Cruising a number of forums today I discovered the following post by a senior member of a forum (I suspect a broker or principal of the forum’s sponsor) named Pipster. It could have been written by me late last summer when I was still operating under the illusion that trading through a dealing desk brokerage house like FXCM, FxStreet, or Oanda, I was actually trading the Forex. That malady was cured by an industry insider last September. "Oanda has no dealing desk, charges no commission and has low spreads (except during periods of very low volume or very high volitility [sp?]). They have no dealing desk as their system is fully automatic. They make money on spreads by charging you a premium over the price they pay." -- Pipster
As we all know, any broker offering fixed spreads is by definition a dealing desk broker. There’s still another clue and that’s that aforementioned brokerage house, like every other dealing desk broker, offers only one bid and ask price for every currency pair. This isn’t the case when traders view quotes on a non-dealing desk trading platform.
Back before the commercialization of the Internet which has all but replaced snail mail, the telephone, print media, and door hangers, home buyers and homeowners in the United States were pretty much forced to sort through lenders, relying on the print advertising they might see in the local newspaper or receive in their mailboxes. In a hurry to buy or refinance a home, at the most they might compare two or three lenders’ offerings before they submitted a loan application and even then the offerings were difficult to compare.
The Internet changed all that. It’s a rare homeowner these days who doesn’t visit sites like eLoan and LendingTree.to get competitive quotes from dozens of lenders willing to negotiate lending terms. Over time the same thing has happened in practically every retail and service industry. There are now a seemingly endless number of sites offering competitive bids from real estate agents, automobiles dealers, home improvement providers, and even attorneys.
Whether the dealing desk broker community wants to deal with reality now or later, there’s a revolution brewing because sooner or later traders are going to discover that they can do much the same thing trading through a non-dealing desk broker. One platform I’m reasonably familiar displays pricing form 17 participating banks.. The spreads, of course, vary greatly depending on the time of day - during optimum trading hours they can drop to less than a pip. The number of competitive quotes also varies depending on the popularity of the given currency pair.
Pipster points to the fact that trades at Oanda are automated and that this somehow separates them from the fraternity of dealing desk brokers. Just exactly how does this make Oanda any different than any other dealing desk broker? All online trading is automated.
The bottom line for most is a simple matter of comparison and I doubt any serious trader is going to opt to trade through any dealing desk broker once they’ve seen the difference. Unwilling or unable to grasp the intricacies of a professional trading platform, many traders will opt to continue trading in an imaginary world created and controlled by intervening dealing desk brokers. I’m guessing, however, that the smart money is going to migrate to non-dealing desk brokerage. The advantages are obvious.
Time will tell.
Special Note: Over the past few days I've received numerous requests for help so instead of posting responses to them individually, I'll try to address the two predominant issues that have arisen. Regarding the availability of non-dealing desk trading for mini’s and micro-mini’s, please read The Latest Shenanigan. Regarding requests for the names of non-dealing desk brokers, please read Looking for Easy Answers?.
While I won’t tell you who is offering a non-dealing desk trading platform (that would compromise the non-commercial nature of this blog), I will tell you is that apart from having to trade standard lots, the lowest minimum deposit I've seen is $2,000. The lowest margin requirement I've seen is 2% ($2,000). The lowest commission - 1/2 a pip per turn; 1 pip per round.
With respect to minimum deposits, I personally don’t recommend opening an account with the aforementioned minimum. Should you open such an account and lose an early trade, your account might (depending on how early it is) drop you below the minimum margin requirement which would require you to deposit additional funds. I’d personally recommend you avoid the hassle and open an account with at least $4,000 or $5,000.
It’s important to also make mention that as you search for a non-dealing desk broker, you will undoubtedly find a number of brokers using that terminology rather loosely. If they talk about low fixed spreads and/or commission free trading, move on. They aren’t what you’re looking for.
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