Forex Market News And Analysis
Broker TypesThe type of broker used can have an impact on one's overall trading performance and results.Dealing Desk vs. ECN BrokersDealing Desk brokers work similarly to the dealing desks provided by various financial institutions and banks. A Forex broker who uses a dealing desk and is registered as a Retail Foreign Exchange Dealer and Futures Commission Merchant (or equivalent in another country) can offset trades. The No Dealing Desk system on the other hand offsets positions automatically and then transmits them to the interbank market. Brokers working through a Dealing Desk system do not work directly with market liquidity providers, therefore only one liquidity
provider remains in the equation, and that gives birth to a fundamental conflict of interest.An ECN broker on the other hand, offers its traders direct access to the other market participants through an Electronic Communications Network. Why is an ECN broker the superior of a Dealing Desk one spreads-wise? Simple: because it deals with price quotations from several trading entities, it can offer much better bid/ask spreads.The business model of an ECN broker is an entirely fair one, as it
Forex Market News And Analysis seliminates a major conflict of interest: because it matches trades between various traders, it cannot become the sole market-maker, thus it cannot trade against its own clients. Another advantage of the ECN is that because of the lower spreads it offers, such brokers can charge a fixed commission on every transaction.However, you should not see ECN brokers as a panacea. Under certain conditions, their liquidity can dry up completely, creating much greater slippages than Dealing Desk brokers’ client might be suffering. Another sad reality is that many brokers describe themselves as of the ECN type, but have an element of dealing desk within their operation, so are not “true” ECNs.
