Dealing Desk vs. No Dealing Desk
One of the first decisions when choosing a trading account is whether to open a Dealing Desk or No Dealing Desk account. Both have individual features with advantages and disadvantages—let’s examine each option.
Dealing Desk (DD)
Here are five main characteristics of Dealing Desk brokers (also known as Market Makers):
- A Dealing Desk broker executes orders in-house in their “dealing desk department.”
The broker buys large positions from liquidity providers and sells them to clients in smaller pieces. Because of this structure, a Dealing Desk broker takes “the other side of the trade” because they hold positions before selling them to clients. They might later hedge positions to be neutral to adverse market moves.
- Dealing Desk brokers set the price and spread.
When I trade with a Dealing Desk broker, the broker decides the price and spread, meaning I trade the broker’s specific prices. This leads some traders to believe there is a greater chance of price manipulation by the broker and potentially less fair market conditions.
- Smoother price fluctuations.
Because Dealing Desk brokers set the prices, the fluctuations in the price and spread are often smoother than a No Dealing Desk broker, which tracks every single small price fluctuation in the underlying market. This makes it easier to place traders with a Dealing Desk broker, but traders miss out on some very small price fluctuations they may want to trade.
- Potentially quicker trade execution.
Trade execution by Dealing Desk brokers can be quicker than by No Dealing Desk brokers because Dealing Desk brokers fill trades internally. However, the difference in execution speed is small and only valuable to short-term traders such as scalpers that need that level of precision.
- Dealing Desk brokers usually only charge a spread without a separate commission.
Not having a separate commission does not necessarily make them cheaper, because the spread can be wider than with No Dealing Desk brokers that have commissions but narrower spreads.
No Dealing Desk (NDD)
Here are five main characteristics of No Dealing Desk brokers (also known as Direct Market Access brokers):
- No Dealing Desk brokers give traders “direct market access.”
They pass their clients’ orders straight to their liquidity providers without intervening with a Dealing Desk.
- The price for trades is directly from the liquidity providers.
The broker will charge a separate commission (or sometimes increase the spread by a set amount) to cover their costs.
- Traders can see the smallest price fluctuations from the liquidity providers.
This is great for short-term traders, e.g., news traders and scalpers, where fractional pips can make a difference to total profitability.
- There is almost no chance of price manipulation with No Dealing Desk brokers.
For this reason, many traders feel they can trust No Dealing Desk brokers more.
- No Dealing Desk brokers have the additional step of passing the client orders to their liquidity providers.
Execution can be marginally slower than a Dealing Desk broker that fills trades internally. Many No Dealing Desk brokers disclose information about how they connect to liquidity providers, for example, using servers with fibre optic cables close to major liquidity hubs such as London and New York. This information helps clients know they have quick trade execution even with the additional step of using liquidity providers to fill trades.
A broker can offer both Dealing Desk and No Dealing Desk accounts. Often a broker will require a higher minimum account balance for a No Dealing Desk or Direct Market Access type account.
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What is an ECN Broker and an ECN Account?
An ECN broker is a No Dealing Desk broker that routes orders only through the central interbank market. The orders are filled at the best available prices with no dealer intervention. An ECN broker does not hold a position in the market, meaning they will never take a position against you.
What is an ECN? An ECN, or “Electronic Communications Network,” is a computerized network that facilitates trading financial products outside traditional exchanges. Most ECNs are passive or automated, meaning no manual decisions are made to fill trades. The first ECN, Instinet, was created in 1969, and the first ECN for online currency trading was New-York based Matchbook FX, formed in 1999. Today, multiple ECN brokers provide access to electronic trading networks with streaming quotes from top-tier banks.
ECN brokers have variable spreads and always charge a commission. The spreads in the underlying interbank market vary according to market conditions, and ECN brokers pass on the same pricing and spreads to clients. Because ECN brokers do not make money from spreads, they charge a commission to cover their costs and make a profit. Think of the commission as the payment for the ECN broker’s service to route trades to the interbank market.
ECN accounts are the most transparent and purest access to the market. Traders are directly accessing top-tier banks as liquidity providers. By trading through an ECN, currency traders generally benefit from greater price transparency and increased liquidity.
What is a Raw ECN account?
Raw ECN is the same as ECN. So, brokers offer Raw ECN accounts that have direct market access to true liquidity in the interbank market. Hence, traders see the market's actual or “raw” underlying prices without any manipulation or markup from the broker.
The tern “Raw ECN” helps to differentiate ECN from STP—both are No Dealing Desk brokers, but STP does not always provide access to the interbank market.
What is an STP Broker?
An STP broker is a type of No Dealing Desk broker. Straight Through Processing (STP) is a technology that passes trades directly to a counterparty. On the other side of the trade may be another STP broker or an ECN broker.
STP brokers will not trade against you. Like all No Dealing Desk brokers, STP brokers do not hold a position in the market, meaning they will never take a position against you.
Trades can get routed in different ways. An STP broker can route different trades through different counterparties. I.e., an STP broker will not route all the trades similarly. One trade may go to another STP broker, another trade may go to an ECN broker.
STP brokers are often smaller brokers. These smaller brokers use STP technology (called ‘bridges’) to connect trades to larger brokers.
STP brokers can have fixed or variable spreads. This will differ from broker to broker.
Differences Between ECN and STP Brokers
On the surface, ECN and STP brokers seem almost identical because neither have dealing desks, instead passing trades directly to their counterparties or liquidity providers without intervening. That structure means that ECN and STP brokers do not hold positions and will never trade against the client, preventing conflicts of interest. Yet this is where the similarities between ECN and STP end. Let us now look at the main differences between ECN and STP brokers.
- Order routing.
This is the key difference between ECN and STP. ECN brokers route orders only to the central interbank market of top-tier banks as liquidity providers. On the other hand, STP brokers can route orders to other brokers, sometimes other STP brokers or ECN brokers. What does that mean for traders? ECN brokers provide the highest level of direct market access—hence, they are often called “Raw ECN.”
- Execution speed.
On average, ECN brokers execute faster than STP brokers. With an STP broker, the execution speed can vary depending on how the broker routes a trade, which can vary with each trade. An ECN broker will route all trades in the same way.
- Few re-quotes / little slippages in ECN accounts.
When trading directly from the interbank market, there’s little chance of re-quotes or slippage compared to an STP broker, which relies on other brokers for fills.
- Spreads are tighter at ECN brokers.
ECN brokers have the tightest spreads, sometimes down to zero with just a commission, because they reflect the interbank market conditions.
One of the first decisions a new trader needs to make is whether to use a Dealing Desk or No Dealing Desk brokerage account. Some brokers are exclusively one or the other, and some offer both. Typically, No Dealing Desk brokers require a higher minimum account balance.
Dealing Desk accounts can offer smoother price fluctuations and quicker execution because they fill trades internally.
No Dealing Desk accounts do not hold positions and will never trade against their clients. ECN accounts are the purest type of No Dealing Desk because they give traders access to the interbank market with the tightest spreads possible. ECN accounts, sometimes called Raw ECN, are much better for scalpers and short-term traders but can also be used by anyone.
Choosing between No Dealing Desk and Dealing Desk brokers is one factor that traders should weigh against other criteria, such as levels of customer service and regulation.
What is the difference between standard STP and raw ECN?
Raw ECN gives traders direct access to the interbank market. STP brokers route trades to other ECN brokers or even other STP brokers.
What is the difference between true ECN and standard account?
A true ECN account matches orders and executes accordingly, charging only commission for execution without placing any premium on the raw spread, while a standard account is usually managed by a market-making broker which artificially charges a premium spread to profit from execution.
What is an ECN account?
A true ECN (Electronic Communications Network) account is a pure order-matching execution system, where the account provider charges a premium as commission per trade instead of artificially inflating the raw spread which occurs naturally within the order-matching process.
What is ECN and STP?
“ECN” stands for “electronic communications network” and “STP” stands for “straight through processing”. ECN brokers execute by matching client orders and STP brokers execute by passing client orders directly to an external liquidity provider.
Which is better ECN or STP?
ECN accounts can offer tighter spreads and a cheaper overall cost of trading in liquid market conditions, but STP brokerages can offer a similar ease and cost of execution without the disadvantage of the increased cost from a dealing desk. Much will depend upon the quality of the service and the liquidity of markets traded.
What is ECN trading?
ECN trading is trading through an ECN (electronic communications network) broker. ECN brokers offer pure order-matching execution systems, where the broker charges a premium as commission per trade instead of artificially inflating the raw spread which occurs naturally within the order-matching process. The cost of ECN trading tends to be cheaper above a certain trading volume.
What is MT4 ECN account?
An MT4 ECN account is an ECN account offered by a broker which can be traded using the MetaTrader 4 trading platform.
How Do ECN Brokers Work?
An “ECN” (electronic communications network) is a “no dealing desk” execution model in which a broker fills its clients’ trade orders by matching a buying client with a selling client, backed by another brokerage or bank as a liquidity provider. ECN brokers profit from charging a commission per trade and have fewer potential conflicts of interest with their clients than a “market maker” broker.
What is an STP account?
“STP” stands for “straight through processing”. It is an execution model where a broker sends its clients trade orders directly to a liquidity provider without any intervention. This format can coexist as a hybrid with the ECN execution model, with which it is often confused.
What is ECN pricing?
ECN pricing is typically charging a lower spread on trades but also adding a fixed commission. Non-ECN brokers typically do not charge commissions. In liquid markets, bigger traders can usually get a cheaper cost of trade with an ECN broker than with a market-making broker.