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November 15, 2018

Tickmill, How to define if your MT4 broker is STP (DMA) or OTC?

Is Tickmill a STP/DMA FX MT4 broker or other types?

Tickmill strives to offer a fair trading environment through MT4 for online investors.

Tickmill is a STP and DMA broker.

To distinguish the difference STP and OTC, you will need to know what they do in terms of business.

STP is ‘Straight Through Processing’ and DMA is ‘Direct Market Access’.

What is OTC (Over the Counter)?

OTC stands for Over the counter, meaning that the financial service is provided between traders and brokers but not the actual market.

So in this case you will trade with your broker only and the broker is the so called maker maker in this case.

The market maker is the ruler, so the broker can even decide what price they offer or if they accept the orders from its clients.

Many brokers are OTC brokers or partially OTC brokers.

Being an OTC does not directly affect the order execution on client side, so the execution speed and slippage etc are not really related to OTC/STP businesses.

Why some broker choose OTC model?

Well, technically if a broker adopts OTC model, the broker is not a broker but a market maker.

A Broker is an entity which transmits the orders from clients to exchange market. Brokers’ job is to be a mediator between clients and markets and providing them a solution to get access to the markets.

In case a broker is being a Market Maker, the broker will be covering all trades for clients.

This means that the broker will hedge your positions as in if you buy EUR/USD, the broker will sell the same amount of EUR/USD at the same time.

So in this case, there is a 100% conflict of interest between brokers and traders. In another word, the broker makes profits when traders lose their fund.

And generally speaking about more than 80% of traders will lose their invested funds win FX, the brokers should be making money in more than 80% probability.

So the reason why some brokers are Market Makers(OTC) is  because it makes more money for brokers.

What is STP (Straight Through Processing)?

STP stands for Straight Through Processing.

It is the classic model of a broker as it is the main job for the broker to adopt STP model in its financial service.

Adopting a STP model means that the broker is acting as a broker, but not a maker maker(OTC).

So in this case, the broker will directly send the orders from clients to the real exchange market and the broker will only act as a mediator between traders and exchange market.

There are not so many STP brokers in the world and Tickmill is one of them.

Tickmill Official Website

What is the merit of being STP broker?

If a broker is a STP broker, there is not much benefit for broker side comparing to OTC model, but there is a big merit for traders.

Some brokers adopt STP model, because they don’t have the technology to be a Market Maker or they believe in the true benefit of being a real broker for its traders.

If you are trading with a complete STP broker, there is no trading restrictions at all.

Even swap arbitrage, News time trading is allowed for traders. But if a broker is not a complete STP broke, you are absolutely not allowed to trade arbitrage with the broker.

Only thing which is prohibited by a STP broker is “latency arbitrage”.

The second biggest benefit of trading with a STP broker is that there is no conflict of interest between traders and brokers, so there shouldn’t be order rejections or profit cancellation.

So traders can trade without worrying about any troubles after generating profit, because STP brokers like Tickmill wants you to make more profit and  continue the tradings.

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