything is electronic and virtual.

What STP brokers do when an order is placed by the trader, is to locate and match the order a counterparty who is ready to pick up the order at the agreed price.

Is Your Broker STP?

STP is considered by some as a hybridized model between market makers and ECNs.

However, the term is widely abused in the market as many forex brokers claim to be STP are in reality internalizing flows.

To date there is no reliable way to establish whether that is the case, however it pays to know that traditional STP brokers charge a commission and a spread on the trade instead of only relying on booking gains from a trader’s P/L.

Prices at such brokers are generally considered to be closer to the interbank rates.