In the forex market, there are two main types of brokers. We have dealing desk brokers, also known as market makers and no dealing desk brokers, which are classified into Electronic Network Communication (ECN), Straight-Through Processing (STP), and direct market access (DMA). The forex trading reviews site Forex-Investor.cz provides extensive information on the types of brokers and broker reviews. 

Many trade experts advise traders to choose a no dealing desk broker citing the risks of trading with a market maker. However, there are some compelling features that come with a dealing desk broker. Here, we will discuss some of the key benefits and risks of trading with a market maker.

The benefits of trading with a dealing desk broker

One of the main advantages of trading with a market maker is the ease of execution of trades. Since your broker is responsible for filling the order, trades are easily executed. On the contrary, when trading with a true ECN broker, traders must wait for a willing trader to take the other side of their trade at the prevailing bid price.

The other benefit associated with trading with a dealing desk broker is that there are no commissions or fees charged for providing the service. When you trade with no dealing desk brokers, you have to pay some fees and commissions for the effort they put in to sort the available market bid prices from the liquidity pools. There are also agency fees that they have to pay for the partnerships with the liquidity providers, which are eventually met by the trader. With a dealing desk broker, all these fees are avoided thereby resulting in lower trading costs.

Dealing desk brokers also have the ability to provide more flexible spreads to their traders. While the notion is that spreads are often wider than when trading with a no dealing desk broker, this is actually not the case. There are several forex brokers in the market and this breeds a healthy competition from a pricing perspective. As such, dealing desk brokers are forced to offer highly competitive spreads to traders in a bid to attracting more clients.

The risks of trading with a dealing desk broker

There are significant risks of trading with a dealing desk broker. The first one is the potential conflict of interest. Since market makers usually take the opposite side of the trade, there is a conflict of interest in that the broker could be tempted to quickly fill the positions of a losing trade while passing on the positions of winning trades to the market. This essentially means that in addition to the spread, dealing desk brokers can also make a profit off clients’ losing trades.

Dealing desk spreads are higher than true ECN broker spreads. This is because the main source of their income comes from the markup added to the prevailing market Bid/Ask rates. 

Conclusion

In summary, dealing desk brokers are generally viewed as high risk because of the potential conflict of interest. However, there are also some key benefits that come with trading with a dealing desk broker. These cannot be overlooked especially given the fixed spreads that they provide.