Differences Between Dealing Desk & No Dealing Desk Forex Brokers

In general, forex brokers can be divided into two main categories - dealing desk & non-dealing desk forex brokers, and each of them has its own pros and cons. When deciding on which type is the best for you, it is important to understand their special features and differences.

Dealing Desk Forex Brokers

To put it simply, A dealing desk Forex broker is a type of broker that acts as a market maker by creating a market for their clients. They take the other side of a client's trades, setting the bid and ask price and waiting for a trader who would like to take advantage of these set terms. Dealing desk brokers profit by buying at lower prices and selling at higher prices, and by taking advantage of the spreads between the bid and ask price.

Dealing desk Forex brokers have a physical space where their foreign exchange transactions take place, known as the trading or dealing desk. Depending on the size of the company or financial entity, it may even have hundreds of traders who control and perform transactions. They make their own market, and are called market makers. When a trader places an order with a dealing desk Forex broker, the broker takes the other side of the trade and holds the position in-house. This means that the broker does not transfer the order to the interbank Forex market.

No Dealing Desk Forex Brokers

Unlike the dealing desk forex brokers, a no dealing desk forex broker does not take the opposite side of your trade. Instead, they simply connect you to the interbank market, where you can trade directly with other market participants. This means that you are getting the best possible prices and that there is no conflict of interest between you and the broker.

No dealing desk brokers can be divided into two types - Straight-Through Processing (STP) and Electronic Communications Network (ECN). STP brokers collect prices from various sources to then quote the best bid and ask price to their clients. ECN brokers provide a marketplace where multiple participants, including banks, market makers, and individual traders, can interact with each other.

Dealing Desk vs No Dealing Desk (Pros & Cons)

- Pros of Dealing DeskForex Brokers

Fixed spreads: Dealing desk forex brokers can offer fixed spreads, which are predetermined, do not change regardless of market conditions, and can be more cost-effective than variable spreads, especially in volatile markets. Traders know how much they will pay to open and close a trade, regardless of when they trade. This can help traders plan their trading strategies and avoid surprises, making it easier to trade, especially for beginners.

Easy access to liquidity: dealing desk forex brokers have liquidity pools and can provide immediate execution for client trades, which can be advantageous for traders who value fast execution.

No requotes: Since dealing desk brokers take the opposite side of client trades, there is no need for requotes, which can be frustrating for traders who want to execute trades quickly.

No slippage: Dealing desk brokers can offer instant execution. This means that the price a trader sees on their screen is the price they will get when they execute the trade. They also offer limit orders and boundary orders to help prevent slippage by ensuring that the trade is executed at the desired price.

- Cons of Dealing Desk Forex Brokers

Conflict of interest: Since dealing desk brokers act as the counterparty to trades ordered by traders, there is a potential conflict of interest between the broker and the trader. The broker may profit from the trader's loss, which can encourage price manipulation.

Lack of transparency: Dealing desk brokers may lack transparency since they keep the order in-house within their own liquidity pools and do not execute it to the real forex market. This means that dealing desk execution is mostly based on the trust the trader has in their broker.

- Pros of No Dealing Desk Forex Brokers

Transparency: No dealing desk brokers provide transparency in their execution process. They execute trades directly with liquidity providers, which means that trades are executed at interbank market rates of exchange. This transparency can give traders confidence in the fairness of their trades.

No conflict of interest: No dealing desk brokers do not act as the counterparty to client trades, eliminating the potential conflict of interest between the broker and the trader. They focus on matching client orders with other traders via a liquidity provider. This ensures that the broker does not profit from the trader's losses and reduces the risk of price manipulation.

Access to market depth: No dealing desk brokers often provide access to market depth, allowing traders to see the available liquidity and order book. This information can be valuable for making informed trading decisions.

- Cons of No Dealing Desk Forex Brokers

Execution risk: With a no dealing desk model, trades are not guaranteed to be executed, as the broker is not responsible for filling the order. This means that traders may experience slippage or partial fills, especially during periods of high market volatility.

Variable spreads: No dealing desk brokers tend to have variable spreads, which means that the spread can widen during periods of high market volatility. This can result in higher trading costs for traders.

Lack of personalized service: No dealing desk brokers do not offer the same level of personalized service as dealing desk brokers.

Which Type of Forex Broker Should You Trade with?

Dealing desk forex brokers may be a good choice for new traders who are just starting out and may benefit from the wider spreads without commissions that dealing desk brokers offer. New traders may also prefer dealing desk brokers because they want to be able to adopt proper risk management and trade in Nano lots. Additionally, dealing desk brokers often have lower minimum deposit requirements, which can be beneficial for traders who do not have a large amount of capital to trade with.

Dealing desk forex brokers can also be a better choice for traders who use automated systems and scalping strategies, and prefer fixed spreads to make informed decisions. Automated systems require a high level of precision, and fixed spreads provide stability in high volatility and low liquidity periods. Scalping strategies involve making multiple trades in a short period, and fixed spreads can help traders avoid slippage and unexpected costs.

While for traders who want transparency in trades execution and want to avoid the potential for conflicts of interest and those who want access to interbank market rates of exchange to get their trades executed at better price, no dealing desk brokers can suit your needs better.

Conclusion

Dealing desk & no dealing desk forex brokers are two different types of brokers with different trading models. Dealing desk brokers act as the counterparty to their clients' trades, while no dealing desk brokers simply match their clients' orders with those of other market participants.

Dealing desk brokers typically have wider spreads than no dealing desk brokers, but they may offer more educational resources and customer support. No dealing desk brokers typically have tighter spreads and less risk of conflict of interest, but they may require higher minimum deposits and offer fewer trading tools and resources.

The best type of broker for you depends on your individual trading style and preferences. If you are a beginner trader, a dealing desk broker may be a good option for you because of the lower minimum deposit requirements and the availability of educational resources. However, if you are a more experienced trader, you may want to consider a no dealing desk broker for the tighter spreads and reduced risk of conflict of interest.

Additional factors to consider when choosing a forex broker also include regulatory compliance, fees and commissions, platforms and trading tools, customer support. Ultimately, the decision of which type of forex broker is right for you is a personal one. Do your research and choose a broker that you feel comfortable with and that offers the services and features that you need.