NDD or “No Dealing Desk” is one of the two main types of forex brokers. No dealing desk brokers can be further subdivided into straight-through processing (STP) and electronic communication network + straight-through processing (ECN+STP).
NDD – No Dealing Desk Brokers
Contrary to a Dealing Desk broker, an NDD broker often passes your trade straight to its liquidity providers. However, at times, and in the event that it fails to hedge your trade, it will have to take the opposite side of your trade just as a dealing desk broker would. Well, almost. An NDD broker usually does this through an algorithm and not an actual human trader in its office.
NDD – Trading Process at a No Dealing Desk Forex Broker
NDD brokers can be either STP or STP+ECN. Some brokers claim that they are true ECN brokers, but in reality, they merely have a straight-through processing system.
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Forex brokers that have an STP system route their clients’ orders directly to their liquidity providers, who have access to the interbank market. NDD STP brokers usually have many liquidity providers, with each provider quoting its own bid and ask prices. The broker’s system sorts these bid and ask quotes from best to worst, selects the best price, and shows something similar on your platform. I said “something similar” because your broker adds a small markup to the original price. This is another way of making money for NDD brokers.
True ECN brokers, on the other hand, allow their clients’ orders to interact with the orders of other participants in the ECN.
Participants could be banks, retail traders, hedge funds, or even other brokers. In essence, participants trade against one another by offering their best bid and ask prices.
ECNs also allow their clients to see the “depth of market.” Depth of market displays where the buy and sell orders of other market participants are. Because of the nature of an ECN, it is very difficult to slap on a fixed markup, so ECN brokers usually get compensated through a small commission.
So to sum up the whole NDD-DD story, as FXTimes analyst and trader Fan Yang puts it: “All brokers have to hedge . . . but that’s not defined as trading against the trader. They just have to take the opposite side of your trade sometimes. So with a dealing desk, there are people making those hedging decisions, but without a dealing desk, they have some algorithm that still does the same.”
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It is important to remember that being a NDD doesn’t mean that a broker isn’t a market maker. A NDD broker still uses an algorithm to not only match your trades, but also make the market, just as a DD broker does.
Related: FXCM Account – Why You Should NOT Use Mini Account
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