It is commonly known that there are two types of forex brokers. The two types of brokers are commonly
called either Straight-Through- Processing (STP) or dealing desk(DD.) While most traders assume a
brokerage is either a STP or DD broker, most brokers are a mix, running both STP and DD models. Most
traders seek out STP brokers to trade with, believing that there are fewer conflicts of interest in the STP
broker business model. This blog will post will examine how STP brokers make money, and how you can
tell if your broker is a STP or DD broker.
The STP brokerage model is relatively simple. STP brokers simply take a price feed from one, or more,
liquidity providers, add a markup or commission on the spread, and offer that marked up price feed to
their clients. With access to interbank spreads, this enables STP brokers to make a profit on each trade
commensurate with the amount they have marked up each symbol.
Additionally, STP brokerages have the ability to mark up the swap rates that they charge their clients on
all open trades during rollover. Swap rates are set by the interbank market, and most STP brokers
choose to mark up the swap rates as well as the core-spreads. While the mark-up on the swap rates
usually does not make as much money for the brokerage as the mark-up on the cores spread rates, it is
an additional source of income for STP brokers.
There are some fairly easy ways to tell if your brokerage is a STP broker or a Dealing Desk broker. As STP
brokerages are actually sending all their trades out to the liquidity provider, they are unable to offer
bonuses out to their clients. At most a STP brokerage would be able to offer a bonus of a few
percentage points out to their clients. A broker that offers 10%, 20%, or more of deposit bonuses is a
sure-fire sign that you are trading with a dealing desk broker.
If you are considering opening a forex broker, you have probably thought about whether you should use
a STP model or a Dealing desk model for your business. There is no right answer, every business is
different based on their client base and offering. Most brokers do a mix, where smaller accounts are
kept on the dealing desk and larger traders are placed STP in order to minimize risk. At Global Group, we
will provide you with a broker that has both STP and Dealing Desk capabilities, and will be able to assist
you in managing your trading book on an ongoing basis!