In forex market there is a hierarchy through which an order reaches to the main trading market. Firstly an individual trader when place an order it passes through Electronic trading platform where there is two possibility, it can go to interbank or no dealing desk directly or it firstly go to dealing desk then it forwarded to no dealing desk is there which includes liquidity institution, Banks, Capital market or I can say after so many stage currency has reached to the main market. So let’s discuss the type of forex Broker, their advantages and disadvantages along with their working principal.
Dealing desk is also known as forex market makers which offers fixed spreads. Actually in this situation the broker behaves as a market maker because when a client loses a trade, the broker earns money on bid/ask differences. Dealing desk fore broker is a Market maker for traders because when traders want to buy they sell and when trader wants to sell they buy. In this way the DD(dealing desk)broker does not provide the idea about the main trade or market, so there is basically marketing between dd and the end side traders.
Without passing DD, traders directly connect to the interbank market. Hence it has no restrictions on the trade which is an ideal condition for a energy broker that they can charge a additional commission for trading or to increase the spread that’s why it have variable spreads. No-Dealing Desk is simply a bridge between client and liquidity provider and the price come from liquidity providers.
Straight through processing
In this process, the order directly passes to the liquidity provider from client. It is shown that sometime there is one liquidity provider in STP but if there will be more liquidity providers, it can offer more tighter spreads along with great falls and better foster execution for the clients. In general, STP is a tool to optimize the speed of transaction. In this process information is fetched by one party to another party through electronically without manually re- submitting the exactly same pieces of information every time through the entire event.
Electronic Communication Network Broker
A fixed charge has been commission for trading forex by the ECN broker and this commission is just the revenue or profit. Hence ECN brokers are not making money by creating market between them and client unlike to DD. In ECN technology the broker work is to place order to the database after that everything done automatically.
Hence the purest forex dealers is ECN broker they don’t profit on bid/ask differemces. There profit is in terms of commission. They are very transparence and valued on the depth of the market