Non-dealing desk brokers do not execute orders of their clients; they simply pass them on for external execution. The external executions are done mostly at the interbank market which can handle any volume of trades, so slippage does not occur. Forex brokers who use this system work https://www.xcritical.com/ directly with market liquidity providers. When trading through an NDD, instead of dealing with one liquidity provider, an investor is dealing with numerous providers to get the most competitive bid and ask prices. They may use electronic communication network (ECN) methods to make it work. By trading with DD Broker, the buy and sell price seen by the trader is not exactly the same as the actual price in the forex market.

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For a broker declaring to offer no dealing desk execution, they should be getting most of their prices from Tier-1 banks and other financial institutions. No dealing desk brokers can further be broken down into Straight Through Processing (STP) brokers and ECN brokers, which use electronic communication networks (ECNs). A broker without a dealing desk sends your orders straight through ecn vs stp to the market without any interference.

• This may not be the case when markets are particularly volatile, for example, after a big economic data release or headline news.
• We may be compensated but this should not be seen as an endorsement or recommendation by TradingBrokers.com, nor shall it bias our broker reviews.
• When you trade forex, you will need to pay your broker a spread which is the difference between the bid and ask price.
• If you prefer to trade with fixed spreads and high leverage, a dealing desk broker may be a good choice.
• In this model, as we discussed in the previous section, the forex broker only passes your order into the liquidity pool.

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By doing this, they minimize their risk, as they earn from the spread without taking the opposite side of your trade. This is usually at a small mark-up, which allows the broker to make a tiny profit on the position that has been acquired from the wholesalers (the liquidity providers). With non-dealing desk brokers, traders are served prices from as many as 8-10 liquidity providers. This allows the trader to choose the best bid/ask price that is suitable for such a trader. In reality, the decency of the broker depends on the way they operate and their individual business ethics – it has nothing to do with being a dealing or no dealing desk. After all, the differences deal in terms of execution and order handling.

Which Broker Should You Choose?

The table below shows the rates that the STP brokers get from their liquidity providers. Above are the types of brokers classified by the order handling types and the differences between them. The ECN brokers and the DD market makers usually offer lower spreads because they avoid the liquidity provider (LP) spreads. The NDD brokers get prices from the LPs and market participants, but the competition forces the DD brokers to offer prices almost identical to the market. The differences don’t necessarily mean that any one type of forex broker is better or worse than the other. If you are a long-term trader, then you might as well choose an STP broker who has slightly higher spreads.

A market maker can control prices, for example by widening the spread and reducing its risk of completing a trader’s order. Some market makers may have fixed spreads to make it easier to manage risks. Each provider typically has its own set of bid/ask quotes and the STP system ranks these prices from best to worst before the NDD broker adds a small (usually less than a pip) markup to make some money. The spread is likely to change as market makers change their prices according to the flows they receive and the speed with which the market is trading. Dealing desk brokers will have wider spreads but in do not charge a commission.

To fill you, your broker will first try to find a matching sell order from its other clients or pass your trades on to its liquidity provider, i.e. a sizable entity that readily buys or sells a financial asset. As a trader, you are basically trading against the market maker because the dealing desk broker is the counterparty. With a non-dealing desk broker, you are trading against other traders in the interbank market because the broker is not participating in the process of fulfilling the order. Because they are passing the spread directly through to the customer, they have to charge fees some other way or face making no money for their services. In these two ways trading with an NDD broker may become more expensive over time by comparison to dealing-desk brokers. Two “types” didn’t seem to be enough for the marketing folks from the retail forex industry, so they decided to use more acronyms in an attempt to differentiate forex brokers even further and make them sound fancy.

You click the deal button but find that that the price has changed, usually against you, and you are asked if you still want to execute the trade. If this happens too often then perhaps you want to find and try another broker. From experience, I know some brokers subject their clients to a re-quote way too often, while with others it happens much less frequently. Usually, day traders and scalpers prefer tighter spreads because it is easier to take small profits as the market needs less ground to cover to get over transaction costs. Meanwhile, wider spreads tend to be insignificant to longer-term swing or position forex traders, so they often choose No Dealing Desk forex brokers.

In this model, as we discussed in the previous section, the forex broker only passes your order into the liquidity pool. Of course, the downside with this is that you have to pay a spread every time you trade. In all fairness, the forex broker does take a risk, every time they become your counterparty. Under certain conditions, when a trader wants to buy certain securities, the Market Maker will sell to the trader; and when the trader wants to sell, the Market Maker will buy from the trader. In other words, market makers will trade in the opposite direction to their clients when they need to.

Most regulated financial markets are controlled by exchanges and allow for thorough oversight and auditing. There is need for investors in stock and bonds to be protected as these instruments are considered the foundation for retirees, pension funds and other investors. If you want to explore the advantages and disadvantages of these two types of brokers, the next lesson is for you.

Dealing Desk brokers, also called Market Makers, are a type of broker that takes the opposite side of their clients’ trades. So, if you want to go short (sell) on a currency pair, the broker goes long (buys from you), causing you and the broker to be on opposing sides of the same trader. STP forex brokers work in such a way that they have their customers’ orders directly programmed to their liquidity providers who have an access to the interbank market. Also, clients of dealing desk brokers do not see the real interbank market rates.

In addition to the advantages mentioned above, it is also due to the fact that an NDD broker is more transparent on transactions, and the order execution is faster and fully anonymous. It means that the trading platform will not expose the identity of the trader, and all orders will be executed immediately and anonymously. In such a market, no one has the capacity to monitor orders, so as to ensure fairness. Most market makers tend to categorize traders into groups that have a net loss in the long term and groups that have a net profit in the long term.

Depth of Market displays where the buy and sell orders of other market participants are. Because of the nature ECN, it is very difficult to slap on a fixed markup so ECN brokers usually get compensated through a small COMMISSION. Take note that different forex brokers have different risk management policies, so make sure to check with your own broker regarding this. As trading continued to evolve and with the advent of technology, trading has moved away from the trading pits of an exchange to the comfort of one’s home or office. Our goal is to help you learn what forex brokers really are and how they operate. It depends on whether you’d rather have tighter spreads but pay a commission per trade versus wider spreads but no commissions.

Both have advantages and disadvantages that we will cover in this guide to help you make an informed decision according to your own preferences. The spread is the difference between the bid and ask prices of a currency pair, and it represents the cost of making a trade. These are the brokers that perform purely match-making activity in the FX market, pairing their clients’ orders to the liquidity providers that can fulfill them. They also provide specialist trading platforms that are built for such purposes for their clients. The intent, on their part, is to make trading convenient and less expensive so retail traders want to do business with them.