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NO12 - Forex Broker Types: Dealing Desk and No Dealing Desk

"In the previous section we introduced you to the concept of the forex execution model. In this article, we go into more detail to explain to you the two main types of forex brokers that you will come across. There are a lot of myths that surround each of these forex broker execution model. But the truth is that each has its pros and cons. By reading this article, you will get an understand of the trades are executed and this will in turn help you to figure out whether you should open a trading account with a dealing desk or a non-dealing desk forex broker. This is an important point to focus on as it is very likely that you will stick with just one forex broker in the long term. Therefore, the sooner you have an understanding of the forex broker types, the better as it will help you to make an informed decision when you open your first forex trading account."

It wasn’t that long ago when only one type of a broker existed. These were known as market makers. 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.

In the world of forex or trade execution, there are two kinds of models that you will most often come across. They may go by different names, but the bottom line is that the forex broker falls into one of the two categories.

In this article, we explain in a bit more detail about how the dealing desk and the no dealing desk forex brokers operate and what it means to you as a trader.

Dealing desk forex broker

As the name suggests, a dealing desk forex broker is a market maker. This type of an execution model is largely profitable for the forex broker. Depending on a trader’s trading style and pattern, dealing desk brokers can opt to take the position of your counterparty.

The reasoning behind this is because many beginners in forex trading lose money. Thus, it makes more business sense for a dealing desk broker to keep these profits in-house. There are many automated risk platforms that a forex broker can use which can quickly categorize the trader into a winning or a losing trader.

But a dealing desk broker is not all that bad. As a market maker, they are the ones who provide the liquidity to you when it is much needed. So, whether you wake up at the middle of night and want to trade, you will be able to execute your trades.

Of course, the downside with this is that you have to pay a spread every time you trade. This spread is basically the cost of trading with your forex broker. In all fairness, the forex broker does take a risk, every time they become your counterparty.

Some of the commonly used terms in marketing by market maker brokers are calling themselves, fixed spread brokers.

Non-dealing desk broker

A non-dealing desk broker acts exactly as it suggests. They are your broker in executing trades on your behalf. A non-dealing desk broker is often the preferred choice for traders. This is because they charge a commission per trade (and at times even a spread).

With a non-dealing desk broker, there is no conflict of interest from the forex broker. The way non-dealing desk brokers make money is by the volume of trades that you make. Obviously, the more you trade, the more fees that you pay to your forex broker.

Thus, in this aspect, the forex broker is not really interested whether you win or lose, as long as you make a steady number of trades.

Over the years, traders have chosen to trade with a non-dealing desk broker for the very reason of conflict of interest. In

A non-dealing desk broker goes by other names such as ECN/STP broker or agency model. In this model, as we discussed in the previous section, the forex broker only passes your order into the liquidity pool.

Traders often prefer the second model, the STP model. This is because of the fact that the broker doesn’t take an opposite position in the markets.

Below is a comparison between the dealing desk and non-dealing desk broker.

Comparison between a dealing desk and non-dealing desk broker

Dealing desk broker Non-dealing desk broker
Acts as a market maker and thus buys and sells to you Acts as an execution platform and passes your trades into the liquidity pool
Usually charges a higher spread Spreads can vary depending on the liquidity providers being used
There is a conflict of interest with a dealing desk broker There is no conflict of interest with a dealing desk broker
Spreads are the only fees that you will pay You will be charged a commission per trade and in some cases a spread too
Higher chance that you get a good price fill Price fill basically depends on the liquidity pool
Generally, a dealing desk broker doesn’t allow trading around news releases All types of trade executions are allowed


Comparing the two, there are both pros and cons that you will find. At the end, the trader needs to understand which of the two models are better suited for their trading. Because every trader is unique, it is ideal that you spend time first by understand your trading pattern.

If you are a day trader or a scalper, then a variable spread broker is ideal as the spreads can narrow when liquidity is high. But at the same time, the commissions can quickly add up. On the other hand, if you are trading exotic currencies where liquidity is generally low, then a fixed spread broker will be there to make the market for you.

Read 1079 times Last modified on Saturday, 11 May 2019 13:33