I was talking to one of my brokers reps the other day and he let me in on a little tip when determining that your broker is a true STP or no dealing desk type broker, you see this is a common question of many people and so I thought I would share his tips with you all. First of all for all those wondering what this term STP means, it means Straight Through Processing, a term in Forex brokers to represent straight through to Interbank rather than a dealing desk type broker which is common in many brokers.
This is important one to know and many assume all brokers are the same, truth is unfortunately they are not. Some have dealing desks which means they use there own liquidity for you to trade.. You maybe thinking now, well so what? Well, this is the kicker, a dealing desk broker losers money when traders make money as they are forced to take opposing positions in the market against you to provide liquidity. While this might seem fine, it sometimes means that that the broker is forced to do such actions as forced slippage on orders or trades, to unexpected margin calls, to flash moves that only exist in that broker. While this sounds like stealing it is
Well, now that I have said that, let’s take a look at the positives as well, we now live in the year 2000 and beyond and most of those brokerage firms have started fading out, however many still do remain the good news is that we now have choice and there is no reason why any trader should choose a market maker broker or dealing desk type broker. Not with the massive range we now have on offer to choose from.literally in the contract that a trader signs up for when choosing a dealing desk broker which means it is legal. In some occasions brokers take it further and law suits are filed against some of the biggest broker companies that have been exposed for dirty practices of cheating there clients. ( Many big name brands are in this list. )
That gets me back to my point, dealing desk type brokers have a vested interest in the companies success and that involves making sure most traders that trade with them lose in some way. On the other hand STP ( Straight Through Processing ) broker has no interest as there liquidity comes from the big banks and all they make money from is the spreads. In fact whether you win or lose a True STP has no interest. These types of brokers are more so the real deal, however be careful as just because a broker is big or plasters ads on TV does not mean it is a real STP type broker at all.
These aspects are always needed to be checked by you personally when deciding on a broker and it does not always in all cases imply that all dealing desk type broker is up to no good either…
It just means that it implies conflict of interest as you working with your broker as a business partner.
Above Image – See the example above of stop loss and take profit rule indicating a dealing desk type broker. Seems obvious they are trying to make a short term conflict with this broker ( name disclosed ) for the trader. Does your broker do something similar?
One Trick That Implies Whether or Not Your Broker is a True Forex STP
Okay, so you have waited long enough, you want to know the tip to know if you using a true STP, well it is quite simple, jump on your MT4 platform and go to place an order, does not have to be a live account can be a demo account as well. Then when going to place an order to buy or sell check to see if it allows you to place your stop loss or take profit just a few pips away from entry ( say around 3 to 4 pips away from open price ). If you get a error saying you cannot place stop loss or take profit so close to current market or something similar then that implies some manipulation like a dealing desk on your broker. You see as described by the rep of a non dealing desk STP type broker said to me, a true STP allows a trader to places stop on entry very close and a true STP allows a trader to place a take profit really close as well. There is no reason to control this aspect and if there is an issue of control then that is something to be questioned.
So, if for some reason your broker does not allow this then that would indicate some tampering with the software in some way. There is no reason whatsoever that there should be any rules on these types of aspects in your trading unless it goes against some type of dealing desk aspect.
Overall while this gives highly likely clue of not being a True STP, I did ask the rep whether this was always the case and he said no, however that is the most likely case in most situations.
Website is another way of knowing as a statement there stating clearly no dealing desk and STP as well ( like above as an example ), such as if they state it clearly on the benefits page or homepage. ( When not mentioned it often means it can be hidden in terms saying that a broker is a dealing desk. ) Another way of knowing for sure 100% is to contact your broker and have them confirm the statement as being a true STP as well.