With the many types of Forex brokers out there, it may occasionally be difficult to differentiate between them. Very often, DMA and STP Forex brokers are put under the same category – but there are a few differences between them that you might want to keep in mind. Knowing these differences will help you choose the right Forex brokers for the trading that you have in mind.
STP Forex Brokers
An STP Forex broker uses a process called Straight Through Processing (hence the acronym). Their dealing system is fully automatic, making it much easier for their clients to make a trade. An STP broker does not work with a dealing desk, which is why they are often referred to as No Dealing Desk (NDD) brokers. Also, according to the brokerage model, this is referred to as A-Book.
The STP brokerage system processes everything automatically, sending the orders and transactions straight into an interbank Forex group full of market participants. In other words, it forwards your order to a pool of liquidity providers so that you may obtain a competitive price.
With STP brokers, the greatest advantage is that human error has no place here. Since these processes are done electronically, the transactions are quick, with no delays or other associated costs. It also connects you with multiple quotation sources so that you may get various competitive prices. This results in tighter dealing spreads along with better fills.
DMA Forex Brokers
DMA Forex brokers use a different model to execute the orders of the clients, namely the Direct Market access one. This automated process will match the order placed by the client with the dealing prices made public by market makers.
In a way, you can still say that you are being linked with a pool of market participants – only in this case, the process is more selective. Rather than being connected to all liquidity providers, you are only connected with a select few.
DMA Forex brokers also use the No Dealing Desk (NDD) execution process. It executes only at the market price, which is why the transparency is higher for the traders. On the other hand, there are a few of DMA Forex brokers that file the order manually, making the decision of what liquidity provider is more appropriate.
On one hand, the fact that the process is not fully automatic (like it is with STP Forex brokers) leaves space for the broker to apply their own experience and knowledge of the matter. This removes automatic machine errors.
On the other hand, this makes more space for human error, as the human brain may not be able to process as much data per second. This may also make the DMA model slower as compared to the STP model.
A Final Word
Very often, you may come across brokers that use hybrid systems, which means they employ a mix of DMA and STP Forex brokers. At the same time, knowing the differences between the two will help you know what to expect.