How Are STP Forex Brokers Different From Market Makers?

Photo: Google Image

Market maker brokers are dealing desk companies that absorb client orders and either passes them internally to other clients or take the opposite end of the trade. Market makers or dealing desk brokers do not connect traders to a global liquidity pool or the interbank exchange. Therefore, all orders are distributed between clients, and the broker has the option to either fill orders from their clients or reject them completely according to the market’s liquidity.

Due to the 24 hours nature of the FX market, brokers experience variable liquidity and inconsistent volumes throughout the day. It is close to impossible for the broker to find buyers and sellers for the same volume every time; therefore, most brokers resort to taking the opposite side of their trader’s position. Since the FX market has a tendency to create more winners than losers, brokers usually succeed in profiting from their client’s losses. Apart from the spreads, clients’ losses act as the primary source of revenue for dealing desk brokers.

Since market makers profit from their client’s losses, all dealing desk brokers have a conflict of interest with their customers. Lots of broker scams and dishonest broker practices arise out of the broker’s greed to make money from their clients. Most market makers resort to tactics such as price manipulation, disconnecting the price feeds, increasing the spreads, filling orders at unfavorable price levels, and even resorting to changing client orders without their consent. Therefore, a majority of traders tend to lose money with market makers.

STP Forex brokers are more straightforward in their offerings, as they usually don’t have a conflict of interest with their clients. All client orders are passed directly to the liquidity provider, and the markets generally absorb the order without any intervention from the broker. STP brokers make money from the spreads charged for every trade, which is beneficial for both parties as far as fair and honest trading is concerned.

STP forex brokers are common to experience a significant number of re-quotes and large slippages from market maker brokers during times of low liquidity in the markets. Sometimes, dealing desk brokers will take a lot of time to fill orders, which can range from several seconds to minutes. Traders might also face platform downtimes, which can prevent them from opening or closing their positions under favorable circumstances. On the contrary, STP accounts do help in reducing the number of re-quotes as a trader is connected to a larger liquidity pool, and orders are filled relatively faster than conventional market maker accounts. One of the main advantages of STP brokers is the fact that orders are filled more quickly, and trade execution is seamless, which in turn helps traders to take advantage of market conditions without the broker interfering in any manner.

Reprinted from forexbonuses, the copyright all reserved by the original author.