DislikedMrs Rogers I would like to ask you a question. What is the logic behind a tighter spread on the DD fxcm structure?Ignored
While FXCM believes that No Dealing Desk (NDD) forex execution provides our best all-around trading experience, we also offer dealing desk execution as an alternative for traders whose primary concern is low spreads.
There are two main reasons why we can offer a lower spread on the DD model than on the NDD model:
Reason #1: On the DD model, we can often offset opposing client orders internally without having to share any profits from the spread with our liquidity providers. For example, on the DD model if the bid and ask prices for USD/JPY are at 99.540/99.552, we can make the entire 1.2 pip spread when one client sells at 99.540 and another client buys at 99.552. On the other hand, with the NDD model, if the bid and ask are at 99.535/99.557, then even though the spread is 2.2 pips, we only make a fraction of this, since each client order is offset one-for-one with our liquidity providers.
Reason #2: On the DD model, we may actively be taking a position in the market, which exposes the firm to market risk. When you are long, the Dealing Desk may be short. When you are short, the Dealing Desk may be long. So your losses can equate to the Dealing Desk's profit. Alternatively, your profits can equate to the Dealing Desk's loss.
DislikedI understand that on the DD model, fxcm takes the other side of my trade but I don't see how based on this point alone fxcm can make money enough to justify tighter spreads. Now if DD means terrible slippages, platform freezing, re cotes etc Than it would make sense. Would you enlighten me on this matter please? Thanks.Ignored
What makes FXCM different is that we offer both Dealing Desk and NDD execution. If you are trading on Dealing Desk execution and your trading style exposes us to more risk than we're comfortable with, FXCM may, at our sole discretion and at any time, change your execution type to NDD. This is how FXCM can comfortably offer both options without having to resort to some of the common "dealer intervention" practices you listed above which take place at many forex brokers. That means there are no re-quotes with FXCM’s Dealing Desk execution and no restrictions on stops and limits.
The table below provides more information on the two forex execution models we offer to our clients.
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Welcome to the forum
Jason