The forex industry has a variety of acronyms and industry terminology that can often be confusing to newcomers. Because this is industry is still relatively new when compared to the stock market or futures, it’s often challenging to find a reliable source of information that adequately explains various market terminology.
STP is an example of one of these concepts. You may have seen it on a broker website or in a forum discussion but not understood what it meant. Similar to other terms, STP is quite simple to follow once it is explained.
To start, STP stands for Straight Through Processing. This term is used most commonly when discussing how a broker handles risk. When a broker has launched business it has a choice to make regarding the orders that are placed by its clients. A broker offering STP trading implies that all risk associated with trades is passed along to the liquidity provider, bank or other clearing party the broker has partnered with.
Traders often prefer to work with STP brokers because they can be assured that no price manipulation is happening. In fact, there are a variety of regulatory jurisdictions in which licenses are granted soley to brokers who operate an STP business.
A broker earns its revenue in an STP model via the spread mark up associated with each trade, which can be quite lucrative. For example, if a broker has a 1 pip spread mark up on EUR/USD with 100 clients, each trading EUR/USD 10 times a day (not an uncommon scenario), then the broker stands to earn roughly 1,000 pips each day!
If you are looking to launch your own forex brokerage, don’t hesitate to contact our team of industry experts. We are more than happy to guide you through each and every aspect of starting your own forex broker.