No Dealing Desk
A system that allows for instant foreign currency trades on the interbank market
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What is a No Dealing Desk?
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 ask 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 Chase
- UBS
Also, there are hundreds of other international banks that trade alongside the abovementioned giants. It facilitates both market interest and liquidity.
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 funds.
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
CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:
