Forex Trading: Dealing Desk versus Non-Dealing Desk Brokers


“You have to be okay with wins and losses. You can’t just be looking for the wins and, when the losses happen, you can’t buy more and more because you’re sure it’s going to bounce. We call that revenge trading.” – Josh Brolin

Are you considering trading or investing in foreign exchange either as a side hustle or as a small startup? The good news is that it is fairly simple to become a Forex trader. On the other hand, you don’t want to enter the industry too quickly without any forethought; otherwise, you will end up losing all of the money you have used to trade on the Forex markets.

In order to start trading, your initial investment doesn’t need to consist of a large sum of money. In fact, the biggest requirement is patience and skill.  Experience is gained through practice and education. John Russell notes in his article titled “How to Become a Forex Trader”, that “the skill and patience required to become a successful or profitable trader requires limiting losses while identifying good trade set ups with a positive risk: reward set up.”

Currencies and Currency trading

Simply stated, Forex trading, also known as currency trading, is a global marketplace where currencies are bought and sold. It is the biggest and most fluid global market with daily trading values of up to trillions of dollars per day.  The Forex market differs from the other capital or stock markets in that it is not housed in a central building. Currencies are traded across the globe between the principal financial hubs of New York, London, Paris, Zurich, Frankfurt, Hong Kong, Tokyo, Singapore, and Sydney.

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Currencies are always traded in pairs. You cannot just buy one currency; you need to sell (or exchange one currency) for another one. For example, if you own US dollars (USD), and you would like to buy British Pounds (GBP), you have to exchange the USD for the GBP.

Currency pricing is also priced in pairs. The USD/GBP pair’s price will be indicated as 1.000 (USD) = 0.7694 (GBP). Furthermore, currency prices are usually indicated to the fourth decimal point. A percentage in point, known as a pip, is the smallest trading increment. One pip equals one hundredth of one percent.

Dealing Desk versus Non-Dealing Desk Brokers

Currencies are traded on the global market via brokerage houses such as banks, and other financial houses. Essentially, there are two types of brokers: dealing desk and non-dealing desk brokers.

A Dealing Desk broker affords traders the opportunity to trade directly on the global Forex markets. Individual trade requests are not passed onto third-party electronic trading interfaces. This allows the Dealing Desk broker to offer specific rates as well as being able to control the prices. There are also no delays due to requoting requests. As a senior FX analyst from Weiss Finance  notes, “there is a human interface which controls and manages the trade rather than an automated, electronic interface. This allows a Dealing Desk broker to offer a more personalized and upfront service to its clients.”

A Non-Dealing Desk broker, on the other hand, is also referred to as an Electronic Communications Network (ECN) or a Straight Through Processing (STP) broker. Both these names speak for themselves. Trading is automated. There is no human interface, and Non-Dealing Desk brokers automatically interface with “liquidity providers to give their clients variable spreads and to match traders with other traders who would like to take the other side of a trade.” A spread is the difference between the buying and selling price of an asset.

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Final words

There are advantages and disadvantages to both Dealing Desk and Non-Dealing Desk Forex trading. It all boils down to what you aim to achieve when investing in foreign exchange. In summary, the disadvantage of the Dealing Desk brokerage option is the advantage of the Non-Dealing Desk brokerage option and vice versa.

A Dealing-Desk broker offers you a human interface, individualized, competitive spreads, as well as orders that are executed without having to wait for requoting requests. On the other hand, a Non-Dealing Desk broker offers an automated interface, without human interference. As soon as your order is electronically matched with a liquidity provider, it is executed without waiting for broker approval.

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Mark Holland

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