In most descriptions of stock trading and strategies there are such terms as “Broker” and “Dealing Center”. Moreover, those who are not professionals and only pretend that they are deeply versed in trading, will tell you that this is one and the same. And will be wrong. Yes, there is 90% similarity, but the remaining 10% can dramatically affect the decision of the trader on the choice of the company. I will say even more: in Russia there are no brokers in principle! Companies represented in the Russian stock market are dealers. And even in the law, effective in January 2016, we are talking about dealing centers and Forex dealers, not brokers. In the role of a broker could act Sberbank or VTB, but they do not perform this function.
The difference of the broker from the dealing center
Dealing center — is a company that allows its customers to conduct transactions with small amounts. These transactions, in most cases, do not appear on the external market, as brokers do not have the direct access, and work through intermediaries (brokers or banks) in small amounts are simply not profitable from an economic point of view. Dealing center performs client transactions on its behalf, quotes that the client sees is the data received from the major rating agencies.
Broker — financial agent, intermediary, bringing the client directly to the interbank market. Profit of the broker – spread and commission, but the broker has greater capabilities in comparison with the dealing center. First and foremost, this applies to commissions (not in size but in principle of foreclosure), and in the second place, the proposed tools. Broker has more of them.
On the Internet you can find the following explanation: the difference of the broker from the dealing center is that the dealing center cannot infer the client’s money on the foreign market, however, it is a misconception. It can, but through intermediaries.
Fundamental difference of the broker from the dealing center:
- broker takes the money on the interbank market, earning commissions and spreads, dealing center can withdraw money on the interbank market through intermediaries, but does not because it is not financially beneficial, and covers the transaction for its own account. Some of it is like “B-Book” scheme, with the only difference that dealing centers can, but don’t want;
- leverage and minimum amount of input. To work on the real interbank market where the stock market daily deals in securities of a single company hundreds of thousands, the minimum entry to $ 100 and the 1:1000 leverage is fantastic. Brokers work with a deposit of 10 thousand dollars, for dealing centers it is not profitable to work with big investors, because they cover a deal of their own money;
- account types. For broker typical types of accounts, such as ECN, NDD — electronic system ensuring instant execution of orders at the best price through liquidity providers, dealing centers do not have such sophisticated systems;
- obtaining quotations. At the broker the data is displayed in real-time, at dealer via the suppliers of quotes (that is, the potential, though small, latency is possible. Sometimes 1 second delay is a loss);
- spread with a broker is narrower, than the dealing center.
To summarize. In Russia only a few companies could hardly be equated to brokers only for the fact that these companies try to enter foreign markets. For example, why Alpari should open its subsidiary in the USA, if the company is able to offer the services of a broker on the CME directly from Russia? It is unlikely that a subsidiary will compete with the US local brokers. But to provide access to our traders to U.S. markets it may easily.
Dealing centers are more accessible for traders who just start trading and don’t have a large starting capital. And Yes, you should not immediately classify such companies for fraudulent, they just have a different principle of operation. But, in fact, there is a substitution of concepts — we are talking about the brokers in relation to Russian companies, but in fact, companies are the dealing centers. The difference of the broker from the dealing center exists, and it is quite significantly, if you plan to work with a lot of money on major markets.
