Trading online and particularly currency trading on the Forex, is becoming increasingly popular in Canada. As a result, it’s not surprising that aspiring traders wonder what kind of broker they should use for forex trading. It’s crucial to understand the difference between a STP Forex broker and so-called market makers. In the context of this article, we will clarify what these terms mean and what consequences they have for trading. We also go over some other factors to consider when selecting a broker.
In this STP brokers Canada Guide we discuss the following topics:
- What is an STP broker?
- What are the best Canadian STP Forex Brokers?
- STP Broker Advantages Compared to Market Makers.
- STP broker comparison: Different costs when trading due to spreads and commissions.
Top STP Forex Brokers in Canada
What is an STP Forex Broker?
Anyone new to trading, in our experience, will not be able to do much with the term STP broker. “Straight Through Processing” stands for “to pass an order directly to the market,” and it roughly translates to “to pass an order directly to the market.” In a similar way, ECN brokers (ECN = Electronic Communication Network) operate. The so-called market maker brokers are the polar opposite of this.
What is the history of market makers and how do they operate?
The concept of a market maker dates back to when stock exchange trading was done on the floor. Stock brokers, for example, who were in charge of a specific share, were required to actively trade in the market. This was done to keep the market liquid: if someone wanted to buy or sell a stock but there was no one available to buy or sell it, a trader on the floor could simply step in and enter the corresponding trade. There would have been no trade without a market maker, so it made sense to use them.
Nowadays there are many online Canadian brokers who act as market makers for their clients. The market maker broker has three options if a customer wants to buy a specific number of a currency pair (for example, euro / US dollar): First, if he wants to sell the corresponding number of currencies, he can complete the transaction with another customer. He also has the option of simply forwarding the order. The third option, however, is far more profitable for most market makers: they take the opposite position from their customers and trade with them directly. When a customer loses money on a trade, it means the broker makes a profit. This frequently results in conflicts of interest for market maker brokers, as shown below.
What is the difference between a market maker and a STP broker?
Unlike market makers, a broker who uses STP trading only sends his customers’ orders to a liquidity pool. Prices are solely determined by supply and demand there. The most significant difference between a market maker and a STP broker can already be seen at this point: The STP broker has no control over the price or rate that the customer must pay. As previously stated, market makers make the majority of their money by taking opposing positions to their customers. As a result, the market maker broker must ensure that his customers lose money from an economic standpoint.
The inconvenient aspect of this procedure is that the real stock market price would not have reached the stop price. For this process, a few points are frequently sufficient, and the customer rarely notices anything. The main benefits of using a STP Broker are that there are no conflicts of interest with the brokers and that real-time Forex trading prices are available.
Comparison of STP brokers Canada: different costs when trading
We’ll go over which factors you should consider as a future trader when selecting a STP broker in the sections below. Let’s start with the potential costs and fees associated with trading. There are essentially three categories:
- Costs that arise with every trade (through spreads and commissions)
- Deposit and withdrawal fees
- Other costs and fees (such as an inactivity fee)
With STP brokers, the main source of income is the spread. This means the premium that the broker charges on the current price.
Costs through commissions
Spreads aren’t the only way for a broker to make money. You also pay a certain fee to your broker for every trade.
Fees for deposits, withdrawals and other fees
In addition to the costs for spreads and commissions, fees for deposits and withdrawals may apply in forex trading. The STP broker comparison has shown that these fees can differ greatly from provider to provider. In general, you can say that the amount of the costs depends largely on the type of payment used. Transfers are usually the cheapest, but take the longest. The opposite is true when using credit cards or online wallets such as PayPal or Skrill: The speed of these payment methods often comes with high fees. Many providers also differentiate according to whether it is a deposit or a withdrawal.
Compare STP forex brokers in Canada to find a good platform
On the one hand, as a trader, you should ensure that your costs are as low as possible. It is also critical, in our opinion, that the broker provides a good Forex trading platform in Canada. Because the trading software connects the trader to the stock exchange, it should aid rather than hinder him in his daily tasks. In our STP broker comparison, we discovered that the majority of brokers provide MetaTrader software. As a result, even newcomers will quickly learn their way around the program after a brief orientation period.
The MetaTrader platform has a number of extensions that you can use to expand the range of functions and automate trading. These extra features, on the other hand, are usually unimportant for beginners. More importantly, the MetaTrader can be used on a smartphone or tablet as a mobile version. This allows you to keep track of your trades while you’re on the go. Larger screens, on the other hand, are better for chart analysis and other tasks. Many brokers offer other platforms in addition to MetaTrader. We recommend that you try these out as well so that you can determine which software is best for you.
Forex broker comparison: value good customer support
Many future traders, in our experience, undervalue the importance of good customer service. There are significant differences between STP brokers in this area as well. It all starts with how well-structured the website is and how transparent the broker is with its clients. If you can easily find information about the various costs and fees, it speaks well of the broker. Furthermore, a good provider is distinguished by the fact that he provides telephone support to his customers.
Unfortunately, an increasing number of brokers limit their customers’ contact options to either email or chat. However, experience has shown that problems can often be resolved more effectively and quickly over the phone. A good provider can also be identified by the fact that he assists his customers in improving their trading. This can be accomplished by providing training materials, for example. Observing experienced traders trade in webinars and receiving advice from them is also beneficial.
STP trading has been shown to provide numerous benefits to traders. Because the STP broker only earns from the spreads or commissions of its customers, not from their losses, there is no conflict of interest that exists with market makers. As a result, he does not want customers to lose money on their trades. Several factors, in our opinion, should be prioritized when selecting a STP broker. Above all, it’s critical to keep an eye on potential costs and fees from the beginning.
Spreads and commissions are usually the most expensive components. Several factors influence whether you choose a fixed or variable spread in this situation. Beginners prefer a fixed spread because it remains constant even during the most volatile periods of the market. A variable spread, on the other hand, will become more appealing as your trading experience grows. Choosing the commission model to get even lower spreads may make sense depending on the strategy. Overall, we recommend using a free forex demo account to test out both the future STP broker and your own strategy.