Brokers in Forex are essential as they help trailers to execute transactions in the foreign exchange market and at the same time provide them with favorable conditions. From many types of brokers that we can discover, STP and DD (dealing desk) brokerage companies certainly grab our attention. To better understand the differences and similarities between them, we will go through each of them separately in the following article.

What is an STP Forex Broker?

In order to understand the advantages of STP order execution, you need to compare it with the functioning of a conventional dealing center. Unfortunately, DCs are the majority in the domestic brokerage market. Their main drawback is that sometimes there is a conflict of interest between the client and the company.

An STP broker is the opposite of a dealing center. In essence, STP is a system for executing orders, which, in turn, are sent straight to the foreign exchange market. The trader receives quotes from liquidity providers with whom the brokerage company cooperates. The STP broker enters the market on behalf of the trader, and cannot influence the price indicators and interfere with the trading process. Basically, STP trading is an automated process and all operations are carried out without manual intervention.

Due to the fact that transactions are withdrawn directly, there can be no slippage and requotes, even theoretically, since there are not many intermediaries between the trader and liquidity providers. An STP broker earns commissions from each trader’s deal, so the company is interested in the client’s success. The more often a trader opens orders, the better for the company, so there are no scalping restrictions.

A distinctive feature of STP brokers is the ability to place pending orders close to the current price of a financial asset. Also a major advantage of STP brokers is the absence of any restrictions on the use of certain trading strategies and systems, both manual and automatic.

There are few brokers on the market that work on the STP system. There are even fewer people who can be trusted because often the required amount of the deposit is quite substantial.

If you are a professional who wants ideal trading conditions for himself and does not intend to wait for several seconds for his order to be executed, then an STP broker is what you need. If you are a beginner, but do not want to expose your funds to non-trading risks, then trading on the STP system would be a reasonable decision.

What is a Dealing Desk Forex Broker?

Dealing Desk is one of the methods for organizing trading on the currency exchange. It is acceptable for listed companies with little experience, as well as in cases where the volume of transactions is small. The essence of the Dealing Desk is that trading is carried out within the broker’s company and orders are not transmitted to foreign markets. Only the clients of the firm, as well as the brokerage company itself, participate in the transactions. Thus, when using the Dealing Desk – the easiest way to implement online trading – when a trader places orders for a deal, the system looks for a counter order inside the trading platform. At the same time, the dealing center acts as a guarantor of liquidity, which, among other things, is entrusted with the function of repurchasing applications for which a counteroffer has not been received.

The fact that the broker who controls the course of trading is at the same time a party to the transaction is a disadvantage of the Dealing Desk. The interests of the trader and the company collide here, and this is the reason for possible fraud on the part of the broker. This happens especially often in cases of transactions with a large volume (10 lots or more), as well as when a trader chooses a currency pair with low liquidity as a trading instrument. In the latter case, very often the broker itself is forced to become the second party.

It should be said that in the Forex market, almost all brokerage companies use Dealing Desk to one degree or another. When choosing a large, well-known company that has proven itself in the market for many years, it is worth paying attention to such a moment as the type of account that is offered to open. These companies often offer micro accounts (cent accounts) or standard accounts in 0.01 lot increments as options. It is safe to say that the Dealing Desk method is used in such cases. For the so-called Non-Dealing Desk accounts, in particular, the minimum deposit amount is not less than $1000. Here you can be sure that trading is carried out exclusively with the external market.

Which One to Choose?

Despite some similarities and differences, it is up to a particular trader which one to select. For novice traders, it is better to start with dealing desk brokers and only after acquiring some knowledge move to STP Forex brokers. However, everything comes to personal preferences.