What is an NDD broker in Forex?
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Did you know what an NDD broker is in Forex? It is a foreign exchange trading method that gives access to the interbank market. A broker who uses a no-dealing desk system offsets positions automatically with interbank, unlike– a market maker.
This system allows forex brokers to work directly with market liquidity providers. An investor who trades via an NDD instead of dealing with a single liquidity provider works with a range of providers to get the best prices. This method gives the investor access to instantly executable trades. It may be done using electronic communication network (ECN) methods.
Since NDD brokers use multiple liquidity providers, they can get the most competitive bids and asks. Check out the overview of NDD brokers in Forex for more information.
What do you know about NDD brokers?
An NDD broker typically works with several liquidity providers to source the most competitive bids and asks available on the interbank market. In NDD, brokers do not keep their internal order books or act as counterparties directly to traders. Instead, NDD only permits traders to access the interbank market upon commission payment.
NDD brokers generally do not use an ECN, and not all ECN brokers are NDD brokers. An anonymous ECN can not guarantee fills. Traders need to understand that an ECN broker could still manage an internal order book and trade against clients.
Some brokers offer STP; however, this does not mean they do not have dealing desks. Instead of ordering the execution, STP refers to the communication between counterparties after the trade has been executed.
How does a No Dealing Desk broker operate?
A non-dealing desk Forex broker acts as an intermediary between traders and the interbank market. In an NDD broker, commissions are charged only for services rendered, and raw spreads are not marked up. There is no conflict between broker and trader. It is thus in the best interest of an NDD broker to have profitable clients because as they trade more and more, the broker will increase its revenue.
No Dealing Desk is the term used to describe a trading platform provided by a forex broker that allows unfiltered access to interbank market exchange rates. NDD brokers, as opposed to Dealing Desk, or market-making, brokers, take Straight-Through Processing (STP) when executing forex trades, as opposed to market-making brokers, who publish prices and rates that are similar, not identical, to international forex market rates.
When offering Forex no dealing desk trading, brokers source the best offers and bids from multiple liquidity providers on the interbank market.
Best NDD forex brokers use proprietary technology to automate the process via a liquidity aggregator. Client orders are matched with the best prices by NDD brokers, who charge a commission for the service.
Forex brokers that offer non-dealing-room (NDD) trading may add a markup to the interbank spread, as well as a commission-free service. As a result, the trading costs are generally higher than those resulting from commission-based structures.
Types of NDD brokers in Forex
NDD brokers fall into two categories. These are straight-through processing brokers (STP) or electronic communications network (ECN) brokers. Through STP brokers, traders have direct access to banks and other liquidity providers.
ECN brokers provide the same services as STP brokers and allow customers to trade directly. You deal with a real human being when you sell through ECN, whether you make a profit or loss. You trade with banks and brokers through STP rather than retail foreign exchange companies.
ECN (Electronic Communication Network)
A trading platform like ECN asks the clients to participate in a market. Through their participation, they learn about trading and how to deal with others.
Participants include banks, government agencies, institutions, and individual traders. There is simultaneous buying and selling without the involvement of a broker or dealing desk.
Brokers keep track of the market conditions by knowing the seller and buyer (online or in real-time). Most brokers earn their profit from commissions or markup spreads.
In contrast, ECN also lacks trading. It requires the trader to refrain from hedging, maintain low leverage, and follow limited rules with FIFO. Additionally, a trading commission will be imposed on the trader.
The trader will, however, benefit from the spread. If the trader does not get used to the ECN, the NDD feature will be available. Make sure to emphasise that not all brokers are legitimate.
STP (Straight Through Processing)
As a liquidator, STP connects the trader with other brokers. STP usually handles the order by forwarding it to a hefty brokerage (institution) or ECN brokers.
How to choose the best NDD Forex broker?
The no-dealing desk system allows brokers to obtain the most competitive prices by working hand-in-hand with several liquidity providers. In addition, the system enables investors to connect with feasible rates.
Brokers with no dealing desk can further be broken down into:
- STP (Straight Through Processing) brokers
- ECN brokers, which use electronic communication networks (ECNs)
In practice, straight-through processing is rarely used.
The brokers of STP Forex can program their customers’ orders directly into their liquidity providers, who have access to the interbank market. Unlike brokers with dealing desks, no-dealing-desk STP brokers work with several liquidity providers who set their bids and ask prices.
After that, the system selects and presents the best recommendations and offers. Nevertheless, brokers add value to the given prices, which serves as a means by which they make money.
On the other hand, ECN brokers allow their clients to interact with other players’ orders. Such players include hedge funds, banks, and retail investors. They compete for market share by offering the best bids and offers. Brokers ensure they will not lose money by being on the other side of a trade.
Regulations on NND Forex brokers
It is natural to wonder whether the selected forex broker is good before investing in the forex market. Unfortunately, not all forex brokers are the same. A regulated or monitored broker is the best way to avoid working with assumptions.
Regulations are put in place to protect investors’ interests. Although several regulatory bodies oversee forex markets in different countries, they share similar goals. Because of this, the focus will be on no dealing desk forex broker regulation in the USA, South Africa, and the Republic of Cyprus.
In the mentioned countries, forex trading is regulated by the National Futures Association (NFA) and the Commodities Futures Trading Commission (CFTC) of the United States, the Financial Services Board (FSB) of South Africa, and the Cyprus Securities and Exchange Commission (CySEC) in Cyprus.
Factors to consider when choosing NND Forex brokers
Here are some factors to consider while selecting an NDD broker!
Compliance with regulations
To ensure that you are dealing with an NDD broker in the forex market, the closest thing is to ensure that the broker is regulated. Therefore, your broker should be listed with a reputable regulatory organisation. To confirm their licensing further, it is also essential to check their license numbers online.
It is important to note that most reliable NDD brokers are registered with more than one regulatory body. You can trust your broker with your assets more efficiently by knowing this.
Fund safety and access
Investors should choose an NDD broker who guarantees the safety of their funds. The broker should make sure that the client’s money is safe. One way to do so is by creating separate accounts for each client’s money. A good broker will also make it easy for traders to access their funds.
Security of data
To open an FX trading account, one must provide a wide range of personal information. Hacking could result in a significant loss if this information is accessed. In addition to financial losses, the trader may also suffer identity theft.
It is essential to conduct a thorough review of an NDD broker to assess its security measures. It is possible to accomplish this by researching whether the broker’s internet security provider is reputable and that the encryption used is high-quality.
Working knowledge of NDD brokerage and the NDD system
Additionally, you should teach yourself the type of trade you’re involved with—specifically, no dealing desk trading. When getting into this trade, you should know the amount of money you’ll need.
Furthermore, no dealing desk forex brokers offer advantages and risks that need to be understood. It was already mentioned that there are two types of systems used in NDD trading, the ECN and STP. In this way, a trader can choose a method that best suits their needs.
Costs associated with execution
The forex market has significant trading costs. The reason is that they can have a substantial impact on a trader’s return in the long run. The majority of forex brokers do not charge commissions for individual trades.
Instead, they profit by offering wider spreads than those on the interbank market. Other costs involved in a transaction are spreads, commissions, wire transfers, and credit card fees. Therefore, when choosing a broker, you should take a keen interest in the agreement provided and have a profound understanding of the possible costs incurred.
In forex trading, the trading platform plays an important role. Therefore, the trading platforms employed by the brokers should be effective and efficient. In addition, the trading platform interface should be user-friendly so that the trader can easily navigate it. Another safe choice is to choose a broker with a popular trading platform, such as MetaTrader 4 or MT4.
This platform has been proven to be reliable. It is also a plus to have platforms customised to meet specific needs. Take into account NDD brokers that offer demo accounts and platforms so you can practice the trade without having to risk losing real money.
The broker’s leverage, market margins, and customer service are other important factors to consider.
Popular No Dealing Desk Forex brokers
Here are some familiar brokers that deal with NDD!
Pepperstone has been operating since 2010, so it is relatively new to the market. Despite this, it has quickly risen to the top of the charts of Australian forex brokers. The broker has demonstrated through the many awards that it has won.
As a result of its ability to offer execution, direct access to markets and electronic communications networks is a favourite among Asian investors and traders. Moreover, Pepperstone is governed by the Australian Investment and Securities Commission (ASIC).
Dukascopy is among the top Swiss forex brokers with a significant market share. Dukascopy is primarily a bank that offers forex brokerage services utilising no dealing desks.
Investors can access Dukascopy platforms through the world’s largest electronic communication networks, allowing hedge funds, banks, large investors, and institutional funds to conduct business. Dukascopy has to abide by FINMA, SCF, and ARIF regulations as a bank.
In 2012, World Finance selected HotForex as Asia’s best broker. As a relatively new player, it has performed remarkably considering its short time on the market. As a result, traders who wish to start operations with small volumes should choose HotForex as their broker.
Scam and fraud associated with NND Forex brokers
One of the significant malpractices associated with no dealing desk brokerage is manipulation. The brokers artificially manipulate rates to benefit themselves. They work the rates to acquire instant liquidity, boost their account balances, and fill unbalanced trades.
Forex brokers who don’t have dealing desks offer short-term, high-volume traders the best trading environment overall. NDD brokers usually charge a commission to access raw spreads on the interbank market. Through proprietary liquidity aggregation services, brokers connect directly to liquidity providers.
Generally, NDD brokers do not use ECN but may use STP. Since many brokers falsely claim NDD execution, traders should be aware of the difference. They are ECNs in the best-case scenario and market makers in the worst-case scenario. STP is not concerned with order placement but rather with the communication between counterparties after an order has been placed.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst