The way a broker handles its clients' orders is influenced by its infrastructure model. There are several models, but among the most well-known is the distinction between STP (straight through processing) and MM (market maker). What are the basic differences between these models and why it is something traders should be interested in, will be explained in this article by our CEO, David Varga.
It should be noted that brokers use different infrastructure configurations to execute transactions. Sometimes, brokers are also divided into dealing-desk brokers and no-dealing-desk brokers.
Act as an intermediary in transactions with their clients. The principle is simple: our server receives the client's order and then transfers it to the liquidity provider. The operation is performed in milliseconds. The broker's profit in each transaction consists of a commission or a spread, which is the result of a margin added to the base spread.
MMs have their own liquidity and provide it to their clients, acting as the only counterparty to their orders. Transactions thus take place in the so-called internal book. Market makers often also exist on the basis of so-called hybrid models. In these, the broker transfers part of its clients' transactions to liquidity providers. The MM broker may thus have an incentive to "get rid" of its profitable clients by sending their orders to an external entity.
The first type of liquidity provider may be another broker or a bank executing transactions as a Market Maker.
Second, some liquidity providers may also operate like an exchange (officially known as an MTF or Multilateral Trading Facility), bringing together market participants in the form of a trading exchange.
And third, a liquidity provider may be a Prime Broker or Brokerage. In this model, liquidity providers collect prices from the interbank market, combining the liquidity of many different financial institutions. This allows them to choose the best possible price - an option rarely available to retail brokers. Although Purple Trading has experience with all three of these models, we use the second and third types of liquidity brokers.
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There are several ways of identifying the model used by the broker. STP brokers tend to publish a list of liquidity providers and execution statistics on their website, such as average spreads, execution time and slippage distribution - which you can also find on our website. MM brokers are usually not as transparent about their activities.
You can also check what license the entity holds: if the broker does not have a "dealing on own account" license, it means it is not a Market Maker. In the case of Purple Trading, the CySEC regulator's website states that we are only licensed to "accept and transmit orders", "execute" and "manage portfolios".
The final check is the MiFID II regulation, according to which investment firms in the European Union must disclose information on the execution of client orders - under the RTS28 report. A simple check shows that last year, Purple Trading used four different liquidity providers. In the case of Purple Trading, you can find all the above-mentioned legal documents on our website.
There is no one good choice for everyone. The STP is possibly the best choice, however, a solid Market Maker could be a good idea for some investors. MM brokers can offer you low costs, fixed spreads, and swap-free accounts. However, investors must bear in mind that this perfect situation will end when they start making money. Therefore, if you are serious about trading and are looking for a long-term partner to provide you with the best service on the market, choose an STP broker. As STP brokers, we are unable to compete with MM brokers in terms of spreads, etc. But if you are looking for a professional, reliable, and transparent broker who is focused on the safety of clients’ funds, Purple Trading is right for you.
STP account commissions
You can choose an STP account when creating a trading account in your Purple Zone.
ECN account commissions
Comission per lot*
Spreads from 0.3
Suitable for intraday traders
Spreads directly from our liquidity providers + direct access to the interbank market. You will receive the standard ECN account automatically once you have opened a real account with us.
* This commission differs according to the acquired status of trader, see the table below.
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