A dealing-desk broker is the counterparty to your trade. When you buy EUR/USD, they sell it to you — not from the interbank market, but from their own book. When you lose, they keep your money; when you win, they either hedge externally or cover it themselves.
This model is legal and widely used, but the conflict of interest is real. Good dealing-desk brokers manage client flow fairly, offer tight and consistent spreads, and hold tier-1 regulation. Bad ones widen spreads on news, reject winning trades ("requotes"), and close accounts they identify as profitable. ECN and STP structures avoid this conflict by design.