What Is a Dealing Desk?
A dealing desk is where market makers execute and trade financial instruments like forex, equities, options, commodities, and other financial assets.
KEY TAKEAWAYS
A dealing desk is where market makers execute and trade financial instruments like forex, equities, options, commodities, and other financial assets.
The dealers are there to facilitate trades on behalf of their customers and may act as the principal or the agent.
When acting as principal the dealer takes the other side of the client's trade.
When acting as the agent, the trader will handle a client's order by finding liquidity in the secondary market and the client will receive the same prices executed by the dealer.
Understanding Trading Boards
In the currency markets, a trading desk is where forex brokers sit in a bank or financial institution. As the forex market is open 24 hours a day, many institutions have trading desks around the world. You can also find Dealing Desks outside of the forex markets, such as in banks and financial companies, to trade in securities and other financial products. Trading desks are not limited to forex. They perform many financial activities such as stocks, ETFs, options, and commodities.
The term "office" can be a bit abusive, given its connotation as a table shared by a pair of traders.
The term "desk" may be a bit of a misnomer, given its connotation of a table shared by a couple of traders. Large financial institutions often have dealing facilities that are staffed by many dealers & market makers. In a large organization, major currencies, such as the euro and yen, may have multiple trading desks staffed a handful of traders who specialize in these currencies.
Additionally, if the institution deals in equities, ETFs, options, and commodities, each of these assets will generally have its own dealing desk of traders.
The dealers are there to facilitate trades on behalf of their customers. They may act as the principal or the agent. When acting as principal the dealer takes the other side of the client's trade. The dealer could be taking on risk in such a transaction or dealing out of their own inventory. When acting as an agent, the trader will handle a client's order by finding liquidity in the secondary market. In this case, the client will receive the same prices executed by the dealer.
Because of electronic trading, the number of forex dealers at a desk has declined significantly since the mid-2000s. In the late 1990s, a dealing desk could be made up of 15 to 20 traders, with often multiple people covering the same currency.
However, today, your typical forex desk will have less than ten traders, some as few as five with a lot of the business being quoted and cleared by an electronic auto-hedging platform. The same can be said for equities and ETFs. Many of the manual processes have been automated due to the rise of electronic trading.
In general, the dealing desk is located next to the sales desk and in most cases near the market risk desk that monitors positions and will flag any risk with current trades or positions. The market risk team is looking for anomalies and will calculate the value of risk (VAR) at the end of each day to assess the size of the risk that the bank has at any given time.