No Dealing Desk (NDD) Forex brokers

How to pick the best NDD Forex broker?

Brokers who employ the no-dealing desk system work hand in hand with several liquidity providers in a bid to achieve the most competitive prices. Investors who choose to use this system can gain contact at feasible rates.

No dealing desk brokers can further be broken down to:

1. Straight Through Processing (STP) brokers
2. ECN brokers, which use electronic communication networks (ECNs)

However, the straight-through processing system is hardly applied.

STP Forex brokers work in such a way that they have their customers’ orders directly programmed to their liquidity providers who have access to the interbank market. As earlier mentioned, no dealing desk STP brokers work with several liquidity providers who individually bring forward their bids and ask prices. Then the system is tasked with selecting the best bid and asking for quotes and presenting it on the platform. However, the brokers add value to the given prices which serves as a means for them to make money. Whereas, the ECN brokers have their clients network with other players’ orders in the ECN. The players consist of banks, hedge funds, and retail traders. These players trade against one another by presenting the best bid and ask prices.

It is important to note that all brokers protect themselves from financial loss by being on the opposite side of a trade.

Regulations on no dealing desk Forex brokers

Investing in the forex market is accompanied by worry as to whether the selected forex broker is a good one or not. Not all brokers are the same. To avoid working with assumptions, it is important to settle for a regulated or monitored broker. This is because the regulations put in place are meant to safeguard the interests of investors. While there are several regulatory bodies in the forex markets of different countries, they all have similar objectives. For that reason, the main focus will be on no-dealing desk forex brokers' regulations in the US, South Africa, and the Republic of Cyprus. The bodies that supervise forex trading in the mentioned countries are the National Futures Association (NFA) and the Commodities Futures Trading Commission (CFTC) of the US, the Financial Services Board (FSB) of South Africa, and the Cyprus Securities and Exchange Commission (CySEC) in the Republic of Cyprus.

National Futures Association (NFA)

 NFA is a self-regulatory authority independent of the US government. It was established in 1982 by Congress to allow the futures market to formulate a self-regulatory body. Apart from regulating the futures market of the United States of America, NFA is tasked with

1. Registration
2. Arbitration
3. Formulating strict compliance rules
4. Market surveillance
5. Enforcing Authority

Commodities Futures Trading Commission (CFTC)

CFTC was founded in 1974 to regulate the options market and commodity futures. It aimed to ensure healthy competition and efficiency in the futures market. The roles of the Commodities Futures Trading Commission are:

1. Protecting the players from malpractices
2. Ensuring that integrity is upheld in all the financial processes
3. Protection of participants against fraud
4. Protecting market players against manipulation

Financial Services Board (FSB)

The financial regulatory organization in South Africa is known as the Financial Services Board (FSB), which is responsible for overseeing the forex market in a bid to safeguard the interests of the public, which includes the Johannesburg Stock Exchange. The body aims to maintain a healthy financial market in the country. The responsibilities of the Financial Services Board are:

1. Ensuring compliance by its members
2. Ensuring that the registered firms meet all the adequacy requirements
3. Enforcement of laws
4. Execution of legal action on members who violate the rules
5. Extending support to customers by allowing them to air their grievances

The Cyprus Securities and Exchange Commission (CySEC)

Since 2004, which is when Cyprus joined the European Union, its operations were in alignment with MiFID regulations which allowed the country access to all European markets. However, CySEC still maintained the country’s regulations. Most brokers prefer CySEC as it has less exacting regulations and generally compliance costs are lower. The following are the roles of CySEC.

1. Overseeing the activities of the Cyprus Stock Exchange, its transactions, listed companies, brokerage firms, and retail brokers.
2. Give licenses to brokerage firms, brokers, investment firms, and consultants
3. Manage the licensed companies
4. Foist administrative retributions
5. Enforce legal action and penalties on brokers who violate the rules

Factors to Consider when Choosing a no dealing desk forex broker

1. Regulatory compliance

With the much-dreaded fraud in the forex market, the closest way to be sure that you are dealing with a legitimate no-dealing desk (NDD) broker is to ensure that the broker is regulated. A good NDD will show which regulator he is listed under. For further confirmation, it is also important to verify their licensing online using their license numbers. Most reliable NDD brokers are registered by more than one regulatory authority. With that knowledge, it is much easier to trust the broker with your assets.

2. Fund safety and access

The best NDD broker to go for is one who guarantees the safety of the investors’ funds. The broker should provide a means by which the client’s money is safe. For instance by providing accounts that segregate individual financial assets. A good broker should also avail the ease of access to funds by the traders.

3. Data security

For one to open an FX trading account, he/she is required to provide a wide range of personal information. Access to this type of information through hacking could lead to a significant extent of loss. Not only is the trader prone to financial loss, but he is also vulnerable to identity theft. A good review of an NDD broker should be done to ascertain the effectiveness of the security measures put in place by the broker. This can be done by researching whether the broker’s internet security provider is reputable and whether the encryption employed is of high quality.

4. Knowledge of NDD brokerage and the NDD system to work with

You also need to equip yourself with knowledge of the type of trade you are working with. In this case, the no dealing desk trading. It is important to have an idea of the amount of funds you will need to get into this trade. Also, it is important to understand the advantages and risks involved in working with a no-dealing desk forex broker. As earlier mentioned, two types of systems can be employed in NDD trading, that is the ECN and the STP. That way, a trader will be able to choose a method that best suits his/her needs.

5. Execution cost

Trading costs are significant in the forex market. The reason is, they play a role in a trader’s return in the long run. Most forex brokers prefer not to charge commissions as per a trade, alternatively, they make profits through offering wider spreads than those of the interbank market. Besides spreads and commissions, the other costs involved in the trade are fees charged on deposits, withdrawals, wire transfers, and credit cards. Before picking a broker to work with, it is important to take a keen interest in the agreement provided and have a deep insight into costs that may be incurred during the contract.

6. Trading platforms

A trading platform plays a vital role in forex trade. The trading platforms employed by the brokers should be effective and efficient. The interface should be user-friendly to allow easy navigation by the trader. Also, choosing a broker with a popular trading platform like MetaTrader 4 or MT4 is a safe choice, as its reliability has been attested. Customizable platforms that are tailored to suit individual needs are also a plus. While choosing an NDD broker, put into consideration one that has demo accounts and platforms that will allow you to navigate your way through the trade without necessarily having to lose actual funds in the learning process.  

Other important factors to consider are the leverage the broker offers, trade margins, and customer support.

Limitations/scams associated with no dealing desk brokers

The major malpractice involved in no-dealing desk brokerage is manipulation. The brokers manipulate the rates for their benefit. Among the reasons why they manipulate the rates is to attain instant liquidity, leverage their accounts, and fill out unbalanced trades.

Popular no dealing desk forex brokers

1. Pepperstone

Pepperstone is rather new to the market, having been in operation only since 2010. However, it has quickly climbed up to the top of the charts of Australian forex brokers. A fact that has been proven by the many awards that the broker has been able to secure. Its ability to offer execution and access to Direct Market Access and ECN has made it a favorite of Asian investors and traders. Pepperstone is also under the regulation of the Australian Investment and Securities Commission (ASIC).

2. Dukascopy

Among the biggest Swiss forex brokers, Dukascopy secures a significant position. Dukascopy is more of a bank that serves as a no-dealing desk forex broker. Dukascopy platforms offer investors access to the world’s largest electronic communication networks which is a hub for the interaction of hedge funds, banks, large investors, and institutional funds. Dukascopy’s regulations are those of a bank and the regulatory bodies involved are FINMA, SCF, and ARIF.

3. HotForex

HotForex is a renowned broker, having been voted for as Asia’s best broker in 2012 by World Finance. It has been in operation since 2010 and its performance is astonishing considering it has not been in the market for a long time. HotForex is the best broker to go to for traders who intend to start operations with small volumes. HotForex offers various platforms and accounts which gives its clients the liberty to choose which suits their needs better. HotForex regulation is under FSC Mauritius and CySEC.