Straight Through Processing (STP) in its genuine meaning implies No Dealing Desk (NDD). To remind you the concept of the Dealing Desk (DD) model at its core will place the trader and broker on opposite sides of the trades so they have a conflict of interest when making a transaction.
(The table of STP brokers coming soon…)
Many forex brokers call themselves STP but and you should know what they mean in each case:
1. A broker who uses Market execution and passes orders to its liquidity providers calls himself an “STP”
2. A broker who serves as a counterparty to the clients’ orders by filling them using Instant execution and then immediately offsetting all those orders with its own liquidity providers calls himself an STP
3. A broker who is actually an IB (introducing broker) of another bigger broker (Prime brokers)who passes all orders of its clients to the Prime broker calls himself an STP
In case with an STP broker 2) with Instant execution who operates as an NDD broker, the broker can however not offset all clients’ orders with its liquidity providers and take the risk by filling themelves without sending to those liquidity providers and in this instance it works as a Dealing Desk broker (Market maker) and the conflict of interests between the broker and the trader arises.
In case with STP brokers 1) Market execution means the orders will be go to the market (liquidity providers) and will be filled the best price offered by one of liquidity providers. This type of STP broker provides Direct Market Access (DMA) and are referred to as DMA/STP brokers.
Unlike ECNs where the orders are sent to the pool of big number of liquidity providers operating on the interbank, regular STP brokers have a limited number of liquidity providers with whom the broker has a contract on the terms.
As ECN brokers are the ones using market execution and send clients orders to the liquidity pool, they can also be called ECN/STP brokers.