Straight-through processing or STP refers to the system of electronically executing orders without manual intervention. If you’ve ever purchased an item online and the automated system processes your payments, then you have an idea of what STP is. In the foreign exchange market, the service provider will automatically transfer the orders directly to the liquidity provider from the trader without passing through the dealing desk. In retail terminology, you are cutting out the middleman.
So, when you are looking for a forex broker online, why should you look for someone that offers straight-through processing? Here are some of the advantages of STP:
- Uses a single system for processing — One problem with multiple systems is the valuation discrepancies in the profit and loss statement. Since they use different methodologies in monitoring and audit, you can expect different interpretations, as well. The results will also not be consistent since you have disparate systems making multiple valuation assumptions.
- Minimises errors — The minimal to zero manual intervention means reducing human errors when processing the orders. The system can even process large volumes without traders worrying about mishandling, inconsistencies, and erroneous valuations. No human can match the accuracy and efficiency of the computer in initiating trade and finishing the settlement.
- Greater transparency — While people may fudge data, the STP leaves plenty of breadcrumbs for auditors to follow. It is much more difficult, if not impossible, for somebody to change the numbers during the audit. Every trader has the same chance of trading in the liquidity pool across various Forex markets.
- Lower risk — The settlement risk is drastically reduced since the automated system shortest the processing time for each transaction. As a result, the agreement or contract is quickly settled. For the broker, STP is also beneficial because it cuts their operational costs and their operational risks.
- No re-quotes — If you are worried about price manipulation, dealing with the STP broker will give you peace of mind. Since there are no dealing desks, expect to get only the best prices available in the marketplace. The orders will be sent directly to the major banks where you get the most accurate quotes. Your orders will also be confirmed once they are processed, so there is no waiting time during transactions.
- Spreads are tighter — The STP ensures that the prices remain competitive on account of the brokers’ volume flow. The liquidity providers will be scrambling to get a piece of the action, so they have to offer competitive prices to edge out their competition. Since more market participants are bidding, you can expect tighter spreads.
- Positive slippage — Slippage occurs when the trader has placed an order, but the price is moving at warp speed. Since the STP has a low latency rate, you can guarantee that you can also get the best price at the time when the market fluctuates.
You may stumble upon a forex broker online who purportedly offer straight-through processing. However, to be fully effective, the STP should be a fully integrated solution, which does not require more interfaces. It should also reflect consistent pricing across the delivery channel, cover all financial products, and store static data on a central hub. For example, going by the above criteria, Synergy Markets can perhaps lay claim to being the only STP broker in Australia.
