The Importance of Regulated STP Forex Brokers and How to Avoid the Bad Ones

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Dragan Lukic

25 Jul, 2014

in Forex

Looking for the right Forex broker has been a task that many of us have loved and hated. Sometimes we find the right one pretty much straight away but at other times we struggle so much that we simply want to give up. The problem is that there is so many different Forex brokers out there such as ECN, STP, futures, options and so on. The sheer volume of them available for every sector can become the obstacle in actually finding one. Despite all this however, there is only one type of Forex broker that we should all look for – a business partner.

Business partners tend to have each other’s interests at heart and they both agree on the final outcome of the project, whatever it may be. The final outcome is usually related to profit and the same applies here.

This is why you must ensure that your Forex broker is regulated. The reason why is ‘security’. You need to feel safe that your business partner is honest and if they are not, they are being watched over with a careful eye by the regulator. The regulator is your security blanket. They will ensure that nothing is manipulated and that you are given a fair opportunity to make your business and trading work i.e. become profitable.

One factor that you must be careful with is straight through processing, usually referred to as STP. The reason why you have to be careful is because there are two versions of STP and one them can be used to fool you.

The first version does exactly what it says. This is when STP Forex brokers process your order by sending it straight through to the Interbank market. There is nothing for you worry about here as this is the main trading environment for Forex traders where nothing can be manipulated.

The second version is a bit sneakier. Instead of sending your order to the Interbank market, it is processed by dumping your order straight through to their dealing desk. The dealing desk is where customer orders are manipulated automatically or manually by the Forex broker. So, you must ensure you check that your order is being sent to the Interbank market because if it is not; this is not an STP Forex broker. In fact, what happens here is that they try and correlate prices with their own liquidity providers which results in them giving you ‘the best possible price’; which is just a smoke screen for a price where they make a profit.

STP Forex brokers are a great type of company to trust with your investment. However, you must be aware that this industry will produce untruthful companies who will literally say anything to get you through their doors. After a while you may find that they are no longer operating but by that point it will be too late for you to reclaim any of your investment. The truth is you probably won’t succeed because of the fact it was ‘investment’, and everyone knows that this comes with an element of risk. The blame will be placed on you because in the eyes of the law, you made a bad investment.

How to be careful of bad Forex brokers
As we all know, trading in the Forex market is impossible without the aid of Forex brokers. However, as the online Forex broker has risen through the years, a few bad ones have appeared out of nowhere. At first they seem like a legitimate company only to find that at a later date they have been shut down due to ill practices.

Unnecessary paranoia
It is situations like this that have created paranoia in the market where Forex brokers are given a bad name. Even worse, the financial industry has been deemed as one of the most untrustworthy industries since the crash that this is the last thing it needs. The reality is that this paranoia is unnecessary. The reason why is that all industries have unethical companies sprouting out now and then but it is really up to us to decide if we wish to get involved with them or not. Simply put, with a little extra research we should be able to find a suitable company to work with.

Strong business partner
When new traders look for a broker the first thing they tend to look for is the spread cost to see if it is the cheapest option. However, this may not always have to be the case. The best way to look at the process of using a broker is to consider it as a business partnership. In normal circumstances, we would always choose the strongest and the most financially stable business to partner up with because it gives us the best probability of making a return or if anything; stay in the market. The same applies when we are looking for a Forex broker. We want one that is successful and let’s face it – the one that makes money; but in a fair way. This is the exact reason why we got involved in trading in the first place.

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Re: The Importance of Regulated STP Forex Brokers and How to Avoid the Bad Ones

"The regulator is your security blanket."

I had a really good laugh reading this. The author should go back to school, study again, and come back to this board and explain to all of us how the MF Global bankruptcy happened and how the REFCO bankruptcy happened and how the PFG Best bankruptcy happened and why the FCA is almost fining every single day one broker or the other. Stop this fairy-tales of an "all mighty" regulator. Itīs misleading and dishonest!

Aug 06, 2014

Member (15 posts)

STP Brokers.

Scant detail here but a useful article,however prehaps the author would like to give us traders a list of brokers he knows pass the trades to the interbank Market,if indeed he knows for sure of any.
Regards Mike.

Jul 27, 2014

Member (153 posts)

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