No Dealing Desk (NDD) Forex Brokers: A Comprehensive Guide

A no dealing desk is a system that allows for instant forex trades on the interbank market. Brokers that use the system work with several liquidity providers. It enables them to access the best bid and askBid and AskThe term bid and ask refers to the best potential price that buyers and sellers in the marketplace are willing to transact at. prices directly. Investors are given rates that can be executed immediately. Orders are sent directly to the interbank market and are offset automatically.

The Interbank Market

The interbank market is where currency is exchanged. Large values of currency are common. The trading system composed of a network of banks located around the world, working together to maintain trades to help speculate for their own accounts and execute trades for clients.

The majority of currency trading goes through the hands of about a dozen of the largest banks in the world, including:

• Barclays
• Citibank
• Deutsche Bank
• Goldman Sachs
• JPMorgan ChaseTop Banks in the USAAccording to the US Federal Deposit Insurance Corporation, there were 6,799 FDIC-insured commercial banks in the USA as of February 2014. 
• UBS

Also, there are hundreds of other international banks that trade alongside the abovementioned giants. It facilitates both market interest and liquidityLiquidityIn financial markets, liquidity refers to how quickly an investment can be sold without negatively impacting its price. The more liquid an investment is, the more quickly it can be sold (and vice versa), and the easier it is to sell it for fair value. All else being equal, more liquid assets trade at a premium and illiquid assets trade at a discount..

The interbank market is sometimes referred to as the spot or cash market. Every trade represents an agreement; each bank will exchange its currency on a finite date at a rate that’s been agreed upon.

Customers of the interbank market include major players such as high net worth individuals. However, the majority of the customers are government agencies, companies, and hedge fundsPrivate Equity vs Hedge FundCompare private equity vs hedge fund in terms of investors, risk, liquidity, time horizon, compensation structure, careers and more pros and cons of each.

No Dealing Desks vs. Dealing Desks

Brokers using the no dealing desk system – who may otherwise be referred to as straight through processing (STP) brokers – act as connectors between the investor and liquidity providers. They offer variable spreads, give no re-quotes, and put orders through instantly. Traditionally, professional investors go with no dealing desk brokers in order to obtain the lowest possible spreads and achieve instant order execution.

Brokers who use a dealing desk act with discretion, taking the opposite side of the investor’s trade. Known as market makers, the brokers provide spreads that are fixed and simulated quotes.

Advantages of No Dealing Desks

There are two major reasons why no dealing desk brokers are often preferred. First, they work with a trader, getting him the best prices and flexible spreads. Dealing desk brokers, on the other hand, work against the trader; by taking the opposite position, they make money when the trader loses.

The second reason is speed. No dealing desk brokers process trade orders immediately. Brokers using the dealing desk system act on a delay, with each order getting approval manually. Delays – often in the form of requotes (quoting a different spread after an order is placed) – can cause traders serious losses, specifically when the market is volatile.

Additional Resources

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• Calculating Foreign Exchange SpreadCalculating Foreign Exchange SpreadThe foreign exchange spread (or bid-ask spread) refers to the difference in the bid and ask prices for a given currency pair. The bid price refers to the maximum amount that a foreign exchange trader is willing to pay to buy a certain currency, and the ask price is the minimum price that a currency dealer is willing to accept for the currency.
• Forex Trading – How to Trade the Forex MarketForex Trading - How to Trade the Forex MarketForex trading allows users to capitalize on appreciation and depreciation of different currencies. Forex trading involves buying and selling currency pairs based on each currency's relative value to the other currency that makes up the pair.
• Trade OrdersTrade Orders - TradingTrade orders refer to the different types of orders that can be placed on trading exchanges for financial assets, such as stocks or futures contracts.
• Trading MechanismsTrading MechanismsTrading mechanisms refer to the different methods by which assets are traded. The two main types of trading mechanisms are quote driven and order driven trading mechanisms