What Is Forex Dealing Desk - Understand the "Art of the Deal" Before Choosing Your Forex Dealer

What Is Forex Dealing Desk

What Is Forex Dealing Desk

Before you begin trading in the forex market, it's important for you to understand how the dealing process works. You should also take the time to investigate several dealers before you open an account. What Is Forex Dealing Desk

Forex dealers are considered over-the-counter market makers. What that means is that when you are buying a currency pair, they are selling you that pair. Likewise, when you are selling a currency pair, they are buying that pair.

Your trading platform "quotes" you the price the dealer is willing to buy or sell the currency contract for.

What you'll notice, and this may strike you as being a bit odd, is that all the quoted prices by the various dealers will be almost identical. How can this be if all the dealers are independent of one another?

The reason for this is that all the dealers receive current pricing on each currency pair from one or more banks that they have a relationship with. The banks receive their prices through the interbank market. In fact, most dealers use the same major banks. So at that level they're all seeing the same prices.

Keep in mind, that this arrangement does not mean that you are dealing directly with the interbank. Many dealers will, intentionally or not, leave you with the impression that when you trade in an account with them you are getting direct access to the interbank. This is never the case. The dealer is handling the transaction and needs to be compensated by somebody. And it's always you who compensates them when you trade.

One of the appealing aspects of trading the forex market is that you don't pay a commission as you do with stocks and options. You do, however, pay a "spread." It's the spread that goes to the dealer and is how they make their money. What Is Forex Dealing Desk

The spread is the difference between the price paid for a contract (the bid) and the price paid when the contract on that same pair is sold (the ask). (This is similar to the bid and ask prices for single stocks.) Many traders ignore this seemingly insignificant cost for opening or closing a trade but you shouldn't. All costs, even the small ones, add up and can determine whether or not you'll be a successful trader.

Forex dealers can adjust currency prices in a several ways. When you are out shopping for a dealer find out whether they offer fixed spreads or variable spreads.

Dealers offering fixed, or "consistent", spreads are typically wider than the spreads they are paying the bank(s) they use as their broker. This difference represents a major portion of their revenue.

A dealer offering a variable spread is usually offering to you a narrower spread than what is offered by a fixed spread dealer, but be careful! That spread will widen considerably with increased market volatility.

The dealers are not in the business of making money on changes in the movement of pairs. Their money is made by processing and executing your transaction through the spreads. Therefore, when you open a long position on the EUR/USD, for instance, they are selling that pair to another participant in the interbank to off-set your trade.

You also don't want to be fooled by claims made by dealers that you will get better pricing from them because you won't be trading through a dealing desk. It may not be their desk that your trade will land on - but somewhere along the line it will hit a dealing desk.

The last point to be made is that you gain no advantages by trading through an electronic clearing network (ECN). Even though they'll show you bid and ask prices that are above or below a current price of any particular pair, they still can't guarantee that your trade will be executed at that price and, in most cases, dealers are seeing the same thing. What Is Forex Dealing Desk

What Is Forex Dealing Desk - Understand the "Art of the Deal" Before Choosing Your Forex Dealer

By: Forex Expert

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