The Spread Scheme.... No Holes Barred !

It seems that with each new turn in favor of retail spot fx trading comes added costs that become more and more clever further crippling the average daily scalper from having even the slightest chances of being consistent with the quick grab of a few pips here and there. And the over all costs of trading the entry positioning of longer running spot fx trades. We retail traders in this market are no more than cow birds hanging with the bigger herd picking what carnage we can scarf. The main Scope of this thread is the focus of what shall be know here as Spread Manipulation
But first let’s cover some highlight Basics:

Over the past say 3-4 years traders had come to know the spreads as being Fixed, at least for the most part with the forethought of the usual widening around big news. Now with this widening also came what should be now thought of as protection for us traders as the Requote and kickback usually asking you the trader do you accept the price that has moved. Some of us complained the spread of 4-5 average pips on the mains was too high and the chase for the 3 pip euro began. Now with brokers being store fronts they would price compete against each other to earn your account, thus creating the whore trader mentality to always look for that what appears as Holy Grail of Broker. Only to later find that hidden agendas within the agreements really gave you no better options that you most probably already had at the previous Broker. The Eye Candy Hook

When the average trader goes on the hunt for the first time, he/she sees the home page flash jargon of the usual. He/she makes a decision to eventually open an account based on mainly a compromise between the platform and the Eye Candy of what the broker claims to offer the trader in spreads, innuendos of Super! Were so right in house analysis etc. And lastly by what they found on a forum about the broker that either helped further convince them this is the broker for them or if looking for a negative out, the bad experiences posted by various traders. You have your flashy up with the Jones brokers such as FXCM (The Wal-Mart of Forex) and then you have the nerdy we don’t really change anything brokers like Mgforex and a palette of in betweens and even flunky IB's to real brokers.
Cut to the Skinny....

NOW...
Look where this has gone.
NO DEALING DESK, or as FXCM says No Dealer Intervention ? (First of all we don’t have a central exchange now no Desk, this just keeps getting better... So who’s watching the BOOK for those illusionary mini/micro lots??)

NO FIXED SPREADS (License to Steal!)

2 Pip Euro (at least when nobody wants to a trade)

MINI LOTS ?? Micros ( Complete farce)

FULL HEDGING ( So the entry gone bad can become a second chance to
Completely skew up your sense of direction at the cost of another spread and roll interest)

**things such as no debit balance ever! Positive rolls etc. Are not of main interest here as they are back end after the trade fact. I will note however brokers such as GFT have one of the most costly setups for rolls and THEY WILL LET YOUR ACCOUNT GO INTO A NEGATIVE BALACE !!! THEN MYSTICALLY RECOVER JUST ABOVE THE ZERO BALANCE TO CLOSE TADE. THEY ARE THE OTHER SIDE OF THE TRADE !!! I have a live account screen shot of this. If you don’t believe an FX retail broker to this day will let you go negative... leads one to wonder just how real price really is Huh...

BACK TO POINT OF SPREADS:

Example: Friday 8-17-07 8:56.21 A.M. EST

IBFX spreads for EUR USD 1.3488 / 1.3496 GBP USD 1.9858 / 1.9868
FXDD spreads for EUR USD 1.3491 / 1.3493 GBP USD 1.9863 / 1.9867
FXCM spreads for EUR USD 1.3492 / 1.3495 BGP USD 1.9859 / 1.9865

*Note use of euro and pound for simplicity here, as euro usually gets the best spread differential with most all brokers and the pound is a good wide spread resource example under flexing market conditions.

All three of these brokers offer floating spreads or as they call it no FIXED SPREADS. If all U.S. brokers are for the most part utilizing many of the same main banks along with a random odd ball assortment, how do we get such a dramatic difference between say IBFX and FXDD and note this they both are metatrader platform brokers and look at FXCM it was included in this analysis as a FCM giant to show a non metatrader platform broker spread performance, now don’t think I am insinuating the platform has anything to do with it. I just wanted to highlight some of the more popular brokers many of you most likely use as members of this forum that are U.S. based traders. As far as the Non U.S. based brokers they are not included in this at this point, but please do add your experiences here, with non U.S. based broker spreads.

Do realize that is a longstanding practice for spreads to widen during volatile trading environments, but this is most always a universal situation and most banks are eager to tighten as well as the honest FCM's to get the traders back in the market again.

Could you imagine standing in the grocery check out line with a floating price index... The guy ahead of you pays 5 dollars for a gallon of milk. You get to the clerk and she tells you 8 dollars. You and the ones in line behind you that are able to see and realize this will put your hands in your pocket until price stabilizes, except for the few comocazy fools that want what they want at just about any price they can afford. These are the dream customers the spreads are targeting.

Main argument is:

1>How do we go from fixed spreads to a melodic floating random pricing at the flick of a switch. When for the longest time Brokers bragged and for the most part provided close to advertised spreads with requotes confirmation if priced moved on execution…The Eye Candy Hook of Tight Spreads a.k.a. Nothing has changed with the interbank backbone spreading. They expand and contract just as they did a year ago.

2>How do you get for a 1/2 second equal bid/ask pricing. Who's selling currency to retailers for NOTHING !! Does this mean if my 6 gun trigger mouse click can catch the displayed quote equal bid/offer I get to enter trade for FREE!

3>How does such a ridiculously wide spread differential occur with one broker sitting down the street from another when the common market pricing is much better overall?

Even better: here is an included chat with IBFX Shortly after the aforementioned spreads were noted.

Please Note:
WE do not trade a live account with IBFX, although we had considered it for the mobile trading capabilities of MT. OUR Live accounts are with FXSOL (Master Account For Clients) And GFT (Soon to drop GFT as they are not exactly retail spec oriented) We do not live trade FXCM, However We do recommend them for newcomers that do not have an interest in elaborate charting as they have the best client side perks and overall safe trading environment.

IBFX CHAT APROX 9:15 A.M. 8-17-07

Chat Information Thank you for contacting us. The next available agent will be right with you. Our goal is quality service. You may tell us how we do today by clicking HERE.
Chat Information You are now chatting with 'accounts3'
accounts3: Hello, this is Josh. How may I help you?
you: I am preparing to open a live account, but I do have an issue regarding the floating spreads.
accounts3: Ok, let me transfer you to customer service. One moment please.
Chat Information Please wait while I transfer the chat to 'Client Services 10'.
Chat Information You are now chatting with 'Client Services 10'
Client Services 10: Hello, this is Veronica. How may I help you?
You: I have compiled a live screen capture of fxcm, fxdd and ibfx spreads. I am very concerned with the deep spread gap presented by ibfx compared to the competition in real-time.
You: I have the screen capture image if you’d like to see.
Client Services 10: We are aware of the widen spread this morning
Client Services 10: It is due to that The Federal Reserve, declaring that increased economic uncertainty poses risks for U.S. business growth, announced Friday that it has approved a half-percentage point cut in its discount rate on loans to banks. The decision means that the discount rate, the interest rate that the Fed charges to make direct loans to banks will be lowered to 5.75 percent, down from 6.25 percent
Client Services 10: The Fed did not change its target for the more important federal funds rate, which has remained at 5.25 percent for more than a year.”
You: you’re not following me .. Real-time between you fxcm fxdd the spread differential for ibfx was the worst...
You: What you stated above would be a universal gap.. Not just for ibfx

Client Services 10: I understand and I know what are you trying to say but if you are comparing different brokers I can only talk about IBFX, we do not have dealing desk and also one of the best spreads in the market, and we are aware that this spreads can wide.., our spread are not fixed
You: How did out of nowhere unfixed spreads become possible?
You: the interbank has not changed.
Client Services 10: That's the way Interbank has been working..
You: I show at 8:56:21 am today EST. Fxcm 3p spread eur usd. Fxdd 2p spread eur usd, and IBFX 8p eurusd spread. This is my confusion...
Client Services 10: Because we do not have dealing desk or fixed spreads then due to the recent news I just explained you that's why the spread widen.
You: indeed, but nearly 3 times the cost to the customer over major competition.
You: to wit utilizes the same major banks. give or take some.
Client Services 10: I understand your concern, and just like we have clients that perhaps are not that impress with our company we do have a lot of clients that like us and the same thing happens with every other brokers..

This very wide spread situation was still active with IBFX long after the market had settled action.

MAY THIS THREAD CONTINUE TO GROW WITH ADDITIONAL EXPOSURE/DISCOVERIES FROM THE MEMBERS REGARDING THIS FAIRLY NEW SPREAD SCHEME THAT IS NOT SUCH A GOOD THING FOR THE SPOTFX UNREGULATED MARKETS, AT LEAST IN THE ENTRY COSTS FOR CLIENTS.

THANKS ALL FOR READING

4XSTRATEGY

We all know that any retail forex broker it out to get us, thats what they do. They will do things like stop hunt, dynamically modify spreads to suit their own needs, decline fills and so on. The key here is to be aware it will happen plan accordingly as you trade. The bottom line is broker selection and trade execution are just another part of the game - either you learn to deal with it or you quit.

Best Regards
Ah.

I agree Ah - especially on days when JPY crossses were moving at times several hundred pips in just a few minutes. CurrencyAnalyst - Brokers are in it for the same reason we are (and it's not to find our true inner selves ).

With respect to the spread, ideally brokers want counterparties to both sides of a deal, that way they can make the deal with zero risk and collect a profit for themselves. If they don't have counterparties they will (in some cases) make the spread themselves, and in others they will simply widen it; it really depends on their own business model. The best thing is just to deal with several brokers, and take advantage of their different approaches as it suits you best.

No "holds" barred. Typically attributed to wrestling that is done without restrictions on what holds are off limits.
Also, it is "kamikaze" instead of "comocazy." See: http://en.wikipedia.org/wiki/Kamikaze

I had a lot of trouble following your entire post.

On another subject, consider these concepts for discussion:

I've used certain brokers that offer attractive fixed spreads...
then during volatility conveniently delay feed / quotes (as seen
on other charts / broker platforms) along with blatantly delayed
executions. It's obvious, that is how they make their money and
can advertise the low fixed spread.

What currently appeals to me is the variable spread that can even
drop to as low as zero along with a fixed commission. The spreads
then may vary according to market availability and volatility. This
type of broker makes their profit on the commission alone and shops
the open market for the best bid and ask. Their platform even displays
in Level II format the true pricing as it becomes available and fills your
order with the best figure. Hey, I've even seen on the rare occasion
the bid price higher than the ask. Imagine entering a trade, short or
long and immediately, instantaneously being up a few pips. Hmmmm
someone is really shopping for the best prices from banks.

The concept is they do not make money trading against you through
a margin with your purchase price, they make their money on the
commission from each of your executions. Entry and exit. And there
is no delays in feed quote or execution.

I'm finding that the spread is smaller even after adding in the sum of
the commissions compared to other brokers so called fixed spreads
that often are delayed.

For example, I have traded the GBPJPY at spreads of 1 and 2 pips
(yes it may increases to 5 - 8 during extreme volatility) then adding
in a commission still puts me into and out of a trade ahead of the more
typical 5 - 8 pip spread. That's my experience. I do enjoy entering
even in slow conditions and finding the gap closes quicker when the
spread is zero or 1 and 2 pips.

This has been my recent experience.

Any discussion or criticism is welcomed. Shoot it full of holes even,
I won't mind... as I'll still be....

sleepinginadumpster

fixed spreads are not natural in the financial markets, i dont even know why they existed in forex in the first place. the fact that we are going to variable spread is a good sign that the retail forex market is maturing. i also think this whole fixed spread thing created a huge misunderstanding for those who trade forex, but never traded another market. forex-only traders can hardly understand market mechanics, like what actually happens when you send a market order. this lack of understanding has been the root of 90% of all broker complaints ive seen at FF. the fact that traders see a price on their screen, send a market order, and then expect to get the price...it truely amazes me. instead, traders should be counting their blessings everytime they send a market order and actually get the screen price.

variable spreads are a license to steal? well, if you use market orders, its like giving someone a license to steal from you, no matter what market you are in. but if you use limit orders, nobody can steal from you...the worst that can happen is you dont get filled. but at least you have the control!

Well said, Merlin.

if you use market orders, its like giving someone a license to steal from you, no matter what market you are in. but if you use limit orders, nobody can steal from you...the worst that can happen is you dont get filled. but at least you have the control!

Agree with you on market orders and somewhat on limit.
But in Futures trading, you can get nicked on them as well. realizing that a limit order is for that price or better, consider as an example ,why your BUY limit order for .7000 is filled at that price when the quote is .6998.
Obviously, the floor trader pocketed the 2 points.

I trade only with fixed spread and I have not seen this kind of slippage ( read robbery ) as yet in FX.
In FX you see instantaneously the price at the time of entry, in Futures there is much more of a delay .
Anyway that has been my miserable experience.