No dealing desk brokers, or NDD brokers, may use a combination of straight-through processing systems, or electronic communication networks (ECNs) to process trades for customers.
A no-dealing desk brokerage firm does not accept risk when processing trades for clients. Instead, the no dealing desk firm will pass on the trade into the foreign exchange market to other traders, banks, and liquidity providers. Essentially, a NDD broker provides the access to the forex market to customers, takes trades on their behalf, and then sends them on to buyers and sellers.
The NDD broker is just a middle man.
The STP model is the most common, since it requires the fewest resources, and allows forex brokers to focus on building quality software and maintaining customer accounts to make money. The forex headaches are gone; if an NDD broker wants to make money, it has to provide a better service to the customer to attract customers.
STP brokers have variable spreads that are put on top of spreads offered to them by wholesale forex firms like investment banks and interbanks. If the STP broker is quoted a rate of 1.2001/1.2003 for bid and ask prices, it may show a 1.1999 and 1.2005 rate for its customers. The difference between the two is the broker’s money to keep. The spreads help pay for employees, software, and networking investments. Some money is naturally kept as profit. You can’t do all the hard work for nothing!
ECN Brokers
ECN brokers use a combination of STP and ECN technologies to place trades. In an ECN system, all the major banks will buy and sell massive lots of currency to one another. A broker may place retail investor trades on an ECN if they are large, or if they can be packaged together to make a single large ECN transaction.
In most cases, an NDD broker will just find it easier to pass on the trades through a STP system, and then let the STP buyer or seller deal with the wholesale markets.
