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Forex Lessons
Forex Lessons
lesson number
12
12
Direct dealing.
Direct dealing is based on trading reciprocity. A market maker—the bank making
or quoting a price — expects the bank that is calling to reciprocate with respect to making a price
when called upon. Direct dealing provides more trading discretion, as compared to dealing in the
brokers' market. Sometimes traders take advantage of this characteristic. Direct dealing used to be
conducted mostly on the phone.
Phone dealing was error-prone and slow. Dealing errors were
difficult to prove and even more difficult to settle. Direct dealing was forever changed in the mid-
1980s, by the introduction of dealing systems. Dealing systems are on-line computers that link the
contributing banks around the world on a one-on-one basis. The performance of dealing systems
is characterized by speed, reliability, and safety.
Dealing systems are continuously being
improved in order to offer maximum support to the dealer's main function: trading.
The software is rather reliable in picking up the big figure of the exchange rates and the standard
value dates. In addition, it is extremely precise and fast in contacting other parties, switching
among conversations, and accessing the database. The trader is in continuous visual contact with
the information exchanged on the monitor.
It is easier to see than hear this information, especially
when switching among conversations. Most banks use a combination of brokers and direct
dealing systems. Both approaches reach the same banks, but not the same parties, because
corporations, for instance, cannot deal in the brokers' market. Traders develop personal
relationships with both brokers and traders in the markets, but select their trading medium based
on price quality, not on personal feelings. The market share between dealing systems and brokers
fluctuates based on market conditions. Fast market conditions are beneficial to dealing systems,
whereas regular market conditions are more beneficial to brokers.
Direct dealing is based on trading reciprocity. A market maker—the bank making
or quoting a price — expects the bank that is calling to reciprocate with respect to making a price
when called upon. Direct dealing provides more trading discretion, as compared to dealing in the
brokers' market. Sometimes traders take advantage of this characteristic. Direct dealing used to be
conducted mostly on the phone.
Phone dealing was error-prone and slow. Dealing errors were
difficult to prove and even more difficult to settle. Direct dealing was forever changed in the mid-
1980s, by the introduction of dealing systems. Dealing systems are on-line computers that link the
contributing banks around the world on a one-on-one basis. The performance of dealing systems
is characterized by speed, reliability, and safety.
Dealing systems are continuously being
improved in order to offer maximum support to the dealer's main function: trading.
The software is rather reliable in picking up the big figure of the exchange rates and the standard
value dates. In addition, it is extremely precise and fast in contacting other parties, switching
among conversations, and accessing the database. The trader is in continuous visual contact with
the information exchanged on the monitor.
It is easier to see than hear this information, especially
when switching among conversations. Most banks use a combination of brokers and direct
dealing systems. Both approaches reach the same banks, but not the same parties, because
corporations, for instance, cannot deal in the brokers' market. Traders develop personal
relationships with both brokers and traders in the markets, but select their trading medium based
on price quality, not on personal feelings. The market share between dealing systems and brokers
fluctuates based on market conditions. Fast market conditions are beneficial to dealing systems,
whereas regular market conditions are more beneficial to brokers.
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