I said “exclusive.” Come on, let’s think about this. If I sat down with one bank and said, “I will send you all of my order flow,” that’s an exclusive arrangement. It’s also with ONE bank. Now they see everything that my customers send through, so they get the roundtrip, which means if a customer buys, they are going to sell back. Just stop, set aside your desire to question me, and think about it. If I set up a relationship with one bank, of course they will charge me less. The key for them, since most forex traders lose, is to get the trade both ways, and at the end of the day, they are essentially a deal desk to my clients, only they probably also do this with other brokers.
Anyone ever used to work in the stock world? If you were a market maker, and you had an agreement with NITE that they were your wholesaler as a firm and you would send all orders to them first, they would kick you back so much per share for every share. That’s the payment that they make for the right to see everything, but they want to see everything. That’s how they earn a living.
What’s different here? If I set up a process whereby I claim to be an ECN because I don’t have a deal desk, but then I route all of my orders to one entity away from me, so they still see both sides of the trade, even if they can’t requote or whatever, they know that at the end of the day, what they sold to customers comes back and vice versa. And the person passing those orders to them can have a great cost (heck, almost no cost because they make their spread and more) as the “ECN.” Note the quotes. Now, I don’t get in the business of pointing out specific platforms. Many of them, I do know exactly how they operate. Others, not so much. I, frankly, don’t care. All I care about is what we do, and we certainly know how the banks and their pricing work. And I’m telling you, separate from the costs of developing an advanced routing system, maintaining good customer support, having reliable backup systems, etc., just on the pure margin of it all, if we charged what some of the cheapest “ECNs” charged and continued to not have an exclusive with one bank, we would be out of business. Our model continues to be what it has been. We want NON-exclusive arrangements with banks so we get as much liquidity as possible at all times from multiple sources, which is what creates competing pricing and gives the tightest quotes for our customers. Then you add in the customer orders, and it’s all pretty good.
Think through all of that carefully, because I can promise you that you’re going to start to hear more about it in the coming months. Three years ago, we introduced the term ECN, and everyone said that we were faking it, that non-dealing desk wasn’t real, that the interbank market wouldn’t accept anything under a full lot, etc. And yet, no one questions that now, and suddenly, everyone wants to be an ECN. Well, I think the next few months is going to prove very interesting in holding people to task over what they really are. ECN can’t just mean “we pass our orders out of the building to someone else,” especially if the real end of that sentence is “who happens to be acting like a deal desk for our benefit and kicks us back some economic gain for doing so.” Also, just so we’re clear. A non-dealing desk with fixed spreads is still a deal desk at some level.
Anyone ever used to work in the stock world? If you were a market maker, and you had an agreement with NITE that they were your wholesaler as a firm and you would send all orders to them first, they would kick you back so much per share for every share. That’s the payment that they make for the right to see everything, but they want to see everything. That’s how they earn a living.
What’s different here? If I set up a process whereby I claim to be an ECN because I don’t have a deal desk, but then I route all of my orders to one entity away from me, so they still see both sides of the trade, even if they can’t requote or whatever, they know that at the end of the day, what they sold to customers comes back and vice versa. And the person passing those orders to them can have a great cost (heck, almost no cost because they make their spread and more) as the “ECN.” Note the quotes. Now, I don’t get in the business of pointing out specific platforms. Many of them, I do know exactly how they operate. Others, not so much. I, frankly, don’t care. All I care about is what we do, and we certainly know how the banks and their pricing work. And I’m telling you, separate from the costs of developing an advanced routing system, maintaining good customer support, having reliable backup systems, etc., just on the pure margin of it all, if we charged what some of the cheapest “ECNs” charged and continued to not have an exclusive with one bank, we would be out of business. Our model continues to be what it has been. We want NON-exclusive arrangements with banks so we get as much liquidity as possible at all times from multiple sources, which is what creates competing pricing and gives the tightest quotes for our customers. Then you add in the customer orders, and it’s all pretty good.
Think through all of that carefully, because I can promise you that you’re going to start to hear more about it in the coming months. Three years ago, we introduced the term ECN, and everyone said that we were faking it, that non-dealing desk wasn’t real, that the interbank market wouldn’t accept anything under a full lot, etc. And yet, no one questions that now, and suddenly, everyone wants to be an ECN. Well, I think the next few months is going to prove very interesting in holding people to task over what they really are. ECN can’t just mean “we pass our orders out of the building to someone else,” especially if the real end of that sentence is “who happens to be acting like a deal desk for our benefit and kicks us back some economic gain for doing so.” Also, just so we’re clear. A non-dealing desk with fixed spreads is still a deal desk at some level.