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Chapter 38, Part I. Some Talk About Brokers. Page 6

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    2. Straight through processing Brokers (STP)

    This is a really cunning fox. A pure STP broker has to be a “broker” as we’ve just described – work on behalf of clients and just be an intermediary between buyer and seller for some fee or part of the spread. In fact it should not be able to have any positions and even open them. This type of broker is not interested in anything beyond its fee. But our STP brokers are cakes of another sort, and often aren't “pure” STP. Sometimes, they can just transfer your trades to the market, but sometimes they can act as market makers and become counterparty of your trades. They have some special workers who track performance of different clients and trading automated systems. Successful traders/systems positions are just transferred to the market while for those who mostly lose of stay flat, the broker becomes the counterparty. While it does not work at 100%, this works with big numbers and statistics are their friend. Remember when we were talking about how casinos work.


    Second profit source is spread part or fee part. The point is that STP broker get quotes from some bank or larger broker and those quotes are tighter than the ones it gives to customers.

    Say, if the STP broker itself gets a 2 pip spread – you, as its client, will get 2-4 spread for instance. The same could be done with possible trading fees or commissions. This kind of quoting becomes the major reason of possible re-quoting or market orders rejections. If you place the order and the market runs fast – the quote could change while the STP broker was translate your order to a“higher” level – to larger broker or bank. This change could happen either in your favor as against you. Very probable if it will come in your favor, then the STP broker will deny your order and ask you to retry with different quotes. Very rarely an STP broker is ready to pay you from its own pockets - just to keep customers be happy with their broker. What might happen if the market runs against you – re-read the chapter where you discuss comparison of stocks and forex markets. Slippages of any size and delays are the most common effects of such procedures. In other words, since an STP broker provides you the quotes of some greater broker or liquidity provider, it can’t control them, so it has to change them and the spread as it changes by higher counterparty in the overall chain.
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