excerpted from: http://articles.mql4.com/163
1.5. Economic Aspects
- Small Price of Orders
Situation when the trader's attention is fully locked on his or her trading account and its events, including trading strategies, experts, etc., is most commonly encountered. However, beside the trader's concernment, there is the dealer's economic concernment.
At "normal" trading, both parties can win: the trader who uses a well-thought-out strategy and dealer who gets interests from trade operations performed by the trader. In this case, both parties are concerned in each other and both are ready to support each other.
However, there can occur situations where activities of one party oppose interests of the other party. For example, if the dealer increases the spread, disables automated trading, or does not open (close) orders at the price's first touch unilaterally, this opposes the trader's interests.
At the same time, there can be some trader's activities that oppose the dealer's economic interests. One of such activities is frequent trade operations with small amounts of money.
The dealer's wroking technology is in whole rather simple. The dealer collects the traders' orders to buy and to sell and enters into relations with a bank or other financial institution to process the differences in their prices. Let us examine a simple example. Suppose, the dealer serves for totally 100 traders, 60 of which have bought by 1 lot EURUSD, and 40 have sold by 1 lot of the same currency pair. In this case, the dealer must buy 20 lots (the difference between 60 and 40) from the bank. At that, it is the same for the dealer in what direction the price will move. In any case, the dealer will get the full spread for 80 lots (40+40) and a partial spread of 20 lots (some part will be given to the bank for its services).
In this case, the source of profit/loss for 40 traders is the loss/profit of other 40 traders. The source of profit/loss for the resting 20 traders is the bank or, to be more exact, legal persons served by the bank and selling/buying currencies for their export-import operations. This is a normal way of how the participants of money-market interrelate.
But there is one more detail od how the dealer interrelates with the bank or financial institution. The matter is that the dealer does not interrelate with the bank at each sell or buy operation if the trader sells or buy an insignificant amount of money. Trade operations between the dealer and the bank are performed a bit less frequently than the traders' clicks in the МТ4 terminal. Normally, the minimum amount in the relations between the dealer and the bank does not exceed US$50 000, which translated into the order price with a leverage of 1:100 makes 0.5 lot. This is why, if the trader always works with a small amount of money, he or sheб in effect, trades with the dealer. In this case, the source of the trader's profit is the dealer's money!
The dealer is as much the participant of the money market, as all others. The dealer must watch and analyze the work of all traders. Of course, dealers, within their economic concernment, can close eyes to irregular repeated investments if they result in the trader's evident losses or its total result for a certain period (for example, the daily result) is neutral. But no reasonable dealer will aloow the interrelations continue if these interrelations result in the dealer's losses. In this case, the dealer has to react somehow, otherwise there is nothing for this dealer on the money-market economic territory.
Please note that the modern routine on the money market is not a dealer's freak or ill will. The dealer's relations to the bank are contracted, as well. And the dealer strives to earn the spread by fair means (abuses on the dealer's side are not discussed within this present article). The dealer would probably be glad to trade with the bank every second, but there is no such possibility for the moment.
Under conditions of frequent small trade operations performed by one trader, the dealer has to take some measures. It can be a notification sent or said to the trader that this specific trader works on the brink of a foul. The dealer can, as well, disable automated trading for this trader or increase the amount of requoted operations.
- Large Price of Orders
There is one more limitation that differentiates real trading from testing or trading on a demo account. It is the maximum value of the lot price. No dealing center, whether it be a bank, a bookmaker's office or a financial institution, can practically operate with very large amounts of money.
If orders cost about US$10 000 to 20 000 (please note that there is a leverage, which is usually equal to 100), the dealing center will sell/buy as good as US$1 000 000. This is a really large amount, but dealers have learned how to work with such great amounts of money and they work successfully.
Some difficulties can occur in a medium-sized financial institution if the order price reaches US$50 000 or even US$100 000. In this case, the amount of 5 to 10 million US dollars figures in the interbank market. This amount of money is not that easy to sell/buy in one movement at a time.
Predicaments can occur if the order price exceeds the amount of US$ 300 000 to 500 000. In this case, the dealing center will certainly work with the trader individually. Well, 50 million dollars is a really great amount of money for any institution.
In case of great order prices, the dealing center's firm guarantees are out of the question, and the trading itself is performed based on that the trader understands and accepts this. (Indeed, what dealer can take the liberty to open an order that costs a great amount of money at the first touch under the conditions of unexpected and strong movements of the market?)
For this reason, scalping experts trading with millions is an evidence of the trader's vast mistake and does not have anything to do with the real life.
This reasoning suggested our programmer to earn the initial 100 "kilobucks" here and then find a "badder office". The programmer becomes quiet and thinks that "all is under control".
Let us not forget that dealers are all normal people with their educational and cultural levels, with their businesses running in some or other way. The same technology, which is unprofitable for dealers, can be immediately detected where analysts work effectively and cannot be quickly detected by dealers who work by halves or are not experienced enough, or do not have necessary software. But in the most cases, dealers are former "grailers", are experienced in trading and usually grip very well all niceties of trading at money-markets, so they know what is geometrical progression, economic concernment, agressive reinvestment, small and large prices of orders. Generally, every trader has to proceed from the positive statement that the dealers' qualifications are higher than those of a trader and any dealer's position on practically any topic is well-reasoned.
