CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

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STP Brokers Described

STP brokers are less common, but for good reason, many traders consider them to be the best option. The fact that they combine the characteristics of ECN brokers and market makers is intriguing. Their operating method is somewhat complicated, so read carefully if you want to learn more about STP brokers and how they work. When a Forex broker employs a straight-through processing system, the traders' orders are routed directly to various liquidity providers on the interbank market. Large banks, third-party investors, major investment corporations, or hedge funds could be among them. An STP broker connects traders directly to the interbank market. Because customer orders do not pass through a dealing desk, no intermediaries are involved in the entire process. The lack of a middleman eliminates order filling delays as well as the need for requotes. Customers' orders are filled at the most competitive prices because they have direct market access in this case. This begs the question of how STP brokers make money. The solution is to charge a nominal markup on the bid/ask spreads provided by their liquidity providers. STP brokers provide floating spreads based on the bid/ask strength of the market. In contrast, the mark-up is usually fixed. It is also common for STP brokers to allow their customers to execute trades during financial news releases, which dealing-desk market makers cannot do. This, combined with the lightning-fast order execution, makes STP brokers the ideal choice for scalpers and news traders. Here, there is more anonymity and no conflict of interest. STP brokers aggregate buy and sell prices from multiple liquidity providers, adding the previously discussed nominal markup. The trader then places their order, which the brokerage then transfers to one of their numerous liquidity providers, retaining the profits from the small difference in the spread. The STP system ranks the buy/sell prices from best to worst before applying the mark-up. If the liquidity providers raise their spreads, the STP broker will respond by increasing theirs with a higher markup. Investors are essentially trading against other market participants rather than the brokerage, which benefits nothing from its customers' losses. In fact, the opposite is true. If a STP broker's clients lose too much money, they will stop placing new orders, and the broker will no longer profit consistently from the market.