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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