How a Forex Order Is Routed: Dealing Desk VS. Non-Dealing Desk
In this lesson, we will look at these different Forex broker types. But first, it is important to understand how a Forex trade is ordered and routed. So what happens if you click that “Buy” or “Sell” button after you have opened an account with a Forex broker? Generally there are two main types of Forex brokers; a dealing desk broker versus a non-dealing desk broker.
Dealing Desk -
When you trade with a Dealing desk broker, your order will first come at the broker’s dealing desk, the dealer will then try to find a price from various liquidity providers that is lower than your order. Once he finds a lower price, he would then buy it and then sell it to you. Basically filling up your order.
Non-Dealing Desk –
When you trade with a Non-Dealing Desk broker, then your Forex order is immediately transmitted to the market. This means no intervention and your Forex order will be filled with the best market rate.
Who is a Market Maker? A Dealing Desk Broker
A market maker, also known as dealing desk, is an individual or brokerage firm who maintains firm bid and offer prices, providing liquidity for a particular currency pair, and stands ready to either buy or sell that currency at the quoted price. The firm usually receives quotes for an instrument from several sources. Most Forex brokers function as market makers, which mean that the broker is most of the time on the opposite side of your trades, this is also called B-Book. In other words, the broker will buy from you when you sell short, and also willing to sell to you when you go long. Meaning, that when you lose, they win and when they lose, you win. Most brokerage companies that are market makers generally offer consistent liquidity and execution. This provides you the opportunity to trade your desired amount at all times. Moreover, there are several benefits that come from choosing to trade through a market maker. Such Forex brokers typically provide the following advantages.
Advantages of a market maker broker
Higher leverages available
Easy to use trading platform
No commission charges on trades
Free charts as well as trading news feeds
Disadvantages of a market maker broker
Generally fixed spreads
Price spreads may be worse
NDD - No Dealing Desk Forex Brokers
As the name implies, the No Dealing Desk type of Forex broker do not pass their clients’ orders through a Dealing Desk. In other words, NDDs do not take the opposite side of their client’s trade because they can connect to parties together, this is also known as an A-Book broker. This type of broker get their liquidity quotes from the liquidity providers and all orders are passed directly through the market without interference with the dealing desk. The NDD Forex broker make profits from the trades executed either by charging a small commission for trading or by increasing the spread slightly like a market maker. It is important to note that the No Dealing Desk brokers can be subdivided into Straight Through Processing (STP) and Electronic Communication Network (ECN) including STP+ECN
Advantages of an NDD broker
No dealing desk - order transparency (A-Book)
Real time quotes from the liquidity pool
No re-quotes on Forex trades
Disadvantages of an NDD broker
Broker may charge commission on each Forex trade
Probably a more complex trading platform