What Does Straight Through Processing – STP Mean?
An initiative employed by companies from the financial world to optimize the pace at which transactions are processed. This is performed by allowing information that’s been electronically entered being transferred in one party to another inside the settlement process without manually re-entering exactly the same pieces of information repeatedly in the entire sequence of events.
What Does Electronic Communication Network – ECN Mean?
An electronic system that tries to eliminate the role of the third party within the execution of orders entered by an exchange market maker or perhaps an over-the-counter market maker, and permits such orders to become entirely or partly executed.
The broker grumblings and trading malcontent will not be new and possesses been around since Forex market began. As of late this discussion is exceedingly fierce which is gaining in popularity. As we all know change isn’t something we embrace. Such questions like, Why are my spreads changing and achieving wider? I do not ever remember spreads being this far apart. My order slipped more pips the idea would have normally. What is going on? Why is this happening now?
As the marketplace changes and adapts the Forex trader evolves. The evolution of an trader is witnessed with the news traders that contain needed to change strategies, and exactly how they trade economic news. The potential for making great gains is evident with economic news releases, and yes it was not well before traders caught on. Such strategies as straddling the marketplace prior to news releases became more established.
How does this market react to such changes?
How performs this affect brokers, traders and which are the consequences of employing ECN/STP type brokers and would it benefit an investor to use an ECN due to the above circumstances? The answer to this involves some further inspection into market makers in addition to their relationship with Interbank Forex market and subsequent liquidity providers.
It’s no secret retail brokers include the counter party to any or all of your currency market trading transactions. When you execute your trade the opposite side within your trade is taken by another trader exactly like you. The resounding affect to the broker happens because receive a commission for facilitating your trade.
Now here are another method for facilitate your trade. Rather than sending your trade to liquidity providers for processing you will discover market makers which make opposite side of one’s transaction to be able to assist facilitating the trade. A Market Maker may decided for the reason that feel your likely to lose anyways it benefits these to take your order and make in house.
In the initial instance where one trader is accessible to consider the opposite side of your respective trade is right until there’s no volume then you definately get to understand an ECN and STP broker. With an ECN and STP you might be submitting market orders. Market Orders get filled if you find the volume to do this otherwise you jump off quotes which tell an angel investor nobody is able to high risk your trade/order. During times of high volatility including economic news, spreads can widen by having an ECN, STP and then any other type of broker until you have a dealer which charges a restricted spread. Not only will the spreads perhaps widen you will possibly not get your order filled with the price you intended. Seconds could pass just before filled causing slippage or requoting.
So so you see how it’s possible to become perfectly very happy with your broker and therefore the rules change so you start to see more cases of slippage, more requotes and off quotes you then had seen previously. You are really in the mercy of the marketplace. The more traders that jump on board and trade economic news the not as likely the conditions will always be favorable. How long will you suppose a dealer and subsequently a liquidity provider going to get willing to throw money away. So it should become obvious an organization model change would help. The same ECN broker you used previously for news trading is not so willingly to facilitate your order(s) in the price making it possible to potentially turn a profit. Your broker has issues with all of the orders for Euros that nobody wants now. So what does the marketplace maker do now? Well they’re going to slip the purchase price, widen spreads or shutdown the opportunity to trade during new releases.