What does NDD stand for? Technical details left aside for the time being, NDD stands for 'No Dealing Desk'. What this term actually means is that you trade without any involvement of a dealer.
A natural question arises - how does a trader who works through a dealing center (broker) manage to circumvent a DC's interests? Because trading in the forex through but with no involvement of an intermediary is paradoxical. Nevertheless, such trading is possible and even offers a number of additional advantages as compared to traditional trade order execution systems adopted by most DCs.
Origin of the question
Each dealing center or desk (broker) in the forex and CFD market serves as an intermediary between its client and contracting party of the trade. Sometimes, the DC itself puts on this role, sometimes it looks for such a seller or buyer in the market. It faces a simple task - to buy cheaper and sell more expensive. This task is met in two ways or, to be more accurate, through one of two order execution systems.
Market Execution is a type of order execution that guarantees execution of the trader's order rather than its price. I.e., it actually can be executed at a price different from what was seen when the order was being sent. As a matter of fact, it can be both better and worse.
Instant Execution is a type of order execution that guarantees its price rather than that the trader's order will be executed. For example, if an order 'to buy 1 lot eur/usd' at 1.39750 was sent, but the price changed while the order was processed in a queue and now is 1.39800, the broker will deny execution of this order. In this case the trader will get a message that it has changed and an invitation to have the order filled at a new price, i.e. the 'requote'.
Two products of Admiral Markets can be mentioned as an example: Admiral.Standard based on the Instant Execution system and Admiral.Pro which uses ECN and NDD.
Let's assume you have an Admiral.Standard trading account with the Instant Execution system and spreads of between 1-2 pips for eur/use with no commission. In the trading terminal you see the Bid/Ask = 1.4010/1.4012 and send an order to 'Buy 1 lot eur/usd'. When the turn for execution finally comes to your order, the dealer makes the following operations:
1. They compare the price of your request with the contracting party's price. For example, the latter offers 1.40090/1.40100.
2. As the contracting party's price is 2 pips better, the dealer has 'Buy 1 lot eur/usd' executed by that party at 1.40100.
3. The dealer confirms your request to 'Buy 1 lot eur/usd at 1.4012', making $20 on this transaction.
If it turned out that the contracting party's price is 1.40115/1.40125 or worse than the requested price, the dealer would deny your order.
Now let's have a look at the situation in the Market Execution system. In the trading terminal you see the Bid/Ask = 1.4010/1.4012 and send an order to 'Buy 1 lot eur/usd'. When the turn comes to execute your order, the dealer acts as follows:
1. They have Buy 1 lot eur/usd executed at the current price, for example, 1.40100 by the contracting party.
2. The dealer confirms your request to 'Buy 1 lot eur/usd at 1.4012', making $20 on this transaction.
If the dealer opened Buy 1 lot eur/usd at 1.40150 with the contracting party, your trade would be confirmed at 1.4017.
As you can see from the example above, in the first case the dealer first makes sure whether they can open it better than the client and only then makes a decision to confirm or deny the order. In the second case, they first had the order executed by the contracting party and then confirmed it at the best price for themselves. This is the fundamental difference between two execution systems - Market Execution and Instant Execution.
Both order execution systems have their strengths and weaknesses. This rather complex and ambiguous subject deserves a separate discussion. So, let's get back to NDD.
What is NDD about?
NDD is based on the Market Execution system (or ME). Of course, the mere fact that a broker might have ME does not mean that they automatically offer NDD because, in case of ME, the broker's dealing desk can also be actively involved in order execution and influence execution price. I would like to point out that this article does not deal with fraud and 'brokers' that commit criminal acts against their clients. When I write 'actively involved in order execution and influence execution price', I mean exclusively legal techniques.
In both systems described above, the dealer does one thing in common - they show to the client a price different from what they got from their contracting party (a bank, a prime broker, another DC or their own client). I.e., they changed the price or, to put it in professional terms, added its markup. There are a number of ways to add markup. The broker adds markup even if they traded with a fixed spread.
Currently, some banks can offer eur/usd spreads of about 0.8 – 1.0 pips. Modern ECN systems that bring together dozens of banks into a single network can narrow down the eur/usd spread to 0.1 – 0.5 pips. At any rate, the average eur/usd spread for major clients (such as banks, funds, large DCs) is about 0.5-0.9 pips. Thus, if the broker fixes the spread at 2 pips, it makes money 99% of the time and suffers losses only in scarce periods of anomalous market behavior. Therefore, the dealer will remain in business as long as there is markup. It will inevitably interfere with the price flow in a certain way to increase its earnings.
Now let's have a look at how orders are executed on Admiral.Pro accounts. The flowchart below illustrates the entire process of collection, creation and relay of price flow in MT4 (values for eur/usd).
Bid and Ask prices gathered by the ECN system are relayed without any modifications to the trading platform of Admiral Markets. In this situation the dealer has nothing to do. It does not have to control, compare or change prices. If it gets an order to Buy 1 lot eur/usd at 1.40502 from the trader, it will be instantaneously filled by a contracting party and confirmed in MT4. If the price changes during execution to 1.40500 or 1.40504, the dealer acts upon the new market price, executes at it and confirms to the trader. The dealer does not influence the price in any way - it only relays what the market currently offers.
A question arises then: where does the broker make money? In case of NDD, the broker's interest lies in an additional fixed commission charged for every complete trade of the client on a pro rata basis to the volume of the transaction. As a result, the markup (the broker's interest) is no longer hidden in the price itself and you see everything the broker gets. The dealer does not have to make additional checks and adjustments which makes execution of the client's trading orders much easier and faster.
Now we have come to the heart of the question: What does NDD mean? NDD means absence of a markup hidden within the spread. It is complete absence of any influence on the price flow from the dealer. This is a simple and reliable order execution mechanism which makes trading with Admiral Markets more transparent, comfortable and beneficial for its clients.
P.S. After I finished this article and read it again a day later, I saw it was a bit unfair to other types of accounts, for example, Admiral.Standard. You might have concluded that four-digit prices, fixed spreads and Instant Execution are a thing of the past, inconvenient and disadvantageous in the context of modern trading. This isn’t the case. Each of these products has its advantages and disadvantages. Of course, ECN and NDD substantially decrease costs per trade and make order execution faster. At the same time, no ECN or NDD can guarantee that your order won't be filled at a spread of 5, 10 or even 20 pips, for example, during the historical speech of one of the FRS heads. Of course, the likelihood of this outcome is very low, but this is real market. However, this is impossible in Admiral.Standard accounts in the principle. The company guarantees that the eur/usd spread will not exceed 2 pips regardless of whether it widens to 20 in the market. The company will incur losses but perform its obligations.
Besides, there are some special features for sending orders in the Market Execution system. For example, in case of ME you cannot put StopLoss and TakeProfit levels initially, when you open the order from the market. First you have to send the order with zero values for these levels and only then modify your order. When an expert trades, you need to add just a couple of code strings. For manual trading, however, you spend a couple of seconds which you might not have.
In general, everything's up to you. I only wanted to help you get clear on what NDD means.
