Essential

Dealer

A person or firm that acts as a principal in transactions, buying and selling financial instruments from their own inventory.

Definition

A dealer is a market participant that trades on its own account, buying and selling financial instruments as a principal rather than acting as an agent for clients. In forex, dealing desks at banks and brokers quote bid and ask prices and take the other side of client trades. Dealers profit from the spread and from managing their inventory of positions.

How It Works

Dealers quote two-way prices (bid and ask) and are prepared to trade at those prices
When a client buys, the dealer sells from inventory. When a client sells, the dealer buys.
Dealers manage risk by hedging net exposure in the interbank market
Dealing desk brokers act as dealers to retail clients; no-dealing-desk (NDD) brokers pass orders to liquidity providers

Trading Tips

Understand whether your broker operates a dealing desk or NDD model. This affects fills and potential conflicts of interest.

Dealing desk brokers are not inherently bad. Many offer fixed spreads and guaranteed fills.

If you suspect your dealer is trading against you, look for an ECN or STP broker

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