In any investment, people risk for the potential and guaranteed returns it will have. Traders have different trading strategies, use different brokers and avail different services according to this. For beginners, the task of finding which broker fits them best can be daunting and might take a while.
In the current market, there are 3 main types of brokers: STP, ECN, and Market Makers. The most common and unfortunately the worst with their returns based on your losses are market makers. However, the other two, STP and ECN brokers, have gained global popularity because of their more trustworthy and profitable approach. Let’s look at what STP/ECN brokers offer and the benefits of trading with them.
The Profitable and Fair Broker for the Smart Trader
Essentially, an STP/ECN broker is a broker that allows you to make profit and to make the most profit, in contrast to market makers who employ a broker model built on generating money from client’s losses and losing from client’s wins.
ECN brokers utilize the Electronic Communication Networks or ECN system which allows for automatic matching and trading depending on your specifications. With this, trades can be executed more directly. On the other hand, STP brokers utilize the straight-through processing (STP) system which allows for transactions and trades to be carried out without manual intervention and processed simultaneously as the transactions happen. With these, both are able to cut down intermediary costs and payments to any additional manual operation in the process which increases one’s profits.
However, the bigger reason why this brings in more profit is because of the lack of conflict of interest on the part of the broker. As for market makers who are hinged on a client’s loss to make their own money, their trading strategy can adapt restrictions and modify their strategy, whether overtly or not, to limit your profit or lose some in the process. Trading strategies are also more realistic as they base their actions on current market values. With this, a trader can be more confident in dealing with STP/ECN brokers given that both you and your broker have the same goal in making profit as they make their money based on their direct commissions alone. Your wins are their wins which is the direct opposite of how market makers work.
It also enables you to maintain anonymity in trading. The ability to censor and protect your information, trading strategies, past trades, and current and potential transactions is very integral in ensuring your profit and your place in the market. With more real-time trading, market manipulation is virtually impossible, especially for ECN brokers.
Market prices and its aggregates are directly accessible to the traders which they otherwise wouldn’t have access to. This degree of transparency adds to the level of trust clients can place to their brokers. Along with this, requoting for traders are also prevented. Since you don’t have direct access to real-time prices, asking for requotes is common, especially with a volatile market. However, when you remove another person in the form of desk dealers in the equation, you also prevent having to ask for multiple quotes from them as this will adversely affect your trading performance and portfolio.
Even for brokers, this is also a very convenient method to employ as expenses are cut down in its running, errors are minimized, and predictions are safer and more realistic making the revenue stream more stable as opposed to the fluctuant profits in market makers. All of which create a more amicable and reliable relationship between brokers and traders.
Trade with CXM Direct
With all these benefits, STP/ECN brokers really have leverage. If you think this is the program and approach that works best for you, trade with CXM Direct.
CXM Direct assures that client’s profits and goals are met the most efficient way possible, with as many losses prevented both in your direct numbers and long-term performance. Work with us to continue being the smart trader you already are!
