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บทเรียน 6: Types of CFD Broker

Types of CFD Broker

 A CFD broker is a type of financial market broker where individuals or companies make contracts for traders to buy and sell financial assets. The trader does not own the asset.

 

CFD brokers can be divided into 2 main types :

1. Dealing Desk (DD) 

The Dealing Desk or DD type has performed in receiving traders' buy and sell orders themselves without sending them to the central market.  We might call this type of broker a "liquidity provider" because they provide their own liquidity, so they set their own bid and ask prices for the financial assets they offer. They take on the risk themselves, which means they must pay traders when traders make a profit, and they profit from traders' losses.

 

Advantages of a Dealing Desk (DD):

  • Very high liquidity, as the broker takes orders and matches them for traders at all times.

  • Low spreads, as the broker does not need to incur the cost of executing trades on the main exchange.

 

Disadvantages of a Dealing Desk (DD):

  • Brokers bear a higher risk because they handle orders themselves, increasing the risk of losses from traders' profits.

  • Delays in deposit/withdrawal processing due to the liquidity of brokers can fluctuate greatly.

 

2. No-Dealing Desk (NDD) 

The No Dealing Desk (NDD) type functions by directly routing orders to the central market, without holding orders themselves. This requires them to use bid and ask prices from the central market, resulting in high liquidity, and the trader's trading order execution will be faster.

 

No-Dealing Desk can be subdivided into 2 types:

  1. Straight Through Processing (STP)
  • STP brokers act as service providers that connect trading through a Direct Market Access (DMA) system between the market and traders. In other words, brokers will send traders' buy orders directly to their own liquidity pool, and the orders will be executed at the best price and low spreads. These STP brokers earn profits from commissions such as spreads and fees.

 

2. Electronic Communication Network (ECN)

  • ECN brokers act as a central hub in facilitating trading between traders and market participants to trade with each other.

 

Participants in the ECN platform, such as banks, retail traders, and hedge funds, will offer the best prices and send them to the ECN platform. When a trader's order finds a matching requirement position, the order is automatically matched, and the transaction is executed immediately under the ECN platform.

 

 

We can see that STP and ECN differ in that STP brokers send traders' orders directly to the market, while ECN brokers send traders' orders to other traders or market participants themselves.

 

Advantages of No-Dealing Desk (NDD):

  • Traders can be confident that the price that occurs in each trade is the real price that exists in the market.

  • Spreads are variable and based on the real supply and demand of the market.

 

Disadvantages of No Dealing Desk (NDD):

  • Slightly higher spreads because brokers cannot adjust spreads lower

  • For assets with low liquidity or unpopular assets, spreads may be high, and execution speed may be significantly slower, affecting the opening and closing of trading orders.

 

 

What type of IUX is a CFD broker?

IUX is a No-Dealing Desk  Broker in Straight-Through Processing format, also known as an A-Book broker. It executes trader orders directly into the financial market. IUX offers low spreads comparable to global market spreads, which gives traders confidence that our broker has low fees and high security.

 

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