MB Trading capitalization

Thanks Moe. I'd really like to go with them and a hint from you that they have a descent biz model is enough to put me over the fence onto their side.

[quote=Poocher;1531462]Very different price action for me. Had a losing trade in crude oil today and made 320 pips in forex. Otherwise I'd just go with Interactive Brokers Universal account.[/quot

I mean currency futures offcourse.

[quote=sulz;1532202] I should of said that's what I thought you meant. My platform has the six biggest globex currency futures and forex but I can't make 'em work the way spot does.

Hey Guys ~

I think maybe it is time to clarify some things about net capital. Due to a certain-person-who-works-for-a-firm-and-has-a-specific-agenda posting on endless boards about this topic, I think that some people who are unaware of what the net capital reporting requirements are probably start to think that certain numbers mean more than they do. Let me start by giving an example. I don’t typically name any other firm in my posts, and I’m doing this only to make a very obvious case-in-point, so I mean absolutely nothing bad about this company at all.

As everyone knows, HotspotFX was purchased by Knight Capital a while back. Now, Knight is a publicly traded company (NITE). According to Yahoo Finance, their currently market cap valuation is about $1.5 billion. Yet in the CFTC reporting for this month, HotspotFX shows a requirement of $1,000,000 and an adjusted net capital of $5.2 million. I use this example for a few reasons. First of all, they are CLEARLY above the minimum, so I didn’t want to pick an example where anyone would think I was pointing to a firm in trouble. But secondly, there is a big difference between showing $5.2 million and the other $1.495 billion that is behind that if needed (obviously also supporting other pieces of Knight’s business in various markets, as it should be).

What is the most important factor in the number that they show? Simple. That it is above $1,000,000 because that is the requirement. Anyone can do a little due diligence and know that with the power of Knight behind them, it would take a global catastrophe for them to be in danger (always a risk, but unless you want to keep your cash under the mattress…). But whether they choose to keep $1.1 million, $5 million, or $20 million on display, the same answer is true. They are meeting the requirement, and there is more behind that.

Now, we have for two years, been talking about the problems in this industry in terms of deal desks, scam operations, lack of regulation, etc. It is absolutely true that doing due diligence on a company is important. If you are dealing with a deal desk, which most platforms are, there are several considerations.

1)Is the forex company the only company backing the operation, in which case, the reported capitalization numbers matter. It’s telling you about all that they have.
2)No matter what number they show, they operate at a higher risk level. Someone (who-works-for-a-firm-and-has-a-specific-agenda) recently posted a board suggesting that NDD firms like us still have the same risk, or near it. This is simply is not the case. ALL firms operate at risk of errors, technology issues, and customer accounts going negative, but that is not the same as maintaining constant huge positions in the marketplace against your customers. That risk is the type of risk that can bring a firm with millions of dollars in valuation down overnight if the market spikes against them. We, of course, have risk, as do all stock, futures, and forex firms. The level of risk is a key to understand, and to imply that ours and theirs are similar is a stretch, to be kind about it.
3)Capital reporting is subject to a complex series of haircuts and calculations based on what assets are placed where, what the net position of customer accounts are, and a variety of other factors.

For the last two year’s MB Trading has been in first place or tied for first in Barron’s Top On-Line broker list. MB is not publically traded, but many of the firms in that list are, and you can see all of their market valuations. Just like NITE has money showing in various regulatory filings for stocks, futures, options, and forex (and probably more globally), MB does as well. This includes millions in deposits with banks to participate in their liquidity on the platform, etc. There are many arms and branches of MB.

Keep in mind as well that the reporting requirement occurs at the end of a month. Since part of the calculation of capital reporting to the SEC as well as the CFTC is subject to potential haircuts based on net client positions (something called a “concentration charge”), it is virtually impossible for the firm to know exactly what their report will be until the last day of the month. MB constantly moves money around between divisions based on what makes the most sense in any month and goes out of their way to make sure that all capital reports to the various reporting agencies that they have to respond to are:

1)Based on non-repeated funds
2)Meet the requirements of that agency

Again, all of that with the knowledge that haircuts also occur at the end of the month based on positions that day, which is unpredictable until that moment. Back to the Hotspot example…over the last few months, they have reported anywhere from $5.2 million to $6 million. If they report $6 million one month and $5.2 million the next, does it mean that they lost $800,000 that month? Not at all. It means any of the following:

1)That they had a haircut one month that was bigger than the other
2)That they moved money out of reportable areas

It could also mean that they took a loss, but I wouldn’t bank on that. Does it matter? Nope. Their clients, just like ours, are still subject to the risk of trading. Their firm, just like ours, is still subject to the perils of customer accounts, fraud, etc. But they have plenty of money behind them as well, as do we. Once the requirement is raised, MB will have to adjust funds to meet that requirement. Until then, I feel confident that MB will continue to allocate their capital throughout their various divisions in a manner that is optimal for their needs on a monthly basis, and I feel confident that they will continue to report above the requirement on any given month.

Regards,

I'll open an account with you next month.

should've read this before i posted in the one started by forexscholar.

i really wanna open account with efx, but unfortunately i reside in "rogue" province.