STP/ECN definitions

STP (Straight Through Processing)

The practical application of this term is that it is the component of our platform that gives our customers the ability to route orders directly to liquidity pools of major banks.

By definition, just like clearing arrangements in the stock world, the FCM is still the counterparty to your trade. Your forex trades are cleared internally by MBTF, which means that we take all of the transactions between our customers and the banks in our system, compile them, pass the money between ourselves and the banks at the end of the day, and make sure our customer accounts reflect the executions that they received. A CUSTOMER does not have an agreement with the Interbank system. A platform like ours (EFX) has the agreement with the Interbank system. A customer simply runs trades, and the monies are cleared between banks and the platform once per day, with your execution being placed directly in your account. The fact that you can see where the liquidity lies, execute a trade immediately, and have that execution from the true market end up in your account is what makes the platform STP.

ECN (Electronic Communications Network)

The practical application of this term is that it is the component of our platform that allows our customers to directly interact with each other anonymously and post bids and offers at limits that reflect within our internal order book. These orders can be placed down to the tenth of a pip, thus cutting considerably into the spread.

In more specific terms, just like in the stock world with ARCA and ISLD, a Forex ECN allows client orders to see and execute against other customer orders anonymously. The benefit of having an ECN technology is that it eliminates the need to only fill orders against bank quotes which give our customers greater flexibility. For example, on our ECN, we allow our customers to place and execute orders against each other at increments down to the tenth of a pip. We often see STP platforms discussed as if they were ECN platforms. To be a true ECN, a platform must let customers show their own size in the system, make it visible to other customers, and allow those customers to hit those orders. This should facilitate “best execution”, be much smoother, and generates price competition.