Market Maker vs STP (Execution Models)
Definition
Market maker and STP (Straight-Through Processing) describe two different broker execution models. Market makers may fill orders internally, while STP brokers route orders to external liquidity providers. Neither model is inherently better, but each has different implications for spreads, slippage, execution behaviour, and conflicts of interest, making execution model disclosure important when comparing brokers.
In Plain English
In plain terms, a market maker is a broker that sets its own buy and sell prices and may take the other side of your trade. An STP broker passes your order to external markets or liquidity providers. Both models aim to provide tradable prices, but they handle your order differently behind the scenes.
How It Works
- You place an order through the broker’s platform.
- With a market maker, the broker may fill the trade internally using its own pricing.
- With STP, the broker routes the order to one or more external liquidity providers.
- The final execution price depends on available liquidity and routing.
- Market makers often offer fixed or stable spreads.
- STP brokers typically offer variable spreads linked to market liquidity.
- Both models may apply slippage during fast markets.
- Execution quality depends on technology, risk controls, and transparency rather than model alone.
Why This Matters for Traders
Execution model affects how trades behave in real conditions. Market makers may provide more stable pricing in quiet markets, while STP brokers may reflect true market conditions more closely during active periods. Understanding the model helps traders set realistic expectations around spreads, slippage, and order fills, particularly during volatile events.
Common Misunderstandings
- Market makers always trade against clients: many hedge exposure externally.
- STP means zero conflict of interest: routing decisions still matter.
- One model guarantees better execution: execution quality varies by broker.
- Fixed spreads mean lower cost overall: wider fixed spreads can offset stability.
- Execution model alone determines slippage: liquidity and volatility are also key drivers.
How This Affects Broker Choice
Execution model is a structural broker differentiator. When comparing brokers, users should consider:
• Whether the broker clearly discloses its execution model.
• Typical spread behaviour under normal and volatile conditions.
• Slippage frequency and transparency.
• Whether positive slippage is passed on.
• How conflicts of interest are managed and disclosed.
From a monetisation and comparison perspective, execution model helps explain why pricing and execution outcomes differ between brokers that appear similar on the surface, supporting deeper broker reviews and execution-focused comparisons.
Risks & Common Mistakes
• Choosing brokers based solely on execution model labels.
• Assuming STP always delivers better pricing.
• Ignoring how spreads and slippage behave in fast markets.
• Overlooking execution transparency in favour of marketing claims.
• Trading with brokers that do not clearly disclose execution practices.
Risk note: poor execution, regardless of model, can increase trading costs and losses, especially during volatile or illiquid conditions.
Real-World Example
Two brokers quote the same instrument.
• Broker A (market maker) offers a fixed 1.5-point spread.
• Broker B (STP) offers a variable spread averaging 0.8 points but widening during news.
In calm markets, Broker B may be cheaper. During volatile events, Broker A’s pricing may be more predictable. The better choice depends on trading style and risk tolerance rather than the model label alone.
What to Check Before Trading
- Does the broker clearly state its execution model?
- Are spreads fixed or variable, and how do they behave in volatility?
- How often does slippage occur, and is it disclosed?
- Are execution statistics or reports available?
- Is positive slippage passed through to clients?
- How are conflicts of interest managed?
- Is the broker regulated under execution transparency standards?
Related Concepts
Execution model determines how orders are filled.
Pricing behaviour differs between market maker and STP models.
Slippage patterns vary based on execution routing.
STP brokers rely directly on external liquidity sources.
Regulation influences disclosure and conflict-of-interest controls.
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