The fact that the forex market is not centralized and there is no place where information from all sellers and buyers could be accumulated originally defined peculiar features of operation of dealing desks and broking companies. Essentially, they set the bid and ask themselves for each currency pair and act as the counterparty in each trade.
In this event the broker serves as kind of a dealing desk (DD) by receiving the trader's order to sell or buy a certain amount of currency at a certain price and forwarding it to a bank. This system can consistently operate only when its participants, in order to maintain their reputation, do not manipulate market prices for their own benefit.
Current technologies in the area of electronic trading enable sellers and buyers to trade directly, rather than only through an intermediary. This is how NDD (No Dealing Desk) brokers appeared. They allow liquidity sellers and buyers to trade directly in addition to traditional order execution methods.
There are about a dozen of companies offering NDD accounts in the CIS market of broking services. ICM Brokers is one of such broking companies. Its General Director, Mr. Joe Khouri, told Market Leader's journalist about what NDD trading in the forex is capable of.
Market Leader: Mr. Joe Khouri, how can the trader benefit from opening an NDD account with ICM Brokers?
Joe Khouri: When it all comes down, NDD is the best option for market trading as it eliminates a host of things that many people use as a reason to treat dealing desks and broking companies as fraudsters. The first thing to disappear is the broker's interest in the results of its client's transactions. This means nobody will manipulate prices or order execution time which quite often is the case with DD. In addition, the broker should have all relevant licenses to be connected to one of ECN systems and have orders executed by a bank.
Market Leader: What trading methods are available for NDD accounts?
Joe Khouri: Depending on the offered trading platform, the trader can choose between STP and ECN. The currently wide-spread MT4 supports STP while ECN trading requires a platform that connects to Currenex.
In case of the former trading method, STP (Straight Through Processing), the trader's order is sent directly to the partner bank of a specific broker. The more liquidity supplying banks, the better the conditions of order execution. Banks' offers, in turn, compete with each other and order execution will be based on the 'best available price' principle. DDs also have arrangements in place with liquidity suppliers to have all orders executed strictly at market prices. In addition, stop orders are not sent to the market and the bank has to sell liquidity if the trader sends a counter-order. This all offers very favorable trading conditions for the trader, and the broker makes money from commissions per trade. This rules out any prerequisites for meddling with its client's trading.
The EСN (Electronic Communications Network) trading method overall resembles STP. In this specific case, however, all market players are connected to one platform where they trade against each other. Any of them can see offers of counterparties online, and orders are always executed at the best available price. Currenex and FX Alliance (FXall), HotSpot, Integral are the most widely known ECN platforms today.
Market Leader: Don't you think that DD brokers will soon become a thing of the past?
Joe Khouri: I believe it premature to make such bold statements even though there are some conditions in place for this. For example, there are a huge number of problems related to a broker's potential ability to trade against its trader in case of the traditional DD trading method. In this event, the broker may be tempted to adjust market data as it sees 'fit'. It is only the reputation of the broker that can guarantee it won't happen.
In turn, ECN systems are a significant breakthrough in trading, even compared to STP. Sometimes a DD may have its own trading platform and not send client orders to the market, but when deposits of a dealer start growing, it resets prices. If it is connected to ECN systems this simply cannot happen.
Market Leader: The only disadvantage of NDD is tough deposit requirements which are much lower in case of the 'traditional method?
Joe Khouri: That is the case. However, this is what brokers are here for - to allow trading with smaller accounts.
