What it means
In currency trading, a broker can operate in two main ways. A dealing desk broker, also called a market maker, quotes its own prices and takes the other side of client trades.
If a client wins, the broker loses, which creates a potential conflict of interest. An NDD broker works differently.
It routes each client order to a network of banks, funds and other liquidity providers, and the trade is executed at the best price available. The broker is a middleman, so it does not profit when the client loses.
There are two common forms. Straight-through processing (STP) sends orders directly to a chosen liquidity provider, often with a small markup on the spread.
An electronic communication network (ECN) model places orders into a shared pool where they meet other participants' orders, usually with a fixed commission and a raw spread. For traders, the appeal is transparency and often tighter spreads, particularly in active markets.
Prices come from the market and not from the broker's own quotes. The trade-offs include variable spreads that can widen in fast markets, possible slippage and commissions that need to be added when calculating costs.
It is important to be realistic about the claim. No dealing desk does not mean no risk or no cost, and the client still bears the market risk of every trade.
Brokers also differ in how honest and well regulated they are, so check that the firm is licensed by a respected authority and read how it handles orders. For a business with foreign currency needs, the same idea applies to choosing a provider.
A company paying overseas suppliers should compare the total cost of exchange, including spread, fees and any markup on the rate. Understanding whether the provider trades against you or simply passes your order on helps you judge how fair the price is.
In practice
Real-world examples.
Example
A part-time trader opens an account with an ECN-style NDD broker and trades two standard lots of EUR/USD. The spread is 0.6 pips and the commission is $7 per lot, so her cost for one trade is 2 x ($6 + $7) = $26. She likes that the costs are clear on every statement.
Example
A scalper who makes many small trades each day chooses an NDD broker because it offers raw spreads. His average cost per trade is $9, which would be $20 at his previous broker. Over 500 trades, he saves $5,500. He notes that the saving only holds while spreads stay tight.
Example
A manufacturer paying a supplier in euros uses an online foreign exchange provider that passes orders to banks. The provider adds a 0.3% markup to the market rate. On a $500,000 payment, the fee is $1,500, and the treasurer compares this with other quotes.
Formula
Calculation
Total trading cost = spread cost + commission
Spread cost = spread in pips x pip value x lots traded
A trader buys one standard lot (100,000 units) of EUR/USD through an NDD broker. The spread is 0.8 pips and one pip on a standard lot is worth $10, so the spread cost is 0.8 x $10 = $8. The broker also charges a round-trip commission of $6. Total cost = $8 + $6 = $14. A dealing desk broker quoting a fixed spread of 1.5 pips with no commission would cost 1.5 x $10 = $15 for the same trade.Case study
Seen in the real world.
Cobalt FX is a fictional broker created for this illustrative story. It began as a market maker, quoting its own prices and profiting when clients lost. Complaints about requotes and unexplained price spikes grew, and the firm lost clients to rivals.
The directors switched to a no dealing desk model, connecting to six liquidity providers and charging a commission of $6 per lot. Complaints fell by 60%, and the number of active clients rose from 4,000 to 7,500 in 18 months. Revenue per client fell slightly, but total revenue grew by 40% because of the increase in volume.
Watch out
Common mistakes.
- Believing NDD brokers guarantee profits. The client still carries all market risk.
- Ignoring commissions. A low spread can still cost more once fees are added.
- Thinking all NDD brokers are trustworthy. Check regulation, order execution policy and reviews.
Questions
People also ask.
What is the difference between STP and ECN?
STP routes orders to liquidity providers, often with a markup on the spread, while ECN places orders into a shared pool and usually charges a commission.
Why can spreads widen?
In fast markets or at news events, liquidity providers may widen their prices, and the broker passes this on.
Is a dealing desk broker always worse?
Not necessarily, as many are well regulated and offer fixed spreads, but the conflict of interest is built into the model.
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