STP/ECN or Market Maker – who is the Best Forex Broker ?
In the past days, we have heard in the news a lot about forex brokers negative accounts. In this post, i will write about the most important things, when we are about deciding the best broker for our Algorithmic-Trading investment.
STP Broker – Straight-through processing (STP) – enables the entire trade process for capital market and payment transactions to be conducted electronically without the need for re-keying or manual intervention, subject to legal and regulatory restrictions. The concept has also been transferred into other sectors including energy (oil, gas) trading and banking, and financial planning.
This short explanation from Wikipedia tells us what is the definition of STP. But in a reality and usually in the Forex market the STP broker is just asking from other Forex participants to cover his open positions. It means that it is possible that it will not any liquid in the market for covering the open trade balance. ECN is an Electronically Connected Network, which is given to an ECN Broker to pass his open balances into the ECN network and the better price spreads for his traders.
Market Maker Brokers – is normally a big bank such as the Dukascopy, who will buy and sell currencies for himself and decides later on how much amount to hold for himself.
Let understand the advantages and disadvantages of these two kind of brokers in the best Forex Algorithmic-Trading perspective:
The one of the big advantages of the market-maker broker is that their trading accounts will not never be in a negative territory. Only the market-maker broker could always do it. The one of the two disadvantages is that when your order is processed the market maker could have manually intervention about your buy/sell orders for his better interest. It means you are trading against the market maker !
The one of the big disadvantages is that the market-maker broker is that he is a one broker, who is citing to the traders his price feed – means the buy/sell currencies prices – and his price spreads will be much greater than the spreads of STP/ECN brokers. This is a big disadvantage for most Algorithmic-Trading strategies.
To summary, we have just learned that the best forex broker kind for a High Frequency Trading and an Algorithmic-Trading Forex Robot as perfect as for Engineering Investments is a reliable STP/ECN broker.