Unlike an ECN type model, a deal desk doesn’t have any banks in the quote to the customer. They are the quote.
They can quote wherever they want (within reason), as long as they are executing customers with stops and limits at the bids and offers that they hit.
Most deal desks usually observe one or more direct access feeds for cross reference. The general idea behind a deal desk operation is that they have equal buy and sell orders during each shift across their book, and to a large extent, they capture the spread or better.
But if a chunk of customers start buying Cable and the MM feel like they are getting too short, they need to buy it themselves. They do this by tapping into their suppliers/bank feeds. These are the prices they watch that inform them where the approx true market quote is, and they use this knowledge to move their own quote and execute customer trades.
Say they have a small selection of bank feeds that shows the Cable at 2.0640by 2.0642 & change.
They have their current quote sitting at 2.0640 by 2.0644. They see on their grid that a clutch of customers have stop orders to sell at 2.0637.
They can move their quote down to 2.0637 and trigger those sell orders, which they buy. They know they can hit their bank feeds at 2.0640 and make 3 easy, quick pips. This is the task of the deal desk trader. He/they decide whether to hit the 2.0640 bank bid or hold the long position for prices to move up.
If they then move their quote up a couple of pips, some customers think it’s going up and they buy at the offer, which means they are selling at 2.0644, making good money. But the whole time, they had �flat to even� risk because they could hit the bank separately.
You, the customer don’t see their suppliers feed on a deal desk system. And in fact, the real market never touched 2.0637 at all. Good hey?
This is where the major difference lies regards ECN v/s Deal Desk execution. You will directly hit bids, offers & actually trade inside the 2 from a variety of avenues (Banks & competing traders) within the price engine of an ECN. Whereas executing through a traditional FX broker, you’re being shaded or shielded from the live price mechanism - therefore trading in via a middleman.
Fact is, some trade blocks will be �warehoused� by the broker, whilst other positions will be instantly cleared. But as the vast percentage of retail trades are below ‘normal market sized’ amounts (i.e. below the minimum trade size threshold to clear) they are simply absorbed.
The broker isn�t necessarily always trading against you, the customer. Most of the time they are simply managing their order flows & percentage book so that they�re working & operating within their business model structure. Of course they run stops occasionally, but so does the rest of the market. Sometimes it’s more in fear than greed.
You also have to appreciate most of the larger shops & firms see, or certainly have access/information to, the proper flows from hedge funds & CTA�s etc, in decent directional size. They’re often more busy watching & assessing that business than anything else.