What Is a Dealing Desk?
In foreign currency markets, a dealing desk is where the forex dealers at a bank or financial institution sit. Since the forex market is open around-the-clock, many institutions have dealing desks around the world. Dealing desks can also be found outside the foreign exchange markets, such as in banks and finance companies, to execute trades in securities and other financial products. Dealing desks are not limited to forex. They execute many financial assets like equities, ETFs, options, and commodities.
How a Dealing Desk Works
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, & commodities—each of these assets will generally have their own dealing desk of traders.
The dealers are there to facilitate trades on behalf of their customers. They may act as principal or 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 his/her own inventory. When acting as 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 at risk (VAR) at the end of each day to assess the size of the risk that the bank has at any given time.