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April 14, 2016

Question:LMFX has rejected my orders in MT4. Is it not a STP broker?

Answer:

A broker rejecting orders does not mean that it is not a STP model.

Here we will explain what is STP and how LMFX will take care of clients’ orders.

What is STP model?

Some brokers promote themselves as a STP broker and the execution speed is the fastest in the industry.

But being STP doesn’t really affect the speed of executions but the latency of the trading server would.

STP is one thing which contradicts OTC.

STP(straight through processing)

STP stands for straight through processing and if a broker is a STP model, that means that the broker will act solely as a broker and does not act as a market maker.

In this case all the orders from traders will be sent directly to the real exchange market and so these liquidity providers(banks) will be covering your trades.

Long story short, in case of a STP broker, you will trade with the real exchange market and the broker will make profits only from the commissions(spreads) which traders pay.

It is a win-win relationship for traders and brokers.

LMFX Official Website

OTC(over the counter)

OTC stands for over the counter and if a brokers is OTC model, all you orders will be hedged(covered) by the broker and your orders will not be sent to any financial markets as the broker itself is acting as a market for traders.

OTC brokers are also referred as Market Makers.

In this case if you buy USDJPY, the broker is selling USDJPY at the same moment and the same volume.

So you think that you are trading with Forex Exchange Market, but actually you are just exchanging money with the broker.

The interest of OTC brokers and traders will conflict 100%.

Half STP and half OTC

Most of the brokers take advantage of this OTC style as it is more profitable.

But if a broker is a complete OTC model, they will need to setup trading restrictions and cancel profits of traders if necessary, as they can not let the traders to generate profits otherwise the broker will face bankruptcy anytime soon.

So, most of brokers are STP model and OTC model.

This means that the broker will hedge orders of traders(becoming an OTC broker) if the traders tend to lose money in tradings, and will send the orders directly to the liquidity providers(becoming a STP broker) if the traders know how to trade and make profits.

LMFX Official Website

LMFX is a STP broker

LMFX is most likely a complete STP broker, as the broker does not restrict any trading methods and support PAMM system for traders to generate profits, and there is no restrictions on the leverage according to account balance and trading volume.

So, there is no conflict of interest between traders and LMFX and the broker does not interfere, hedge or manipulate traders’ positions.

But there are 2 possibilities that LMFX may take action to positions/orders of its traders.

Excessive Slippage

LMFX will reject orders if an order from a trader is about to execute at too different price than the price which the trader has requested.

This is to protect traders to not execute orders at not designated price in the market, and you can always re-order your position at anytime.

There is no re-quote in LMFX MT4, so you will either see the order executed correctly or rejected.

Stop out

If the margin level in your trading account is too low, the system of LMFX will automatically close(liquidate) all open positions to avoid further losses.

LMFX has set the stop out % to 20 for Premium account, and 15% for Fixed and Zero account.

This liquidation is processed by the system, and there is nothing you or LMFX can do regarding this.

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