A-Book Brokers vs. STP Brokers: What’s the Difference?
Sometimes, A-Book brokers are marketed as “STP brokers,” but this isn’t entirely accurate.
Although both types transfer market risk, they represent different order execution methods.
What Does STP Mean?
“STP” stands for Straight-Through Processing, a term originally used in electronic trading to describe a fully automated process where trades are executed, cleared, and settled without manual intervention. This reduces errors and speeds up transactions.
However, in retail forex, the term “STP” has been repurposed as marketing jargon, suggesting brokers “route your orders straight to the market” without interference or benefiting from your losses.
The Reality of Forex Execution
In fact, your forex broker is always your counterparty—they take the opposite side of your trade. Orders are never directly sent to the “market.”
How A-Book and STP Execution Differ
-
A-Book (Post-Trade Hedging): The broker executes your trade first, then hedges it with liquidity providers (LPs). This leads to faster execution and less slippage.
-
STP (Pre-Trade Hedging): The broker first hedges its position with an LP, then executes your trade. This results in slower execution and higher chances of slippage.
Why Use STP?
By hedging before executing your order, the broker locks in the hedge price, eliminating its own risk of slippage between customer and LP trades.
Slippage means the difference between the expected price and the actual execution price. It happens often during fast market moves or news events and can be positive or negative.
With STP, while the broker avoids slippage risk, the customer’s trade may experience slippage—your order fills at the price the broker secured from the LP, which may differ from your requested price.
How STP Brokers “Work” Your Order
STP brokers are said to be “working” your order, meaning they try to match your requested price but don’t guarantee it.
The Concept of Riskless Principal (Matched Principal)
When executing STP trades, brokers act as a riskless principal or matched principal:
-
Your broker simultaneously places an identical trade with an external liquidity provider.
-
It becomes the counterparty to both you and the LP.
-
The two trades match closely in price (minus any markup or commission).
This is the closest a forex broker can come to being a true broker (agent), though technically it still acts as a counterparty.
Agency vs. Principal Trading
-
Agency Trading: The broker acts as a facilitator (agent), matching buyers and sellers without taking the other side.
-
Principal Trading: The broker is the counterparty, taking the opposite side of your trade.
Retail forex brokers operate as principals, even when using riskless principal/STP execution.
How STP Brokers Make Money
STP brokers earn revenue by:
-
Adding a markup to the prices they get from liquidity providers.
-
Charging commissions.
They generate income from trading volume, not from your trading profits or losses, and they avoid market risk exposure.
How to Verify Your Broker’s Execution Type
Brokers who operate as riskless or matched principals often disclose this and are regulated accordingly. You can check their regulatory status on their regulator’s website.