All forex traders must understand the difference between true and false ECN or STP forex brokers. Not only it will allow them to find a good, reliable broker for managing their trading activities, but also it will prevent them from being trapped by a deceitful, scam brokerage firm.
Most of the traders rely on ECN/STP brokers in order to open their trading accounts. Unfortunately, many scam brokerages (mostly market makers) nowadays pretend themselves to be a true ECN and STP Broker. That’s why you need to be extremely careful and avoid these deceitful brokerage platforms. But, how can you distinguish the actual difference between true and false ECN/STP forex brokers? Well, keep reading in order to reveal more information on this topic.
Know More About ECN Brokers
The acronym of ECN signifies Electronic Communications Network. All ECN brokers need to be electronically connected to a network of international liquidity providers or banks. But, why should you trade through such brokerage platform? Well, here’s an advantage. While trading through an ECN brokerage platform, you will be trading and communicating with the real-time international currency market.
Know More About STP Brokers
The acronym of STP means Straight Through Processing. In this platform, everything is performed without any kind of human intervention, starting from placing a trade order to closing the finalized deal.
Additional Note Regarding ECN/STP Brokers
In the previous section, you have revealed details about ECN and STP Brokers. These brokers are electronically connected to a network of banks and liquidity providers. They will route your trade orders electronically (without any manual intervention) to another liquidity provider so that you can earn the maximum profit.
On the contrary, if you are trading through a false or fake ECN/STP broker, then he/she will rip off your profit margin and you’ll end up losing your money. Note, a fake ECN/STP broker will route your trade orders to another system that either belongs to the same company or it’s a sister company. Therefore, your hard-earned money is just routed or transferred from one pocket to another (within the same company). Obviously, in such cases, you are not trading with the real-time international currency market. Plus, there will be high chances of losing your traded money as you are dealing with a deceitful market maker broker who doesn’t want you gain profits (for their own advantage).
So, can you now understand the importance of avoiding such market makers and trade through a genuine ECN/STP broker? Let’s now reveal how to find a true ECN/STP broker.
How to Spot Out a True ECN/STP Broker?
It is not that difficult to differentiate and spot out a true ECN/STP broker. All you will need to be careful about some of the facts that are elaborated below before opening your account with them.
True ECN/STP brokers are always connected to at least one independent liquidity provider. This liquidity provider is a completely different firm and it should not have any connection/partnership/relationship with the brokerage platform. The list of popular liquidity providers includes JP Morgan, Goldman Sachs, HSBC, Nomura, Citi Bank, and Bank of America etc.
A true ECN/STP broker will route your trade orders to these liquidity providers. For this task, the brokerage firm will earn commission from you. The liquidity providers will make money by charging you spread and swap.
Note, most of the true ECN and STP brokers are nowadays electronically connected with multiple liquidity providers. And, here lies a brilliant advantage. When you trade through such ECN/STP brokers that are simultaneously connected with multiple liquidity providers, then the system will automatically pick the best liquidity provider for your order. The system will analyze an ideal liquidity provider that’s offering the best price and route your order to it. Note, these liquidity providers compete against each other on an everyday basis in order to offer you a lower spread. In this way, you will be enjoying the best possible trading service and earn more profits on your order.
Please note, nowadays some true ECN/STP brokers tend to charge you a hefty amount of spread (apart from their commission). Ideally, they are not supposed to increase the spread and charge markups. Plus, they must inform their clients if they do so. However, in most of the cases, they do not intimate you about the markups and cheat you by charging an increasing spread.
To avoid this problem, please ask the brokers upfront if they charge any markups before opening an account. Also, do not forget to ask them to furnish adequate proofs. If they fail to provide a proper answer and showcase relevant proofs, please do not open your account with them and choose another true ECN/STP broker.