Forex trading is the exchange of currencies in the global market. It involves various intermediaries, such as brokers, who facilitate the transactions between buyers and sellers. However, not all brokers are the same. They can have different roles, functions, and models of operation, which can affect the trading conditions, costs, and outcomes for the traders.

Two of the most common types of brokers are ECN and STP brokers. Both are types of non-dealing desk brokers, which means they do not interfere with the orders or manipulate the prices, but rather connect the traders directly to the market or other market participants. However, they have some key differences that traders should be aware of before choosing the best one for their needs.

What are ECN Brokers?

ECN stands for Electronic Communication Network, and ECN brokers use a network of liquidity providers, such as banks, hedge funds, and other brokers, to match the orders of their clients with the best available prices. ECN brokers offer more speed and transparency, as they show the market depth and the real-time bid and ask prices of each currency pair. However, ECN brokers charge a commission fee for each transaction, which can increase the trading costs. ECN brokers are suitable for fast execution and scalping, as they have low spreads and no requotes.

What are STP Brokers?

STP stands for Straight Through Processing, and STP brokers use an automated system to route the orders of their clients to the best available counterparty, which can be another STP broker, a market maker, or an ECN broker. STP brokers offer variable routing, which means they can choose the best option for each order depending on the market conditions and the liquidity. However, STP brokers have inconsistent processing times and reduced order routing transparency, as they do not disclose the identity of the counterparty or the liquidity pool. STP brokers can offer lower trading costs, as they can have no commission and low spreads, but the spreads can vary and widen during volatile periods. STP brokers can accommodate various trading styles, as they do not impose any restrictions or limitations on the traders.

How to Compare ECN and STP Brokers?

Therefore, the main difference between ECN and STP brokers is that ECN brokers provide direct access to the interbank market with a commission-based cost, while STP brokers provide indirect access to the market with a spread-based cost. Both have advantages and disadvantages, and traders should choose the one that suits their goals and preferences.

Some of the factors that traders should consider when comparing ECN and STP brokers are:

• Trading costs: ECN brokers charge a commission fee, which can range from $2 to $10 per lot, depending on the broker and the account type. STP brokers do not charge a commission fee, but they can mark up the spreads, which can range from 0.1 to 3 pips, depending on the broker and the currency pair. Traders should calculate the total trading costs based on their trading volume, frequency, and strategy, and compare them across different brokers.
• Trading conditions: ECN brokers offer tight and variable spreads, which reflect the true market conditions, and no requotes, which means the orders are executed at the requested price. STP brokers offer variable and sometimes fixed spreads, which can be lower or higher than the market spreads, and occasional requotes, which means the orders are executed at a different price than the requested one. Traders should check the spreads and the execution quality of different brokers, and look for any slippage, latency, or manipulation.
• Trading features: ECN brokers offer market depth information, which shows the available bid and ask prices and volumes at different levels, and allow traders to place orders inside the spread, which can improve the entry and exit prices. STP brokers do not offer market depth information, and do not allow traders to place orders inside the spread, which can limit the trading opportunities. Traders should look for the trading features that can enhance their trading performance and experience.