When choosing a forex broker, one of the key considerations is the type of forex broker you want to work with. There are two main types of forex brokers: dealing desk and no dealing desk brokers. Here is a breakdown of each type:
Dealing Desk Brokers
Dealing desk brokers, also known as market makers, are Forex broker that create a market for their clients’ trades. They take the opposite position of their clients, acting as the counterparty to their trades. Dealing desk brokers make money by taking a spread, which is the difference between the bid and ask price of a currency pair.
Pros of Dealing Desk Brokers
They offer fixed spreads, which can be beneficial for traders who want to know their trading costs in advance.
They can offer price improvements, which means that they may execute trades at a better price than the market price.
They offer guaranteed execution of trades, which means that the trades will be executed regardless of market conditions.
No dealing desk brokers
No dealing desk brokers, also known as ECN brokers, are forex broker that provide a direct link to the interbank market, where currency pairs are traded between banks and financial institutions.
No dealing desk brokers act as intermediaries, connecting their clients’ trades with liquidity providers in the market. They make money by charging a commission on trades or by marking up the spread.
Pros of No Dealing Desk Brokers
There is no conflict of interest, as the forex broker is not taking the opposite position of their clients.
The spreads are often lower than those of dealing desk brokers.
The trading environment is more transparent and fairer, as trades are executed based on the market price.
In summary, understanding the difference between dealing desk and no dealing desk brokers can help you choose the right forex broker for your trading needs. Dealing desk brokers offer fixed spreads and guaranteed execution but may have a conflict of interest, while no dealing desk brokers offer lower spreads and a transparent trading environment but may have variable spreads and no guaranteed execution. Ultimately, the choice of forex broker depends on your trading style and preferences.