If you are interested in starting foreign exchange trading or margin trading, choosing the right broker is the first step. We will explain to you the classification of foreign exchange platform trading models.
There are two main models of online foreign exchange trading platforms:
A trading platform is also called a market maker . As the name suggests, a market maker "makes the market" for its clients. Under certain conditions, when a trader wants to buy, the market maker sells to the trader, and when the trader wants to sell, the market maker buys it. In other words, when necessary, the market maker will trade in the opposite direction of the client.
When trading through a dealing desk, the bid and ask prices seen by traders are not exactly the same as the actual prices in the foreign exchange market. Market makers can control prices, such as widening the spread to reduce their risk to complete traders' orders. Some market makers will set the spread to a fixed level in order to make it easier to manage risk.
In other words, market makers don’t have to trade against you when needed, because they can make a profit from the spread.
Traders using a No Dealing Desk (NDD) platform do not act as counterparties to traders, but simply connect traders with banks, interbank markets, liquidity providers, etc., so that traders can trade directly at the interbank foreign exchange market level.
Individual traders’ trading scale is too small to participate in this level of trading. However, it is precisely because brokers have established foreign exchange trading platforms and used the NDD model as a bridge to directly connect the two, allowing individual traders to enjoy this trading experience. A true NDD foreign exchange trading platform will not require re-quotes, and there will be no unnecessary pauses when confirming orders, allowing investors to trade in real time without any restrictions.
NDD-type foreign exchange brokers can maintain profitability by charging a fixed commission, or by waiving the commission but increasing the spread.
DD or Market Maker (MM) type traders generally use spreads as part of their profits, but most market makers will make profits when traders lose money. Because market makers are mostly traders' counterparties, they trade in the opposite direction of the traders and only hedge in the market when necessary. Therefore, overall, the profit model and logic of market makers are not so transparent.
Market makers usually classify traders into different categories, with traders who suffer long-term losses in one category and traders who have a greater chance of making profits in another category. For the losing traders, their losses will become profits for the market makers by trading against them, while for the profitable traders, their orders will be hedged in the foreign exchange market, which will be handled by banks and other trading counterparties, and they will only make profits through the spread between traders and the foreign exchange market.
Since there is a conflict of interest between market makers and traders, the transparency of market makers is only determined by the rules set within the company. Therefore, when choosing a market maker, most traders are very concerned about whether it is a market maker with scale, compliance with standards, and high credibility.
Compared with DD, many traders prefer to choose a foreign exchange trading platform without human operation. In addition to the advantages mentioned above, the NDD model is more transparent in transactions, faster in order execution, and anonymous. Anonymity means that the trading platform will not reveal the identity of the trader, and all orders will be executed anonymously immediately, which means that no party in the market can monitor orders to ensure fairness.
UACTCTK is a trader that provides NDD foreign exchange platform services. In the NDD model, we have subdivided the two account types of STP and ECN to meet the needs of different customers.
All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved, and seek independent advice if necessary.