Let's explore this highly contentious topic once and for all.
Not necessarily. Some are well-regulated and provide fast execution, fixed spreads, and reliable service, having millions of satisfied customers. Some of the more reputable ones have even been explored on the Finance Magnates.
Why Are Dealing Desks Disliked by the Community?
1. Inherent conflict of interest
DD brokers take the opposite side of your trade, per the execution model they have. Which means when you lose, they profit. This creates a potential conflict of interest where the companies you trade with might not have your best interests at heart.
Some DD brokers in the past have been known to intentionally delay order execution, causing slippage (where you enter or exit at a worse price than expected).
3. Stop-hunting
4. Manipulated spreads
Ways to Spot a Market Maker by Yourself
The easiest method is to check what happens at the time of exchange closure. For example, we at Defcofx broker offer 100% raw spreads — meaning all spreads are sourced directly from the exchange, and we do not have control over them, as all accounts operate on an ECN model. This allows us to offer our users consistently low spreads, as low as 0,3 pips. However, during the closing sessions of the NYC and other exchanges, spreads may widen heavily due to sudden reduced liquidity. There may even be liquidations because of this, which are beyond the broker's control.
A simple rule to remember:
● DD brokers can offer fixed spreads (e.g., always 2 pips on EUR/USD).
ECN or STP brokers, known for the lack of re-quotes, don't have a dealing desk. This also counts for brokers claiming "Direct market access" (DMA). They rarely re-quote prices because the orders are sent to banks and other liquidity providers directly.
If the underlying spreads widen drastically, the DD broker, to continue to earn from the marked-up spread, might have to introduce a slippage into the order.
3. Real market depth
4. Clear limits on the size of opened trades
With this (NDD) model, there is no conflict of interest between customer and broker, and no risk for the broker. Every downstream profit (from the customer) is offset by an upstream loss (to the bank), and vice versa. Which is why it can open even high lot orders on exotic pairs, without any issue (aside from widening spreads). Even a hundred lots on NZD/TRY or GBP/MXN shouldn't be any issue to the interbank forex market. If a broker has access to top-tier liquidity from big providers, like Defcofx, the order size should not matter much.
Disclaimer: Article submitted by Defcofx broker team
This article was written by FL Contributors at www.forexlive.com. Read More Details
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