DD stands for Dealing Desk
Whenever the Dealing desk is involved in the operation of Forex brokers with fixed spreads quotes, you got yourself a DD broker. A dealing desk broker earns its profits from spreads and their prime agenda is to trade against you. A Dealing Desk Forex broker has another term that you must have heard one way or another - Market Maker. The words speak for themselves, market maker brokers make the market for you. When you sell and buy currency, the broker chooses the opposite side and, hence, creates the illusion of market. Yes, you heard it right. It is just an illusion because you never see a real market quotes with these guys. Dealing Desk brokers, or Market makers, make their own little world, are in full control of the quotes and do not want you to make any profit, because that would mean a loss for the company. Sounds far fetched, but that's the truth and believe us there are such brokerages out there.
NDD stands for No Dealing Desk
NDD Forex brokers gives you the pathway to the interbank market and your orders do not go through dealing desk. The real No Dealing Desk brokers make sure to not have re quotes and process your orders fast in one click without sudden internet connection failure, major platform shutdown and other lies scam brokers use to fraud the clients. With NDD broker you can trade all styles you like including news without restrictions on trading choices. How does this type of brokerage make money, you wonder?An NDD broker either charges commission for trading or increases the spread. Other names for No Dealing Desk brokers are STP or ECN and STP together.
STP stands for Straight Through Processing
STP Forex brokers processes your orders via liquidity providers, which are either banks, financial institutions or other online brokers. STP brokers have be involved with only one liquidity provider, or with many. Obviously, the more liquidity providers involved with your brokerages, the better for you. With STP you have access to real-time market quotes and your trades are executed right away without slow down of the trading platform and sudden requotes.
ECN stands for Electronic Communications Network
ECN Forex brokers is where your trades interact with other trader's orders. ECN Forex broker offers brings you the online arena here banks, market makers and individual traders can trade against each other. Those involved make their offers, and get the best spreads available at the time of trade. All trading orders are compared between one another on real time and there is a commission fee applied.
Do not confuse between STP brokers and ECN brokers - these two animals wear different stripes. In order to be classified as true ECN, a broker is obliged to shows the Depth of the Market (DOM), which allows customers to check out their order size in the market system and compare it to others. In other words, with ECN broker you can check out the liquidity and execute trades based on the best offer.
What is the difference between fixed and variable spreads Broker types
ECN Forex brokers offer variable spreads. As an ECN brokers, they take commission fees for trading Forex. You can consider commission a profit or payment that ECN broker gets for its services. ECN brokers do not profit off the bid/ask, or in other words spread, difference. This means they have no interest in making the spreads wide.
An STP Forex broker get their payment throughout the spreads. STP brokers can either work with variable or fixed spreads. STP brokers take trading orders through liquidity providers such as banks and financial institutions. The brokers get paid via spreads available via the banks involved on the Interbank market. Funny enough, most banks work with fixed spreads and are market makers.
So when you see an STP broker, get ready for the following conditions to be true:
1. Fixed spreads, commission charged per trade
2. Zero spreads, where the system chooses the best bid and ask various liquidity sources, hence offering you, online forex trader, variable spreads.
What about profits for STP broker? They must make a living somehow! Good news is that STP brokers, along side with ECN, do not trade against you! They add a bit of spreads to the original amount provided by the bank and get their profits from there. All client orders pass through the liquidity providers at original spread quoted by those providers and STP broker earns its money from its own markups.
Some STP brokers work as STP model with DD and NDD
There is an agreement signed between each STP broker and its liquidity providers, such as banks, where the terms focus on the regulation of the minimum transactions level allowed by the liquidity provider, meaning that small orders made by traders are not allowed to pass through the liquidity providers. Such orders will be taken care of directly by STP broker, which turns into the Dealing desk! If you trade with "Cents account" or a "Mini account", your STP broker is most likely trading against you.
Larger orders are sent by STP broker using advanced STP technology bridge directly to its liquidity provides. With each transaction, the broker gets a percentage of the spreads involved in a trade.
Forex market maker is a fancy name for a broker with a dealing desk, which makes profit on bid/ask difference and when you, online trader, lose a trade. Don't ever forget that market traders trade against you. Every trade you enter, they take the opposite side so your loss is their profit.
When you want to trade Forex in real market conditions, go for ECN brokers. They don't trade against you, they do not make money on spread difference. On the opposite, they profit from commission on each trade, and this way ECN brokers want their customers to win, because every trade lost means no commission earned.
STP brokers make money on spreads. Maybe they do not have the actual term dealing desk involved in their business, they still slightly manipulate the spreads with markup, pass trading orders through liquidity providers and providing their clients with advanced trading services, lower account deposits, fast online click execution and safe trading environment with no dealing desk. STP brokers want your trades to turn into profits, because this is broker's way to make some money on those spreads.
Stay away from Market makers, because these guys make money on spreads by trading against you. This literally mean that when you profit, the broker is not happy. This might be acceptable in case of reputable large scale market makers, but smaller bucket shops are not what you should aim for.
Why is it good to trade with No Dealing Desk brokers?
There are obviously the common interest when it comes to NDD brokers on top of transparency and faster execution
When we talk about NDD, you deal with real market and not virtually created by the broker. You are always better off in competitive market bids and offers instead of swimming in the artificial pool created by the brokerage itself.
Which type of broker is good for you at the end of the day? Is it a dealing desk broker? Or a no dealing desk broker? You will have to figure this one out on your own. Your trading style will give you the right direction which is the best for your trading personality. You have to decide if you’d rather have tighter spreads but pay a commission per trade, or deal with wider spreads and no commissions. Based on our experience, day traders and scalpers like tighter spreads because it is easier to take small profits, because the market needs less ground to cover to get over transaction costs.
Dealing desk brokers seeks traders who more or less breaks even, meaning that it is a client who doesn't win too much but doesn't lose too much either. That way, the broker earns money on the client’s transactions, but at the same time, the client doesn't lose all the account funding. One thing is for sure - brokers don't want you to empty your account and never come back again.