by James Patrick

Difference B/W Dealing Desk Brokers & Non-Dealing Desk Brokers

Brokers are people who buys and sells goods or assets for other people. People who arranges a transaction between a buyer and a seller for a commission when the deals goes through is also called brokers. There are also brokers known as Forex Brokers, these guys are the ones that deal with buy and sell goods, services, and assets or such dealings which make use of foreign currencies. They are basically the ones that deal with Forex trading, which is also more popularly known as foreign exchange. There are mainly two types of Forex Brokers, Dealing Desk Brokers and Non-Dealing Desk Brokers. These are the two types of Forex Brokers and today, we are going to look at Dealing Desk Brokers and Non-Dealing Desk Brokers and What is the difference between the two?

To understand the difference between Dealing Desk Brokers and Non-Dealing Desk Broker we must first understand what a Dealing Desk Brokers is and what a Non-Dealing Desk Broker is. So, first let us first understand the concepts of Dealing Desk Brokers and Non-Dealing Desk Brokers are before we carry on.

Who are Dealing Desk Brokers?

Dealing Desk Brokers are more commonly known as Market Makers or DD for short. These, Market Makers, are forex brokers that make off of clients by the use of spread and by also providing liquidity. They are known as Market Makers because of the fact that they literally create markets for their clients. They handle both the buying and selling aspects of the trade and fulfill both the buying and selling wishes of their clients. This might seem like there might be a conflict of interest but there really isn’t such a thing because these guys are not different to the decisions made of an individual trader and they also control the price of the orders made. They also don’t follow the interbank market rates, but the rates that most Dealing Desk Brokers provide are very close to that of the interbank market rates. 

What basically happens is that your Dealing Desk Broker gets trading order and he or she looks at the Winning Trades and Losing Trades of the client. The winning trades could be his offset by matching with other clients or passed on to liquidity provider. And the losing trades could be the countertrade by a broker and it becomes a profit. So, if you place a trading order to buy $1 then the Dealing Desk Broker will look at all the selling trading orders that are available and try to find one matching to your buying order of $1. Or if he can also pass the trades you possess to a liquidity provider, who will readily buy or sell financial assets. 

But if there are no matching orders then what? Then they will take the opposite side of the trade and this would be a higher risk. All the Forex Brokers and Companies have their own risk management levels and you must talk to your Forex Broker to find out more about this. So, basically a Dealing Desk Brokers is a person that passes his or her client/s orders through the dealing desk.

Who are Non-Dealing Desk Brokers?

Non-Dealing Desk Brokers are of two types and are known as ECN or Electronic Communications Network and STP or Straight through processing as well. These guys are basically the ones that does not pass his or her client/s orders through the dealing desk. Non-Dealing Desk Brokers are the ones that do not take the other side of the client’s trade and they just simply let the two clients meet together. What they basically do is they get the trading order and go straight through the Interbank Market to Banks, Hedge Funds, Mutual Funds, Other Clients, or even other brokers. Non-Dealing Desk Brokers are said to have lower spreads compared to Dealing Desk Brokers. But this cannot be considered as an advantage or even a disadvantage because the spreads are not fix and tend to change. Here, you are the one that has to stay diligent and look up the broker’s record.

As mentioned earlier there are basically two types of Non-Dealing Desk Brokers, that is, ECN or Electronic Communications Network and the STP or Straight through processing. Let us look at what these two types are: –

1. ECN – Electronic Communications Network

  1. ECN Brokers are the ones that take the orders of the client and allow them to look at the orders of the other participants in the ECN and they allow their clients to have a look at the Depths of Market. These participants vary from banks, hedge funds, other brokers, retail traders, etc. It is not easy to get a fixed markup, due to this ECN brokers get paid much lesser compared to STP, that is, their commission is low.

2. STP – Straight Through Processing

  1. STP Brokers are brokers who route the order of the clients they have to their liquidity provider who have access to the interbank market. These guys will have a lot of liquidity providers who quote their own bid and ask price. In the quote you see, the brokers markup will be added which is quite small. Because of this small change in the bidding or asking quote, the STP brokers maintain spreads that are a variable. This is because if a liquidity provider widens his or her spreads then the STP brokers will have to widen them too. Well, there are some who give you fixed spreads, but the majority lies in the Variable Spreads.

What are the differences between Dealing Desk Brokers and Non-Dealing Desk Brokers?

  1. Now, let us get to the main question of this article, what are the differences between Dealing Desk Brokers and Non-Dealing Desk Brokers? Well, before we get to the answer to that question, we must look at one more thing.

    That is, you must understand and realize that whichever type of broker you pick in the end of the day, depends completely on you. You could pick a Dealing Desk Brokers or Non-Dealing Desk Brokers, it doesn’t matter a lot because in the end of the day, everything depends on your capabilities and depends on what type of trader you are. Know this that we can’t say which broker is better, that is, whether the Dealing Desk Brokers or the Non-Dealing Desk Brokers is better.

    Now, keeping that aside let us look at the major differences between Dealing Desk Brokers and a Non-Dealing Desk Brokers. Here, we are going to take Non-Dealing Desk Brokers apart and see the differences between Dealing Desk Brokers and STP Non-Dealing Desk Brokers and ECN Non-Dealing Desk Brokers. This will allow you to understand the concept more clearly.

Differences Between Dealing Desk Brokers and STP Non-Dealing Desk Brokers and ECN Non-Dealing Desk Brokers

1. Spreads

  1. When we look at the differences in spreads among the three we will notice that Dealing Desk Brokers or Market Makers have fixed Spreads and not variable spreads. But most STP Non-Dealing Desk Brokers have variable spreads, while a small margin doesn’t have variable spreads but have fixed spreads. And the ECN Non-Dealing Desk Brokers have an option of either variable spreads for the clients or different commission fees.

2. Opposite Side of the Trade or Liquidity Providers

  1. When we see the differences in whether they take the opposite side of the trade or if they link up the liquidity provider, we can clearly see the difference that Dealing Desk Brokers do not link the client up with the liquidity provider, but they instead take the opposite side of the trade. And STP Non-Dealing Desk Brokers, they act as a bridge between the client/s and the liquidity provider while ECN Non-Dealing Desk Brokers act as a bridge between the client/s and liquidity provider and also to the other participants.

3. Pricing

  1. The pricing is a clear difference when we look at Dealing Desk Brokers and Non-Dealing Desk Brokers. Dealing Desk Brokers give you an artificial quote and on the other hand Non-Dealing Desk Brokers don’t, that is STP give you the price from the liquidity providers in which they add a really small amount for themselves, and ECN give you the price from the client and liquidity provider and other ECN participants.

4. Order Execution

  1. In this we can see the difference in the execution of the orders and you will notice that the orders are filled on a discretionary basis by Dealing Desk Brokers. But on the other hand, STP Non-Dealing Desk Brokers have an automatic execution and don’t allow re-quoting. And ECN Non-Dealing Desk Brokers don’t allow re-quoting either and also have automatic execution, but they also display the Depths of Market to the client, which basically is liquidity information.

    And here are all the differences between Dealing Desk Brokers and Non-Dealing Desk Brokers. This shows you the simple differences between them and as mentioned earlier the choice to go with either one is up to you and in the end and your decision should be based on the fact of which type of trader you are!

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