Today’s Forex market has become a highly-competitive environment. Therefore, broking companies are forced to improve their services. That is how they come up with ECN and STP systems. Both of them are fairly popular among Forex traders.
They obviously have a lot of advantages over conventional broking services. They offer almost instant access to the genuine interbank liquidity offered by major liquidity providers, simultaneously ensuring high-quality dealing instant execution of orders at best prices. This makes trading much more efficient, thereby giving ECN and STP traders a major competitive edge over other traders. Most traders prefer to work with STP.
What are these technologies and what is the difference between them? Let’s ask Dmitry Ranev, CEO of GKFX, a major Forex broking company.
ECN and STP
According to Dmitry Ranev, CEO of GKFX, today’s Forex market is hard to imagine without ECN and STP. Probably, one day someone imagined a better future and worked hard to implement the dream. As a result, all of us can enjoy nearly perfect trading conditions.
It is not accidental that the world’s best broking companies are actively promoting ECN and STP along with their own innovative solutions. For example, GKFX has recently introduced an exclusive system called GKFX ECN with access to Level II market depth. It combines all the benefits of ECNs and the company’s innovation solutions. As a result, a GKFX trader gets a competitive edge over rivals.
STP (stands for Straight Through Processing) is an automatic system aimed at delivering the trader’s orders to liquidity providers. ECN (electronic communication network) is a system that allows the trader’s limit orders to join the liquidity offered by banks to form the aggregate liquidity pool for other market participants acting as counteragents.
The major difference is that ECN traders can see their own orders along with the liquidity offered by other market participants. At the same time, their limit orders influence the company’s spread. Therefore, the clients can trade with each other within the company and with major liquidity providers.
This is who the STP system works on STP.MT4 accounts in GKF:
Let’s say you send a buy order. Then, your order is executed at the best price available at the moment. However, your counteragent may be represented by a major liquidity provider or another trader like you who trades with the same broking company. Therefore, an ECN trader gets a competitive edge at the expense of the fact that the price may be improved by liquidity providers and/or local traders.
Moreover, if two traders from the same broker make a trade with each other, there is no need to send their orders to the available ECN and wait till the liquidity provider responds, which saves a lot of time.
GKFX’s ECN is the local system that can process 30 000 orders per second. The ECN system can plug in an unlimited amount of liquidity providers combined into a single stream. This allows GKFX traders to get their traders executed at the best piece and speed. At the same time, the trade can see the entire depth of the market.
ECN and STP: Execution of Orders
When trading through an ECN, the execution of orders is done on the basis of a client’s order. The market depth is instantly checked for the best price. The liquidity consists of the so-called liquidity bands (they include the price and the volume). More often than not, the bigger the volume is, the worse the price you can get. If the price is coming from another trader within the company, it is executed instantly. If the price is offered by a liquidity provider, the system sends a request and executes the order on approval. Obviously, in this case the process may take some time. Therefore, the price may change, so the order may be executed at a better or worse price. In a good ECN or STP system this is what we actually get. However, poor ECN systems always change prices for the worse. Therefore, it is crucial to choose the right ECN broking company. For example, GKFX ECN is such changes are rare because several innovative solutions allow it to increase the processing speed. More often than not, orders are executed at better prices when there are such changes.
There are two major types of execution in ECN and STP - Market execution and Instant execution.
For more details, please visit the company’s official website - http://www.gkfx.com/ENG
To sum up, we want to underline the fact that true ECN and STP broking companies offer best trading opportunities. Moreover, there is no conflict of interest between the trader and the ECN broker, which means such brokers always offer win-win solutions.
