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A Non Dealing Desk (NDD) is a category of broker which exploits a system that directly match orders from financial entities which provide liquidity on the market, such as big banks, with their retail customers. The system works in the following way. Liquidity providers send their best prices to buy / sell (bid / ask) on a timely basis to NDDs, which insert them into their trading platforms, so that the client can always observe the best market quotes when executing orders.
This is the main difference between an NDD broker and a Market Maker, as the former does not take any relations with clients in transactions. NDDs make profits for the brokerage activity only through the spread they levy.
The absence of a trade partnership between the NDD and clients has the great advantage of not generating conflict of interests among parts. As a consequence, this type of brokers can always operate in the sole interest of their clients. They only simplify clients’ transactions, but they do not enter the market and open positions.
Another important advantage NDDs provide is the possibility to offer every client equal access to the interbank market, as quotations (bid price and ask) in a NDD platform are not those established by an individual broker, but are derived from active trading among various market participants such as banks, institutional investors and individual traders, among others. The wider the market, the fairer the price.
Furthermore, all operations carried out by client are anonymous, as NDDs do not know the details of the positions of the client, so the stop-loss orders are not and cannot be altered when an NDD has the need to meet liquidity requirements, as sometimes happens with Market Makers.
There are various types of brokers that operate in the Forex markets and often, for traders, it is difficult to understand what is the difference between the various types, due to the acronyms used and the complexity in understanding how the flow of payments and liquidity works. The knowledge of the various types is, however, essential to make a choice suited to individual trading needs.
The substantial difference that distinguishes the various types of brokers is that existing between the Market Makers and the rest. Let’s start with the difference that exists between “Dealing Desk” (DD) and “No Dealing Desk” (NDD) type brokers. A DD broker is in fact a Market Maker (MM), that is a market operator that offers its customers generally fixed spreads and the quotations of the instruments on which the client wants to make trading operations. Such quotes may result in above or below real market prices at any time. Market Makers are always a counterpart to traders, who do not deal directly with liquidity providers. Market Makers earn through spreads and usually also open positions opposed to those of their clients, with the aim of hedging against risk.
An NDD broker, on the other hand, provides the customer with direct access to the interbank market and can be of two categories: a STP (Straight Through Processing) or an ECN (Electronic Communication Network). STD type NDD brokers exploit fully computerized transactions and are immediately transformed on the interbank market without any broker intervention. ECN brokers, on the other hand, provide real-time information on the portfolio of orders that have been processed and the prices offered by banks on the interbank market. In this way, they have the possibility to improve the transparency of transactions, providing information to all market participants. ECN brokers usually earn by charging a variable commission on the volume traded. With ECN brokers, all transactions are processed directly on the interbank market in No Dealing Desk mode.
With a real NDD broker, there is no price requoting, which means that, for example, a trader can perform operations during classified ads without any restrictions. In this case, the spreads offered are lower, but they are not fixed and therefore can increase significantly when market volatility increases, for example during particular market events. An NDD broker can charge a commission on each transaction or choose to increase the spread.
