You would have to be pretty ignorant not to notice that majority of retail Forex brokers are currently using a sales/promotion tactic which defines them as a ‘no dealing desk’ broker. Even without any knowledge about Forex brokers most people think this is a good thing without really knowing why. Before we get into this, let us focus on what dealing desks are actually used for.
A dealing desk is where retail Forex brokers make their market. When you place your order, they will manipulate market conditions which will either make your trade lose within their own market so that you have to pay the broker or, your trade will be mimicked in a real market meaning that if you win, the broker pays you but they are also paid because of their winnings. The winnings are simply passed over. To conclude, a dealing desk is a place where automated systems and manual configuration decrease the risk for the broker every time you trade.
This idea of ‘making the market’ is becoming known by everyone now and companies do not like this. The reason why is because they know if customers thought they had a dealing desk they would not sign-up as their chances of winning are decreased and overall; they would feel cheated. This would decrease all chances of increasing the companies’ customer base and could have detrimental effects on their business.
By abolishing the dealing desk, companies are hoping to win back some business. They want people to know that they have completely abolished the dealing desk and no market making will take place. Unfortunately, this is not the case.
What we need to remember is that Forex brokers are the middle men between us and the real market. Simply, trusting them is not the way to go any more. They work with liquidity partners and third parties that have always supplied prices only but now, the ability to change market conditions has been passed on to them. So, what they say is true – there is no more dealing desk within their building and they will not change the market. However, someone else will. That is the only difference. The black hat practice has simply been passed on down the chain. The third party or the liquidity provider that is doing this could also receive a pay out by the broker so it is within their interest to provide this service but unfortunately, it is the customer that suffers once again.
NDD brokers posing as ECN brokers
They may even go as far as saying that they are an ECN broker which is basically the type of broker that uses real market conditions. The thing is, they are using real market conditions but they are using the fake ones created by their partners. So, simply wording things a bit differently provides great opportunities for these brokers to acquire a good name for themselves. It is only our perseverance to find out more and investigate deeper into these companies that we can rely on. If they make a claim, make sure that you question it because the chances are they are telling you what you need to hear rather than the truth.
Guest post by Dragan Lukic of www.capexforextrading.com
