Forex trading is one of the most popular forms of trading in the world. With over $5.3 trillion traded every day, it offers a lot of opportunities for traders to make profits. However, there are different types of forex brokers, and one of the most common is a dealing desk forex broker.
A dealing desk forex broker is a type of broker that acts as a market maker by creating a market for their clients. This means that they take the opposite position of their clients’ trades, and they make money from the spread between the bid and ask prices. The dealing desk forex broker is also called a market maker forex broker.
In this article, we will explain what a dealing desk forex broker is and how it works.
What is a dealing desk forex broker?
A dealing desk forex broker is a type of broker that acts as a market maker by taking the opposite position of their clients’ trades. When a client opens a trade, the dealing desk forex broker takes the opposite position of the trade. This means that if the client buys a currency pair, the dealing desk forex broker sells the same currency pair, and vice versa.
The dealing desk forex broker makes money from the spread between the bid and ask prices. The spread is the difference between the buy and sell price of a currency pair. The dealing desk forex broker offers a fixed or variable spread to their clients. The fixed spread is a set amount of pips, while the variable spread changes according to the market conditions.
How does a dealing desk forex broker work?
A dealing desk forex broker works by creating a market for their clients. When a client opens a trade, the dealing desk forex broker takes the opposite position of the trade. The dealing desk forex broker then holds the position until the client closes their trade. The dealing desk forex broker makes money from the spread between the bid and ask prices.
The dealing desk forex broker can also hedge their positions by taking the opposite position in the interbank market. This means that if a client buys a currency pair, the dealing desk forex broker can sell the same currency pair in the interbank market to hedge their position.
Advantages of using a dealing desk forex broker
1. Fixed spread: A dealing desk forex broker offers a fixed spread to their clients. This means that the spread remains the same regardless of the market conditions. This is beneficial for traders who want to know the exact cost of their trades.
2. Market-making: A dealing desk forex broker acts as a market maker by creating a market for their clients. This means that traders can execute their trades quickly and easily.
3. Hedging: A dealing desk forex broker can hedge their positions by taking the opposite position in the interbank market. This means that the dealing desk forex broker can manage their risk effectively.
4. No slippage: A dealing desk forex broker offers no slippage to their clients. This means that traders can execute their trades at the exact price they want.
Disadvantages of using a dealing desk forex broker
1. Conflict of interest: A dealing desk forex broker has a conflict of interest with their clients. This is because they take the opposite position of their clients’ trades. This means that if a client makes a profit, the dealing desk forex broker makes a loss, and vice versa.
2. Spread markup: A dealing desk forex broker can markup the spread to make a profit. This means that traders may pay a higher spread than they would with an ECN forex broker.
3. Requotes: A dealing desk forex broker can requotes their clients’ trades. This means that traders may not get the price they want for their trades.
Conclusion
In conclusion, a dealing desk forex broker is a type of broker that acts as a market maker by creating a market for their clients. They take the opposite position of their clients’ trades and make money from the spread between the bid and ask prices. While there are advantages and disadvantages of using a dealing desk forex broker, traders should choose a broker that best suits their trading needs.
