No Dealing Desk (NDD) brokers offer direct access to interbank rates, benefiting traders in some cases but potentially causing harm to others. However, they guarantee no conflict of interest with trades.
This means that traders can see the actual prices at which currencies are being traded and can execute trades at those prices. NDD brokers make money by charging a commission on trades rather than by marking up the spread, which can be a benefit for traders who prefer transparency and want to avoid conflict of interest. However, traders should be aware that NDD brokers may also have higher trading costs due to the commission structure.
A Closer Look
STP Execution of Forex Trades
NDD brokers, in contrast to Dealing Desk brokers, offer Straight-Through Processing (STP) execution of forex trades. With NDD brokers, traders work directly with multiple market liquidity providers to get competitive bids and ask prices. This approach provides access to instantly executable rates, and they may use electronic communication network (ECN) methods.
Currency Rate Spreads and Additional Costs
The implications of trading directly with the interbank market involve two aspects: currency rate spreads and additional costs. NDD brokers expose traders to the exact spreads available to retail customers on the interbank market. Depending on the currency pair and the compared dealing-desk broker, NDD brokers may offer wider spreads, leading to higher trading costs. Furthermore, NDD brokers may charge an exchange fee or commission to compensate for passing the spread directly to customers.
NDD vs. Market-Making Brokers
NDD brokers differ from market-making brokers by offering direct access to the interbank market without acting as intermediaries. Market-making brokers aim to provide quicker and more efficient trades by taking on the risk of predicting market changes.
Market-making brokers create their own market and offer trades with spreads close to or even the same as the interbank rates, benefiting retail traders with lower costs. However, this model can lead to a conflict of interest between brokers and customers, and some brokers have faced regulatory scrutiny for mismanagement.
On the other hand, NDD brokers use a no-dealing desk system, automatically offsetting positions and transmitting them directly to the interbank market. This system may or may not be advantageous for retail traders. Ultimately, the choice between NDD and market-making brokers depends on the trader's preferences and requirements.
No Dealing Desk brokers offer direct access to interbank rates and no conflict of interest with trades, which can be beneficial for traders who prefer transparency. However, traders should be aware that NDD brokers may also have higher trading costs due to the commission structure. Ultimately, the choice between NDD and market-making brokers depends on the trader's preferences and requirements.