People have concerns about Dealing Desk brokers and ECN brokers alike.
Is there even a good reason for this?
Choosing a broker a big choice, so let’s talk about it.
Episode 51’s question is from Marvin.
“I’m trying to choose a broker, but I don’t know if a Dealing Desk or an ECN broker is the best way to go, can you help me here?”
Marvin from Fayetteville, NC
Go Somewhere Else…
…if you want a full breakdown of what these brokers do.
As usual, Babypips did a great job of breaking it all down so we can understand it. Go here for that.
Then come back here if you want to read how I sift through the nonsense people have about both Dealing Desk and ECN brokers, and give my opinion on which route you should take.
None of these sites give a realistic opinion on which direction to take, they simply define them and say “choose which broker is right for you”.
No help.
Main Difference
I will touch on the one key difference, because it’s the one people obsess about for whatever reason.
And this difference is how these brokers go about making their money.
Dealing Desk makes their money by taking the other side of your trade, ECN makes their money on a slight commission added onto your trade.
Both make money off the spread itself, not sure if you knew about that, but it’s a thing.
The two main concerns I hear all the time from people is…
- A Dealing Desk takes the other side of my trade, and I don’t like that
- ECN brokers aren’t safe because a crash can take them out of business, and my money with it
And both concerns are completely ridiculous.
Let’s go over each.
Dealing Desk
I’d say the majority of Forex brokers are Dealing Desk brokers.
And yes, they do take the opposite side of your trade every time.
But so what?
You vs your broker?
Dealing desk brokers have to take the opposite side of EVERYBODY’S trade.
Stop making it personal.
Stop making it about you. It’s not.
And think about it, who wouldn’t want to play the role of the casino in this situation?
Every day, you’re able to shrug off the losses they take from people who consistently win, knowing there will always be an endless sea of losers to drown them out!
Your broker doesn’t really care if you win or lose, and long as you’re trading — more on this in a minute.
There’s even an extra layer of safety here with Dealing Desk brokers because when flash crashes happen and people lose money in a hurry, the Dealing Desk broker typically makes money too, instead of being on the hook for the losses.
This fear, again, is severely overrated, and takes us to…
ECN Brokers
Many ECN brokers took it in the proverbial B-hole during the EUR/CHF crash of 2015. Nice article about it here, with a great infographic if you scroll down some.
A lot of these brokers, since they don’t have the added hedge of taking the other side of your trade the way Dealing Desk brokers do, were on the hook for a lot of the losses from their clients when price flew past their margin requirements.
Traders flipped out, especially traders who weren’t even in this trade.
Why? Because their own brokers were in trouble. Their own brokers just lost a lot of money and may become insolvent as a result.
FXCM was one of those brokers, and I was with them at the time. FXCM did some other not-so-wise things later that sealed their fate, but many say this EUR/CHF crash was the main trigger that set the dominoes in motion.
But in the end, FXCM was fine. Why?
Because they were freaking gigantic.
And when you only trade with large, well-capitalized brokers, your odds of safety skyrocket.
Why is this? Because, logic.
You have a wounded animal, but an animal with thousands and thousands of traders generating money for you every single day, and now you can swoop in and get them at a discounted rate?
There will be suitors, madame. Oh there will be suitors.
And of course FXCM got swooped up right away, and everyone’s account was safe again.
Business 101.
The main fear people have about ECN brokers is only a concern if you choose fly-by-night brokers in countries with soft regulations.
We’ll talk about this in Thursday’s video. But obviously avoid this.
What Your Broker Wants, What They Really Really Want
Your broker just wants you to trade. A lot.
As we stated before, they make money every time you do.
So they want you to stay in the game. Losing all your money decreases the chances of this happening, so your broker is going to do whatever it can to set you up for success.
You can’t trade if you’re knocked out of the game.
But again, your broker wants you happy and active.
The less you trade, the less your broker can take their piece of the spread.
…the less your Dealing Desk broker can take the other side knowing the odds are in their favor
…the less your ECN broker can get that juicy extra commission
Because of this, your broker is your bestest friend in the whole world, every day, all the time.
Regardless of how they operate.
The Real Competition
Nowadays, the real choice between Dealing Desk brokers vs ECN brokers comes down to lowest spreads more than anything.
The differences here were apparent years ago, but due to competition being great for consumers, this difference is completely negligent now.
The only spreads I worry about these days.
There are sites where you can see real-time spreads as they occur. MyFxBook has a good one here.
But don’t get too excited and/or deflated about those numbers.
Because if you go look at it again in an hour, you will likely see very different winners and losers in the spread game.
And even when you see these differences, it’s very small, especially compared to 4-5 years ago.
But this matters even LESS to No Nonsense Forex traders. Why?
Because we make less trades than most people because we trade the daily chart.
Life is good, all the time.
But seriously, no matter how you trade, the difference in spreads when it comes to your bottom line won’t even be noticeable at the end of the year.
So throw this out too.
Well Einstein, What Should I Be Looking For Then?
There are plenty of things to consider when choosing a Forex broker, but Dealing Desk vs ECN, and really spreads in general on top of it all, are not important.
Once you make a decision, you will likely not notice the difference in any way.
I asked my subscribers what they wanted more than anything in a great Forex broker, and it kept coming down to these 3 things…
- Safety
- Ease of use
- Customer service (fast, and with native English speakers)
A distant 4th for whatever reason, was low swap rates, which brokers actually can’t do anything about.
But these are 3 great requirements, and the 3 main things I looked for when finding the best options for my readers and listeners.
Safety is a main concern, and should be — but whether or not your broker is an ECN broker or not should not factor in.
There are other very easy steps you can take to ensure your money is safe in these instances, and we’ll talk about it all on Thursday’s video.
Conclusion
Do your homework when choosing a broker.
But there is no need to let the Dealing Desk vs ECN debate factor in.
Not even a little bit.
Hopefully I saved you some time and needless angst here.
And as always, just my opinion, nothing more.
But that’s what you came here for, right?
— VP