How much does marketmaker broker prices differ from EBS/Interbank feeds? | Forex Factory

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How much does marketmaker broker prices differ from EBS/Interbank feeds?

  • #1
  • First Post: Feb 8, 2008 12:56pm Feb 8, 2008 12:56pm
Hello

As the topic says.

I know many marketmaker brokers use fixed spread, does that mean that they take their liquidity providers bid price and just add 3 (for example) pips to create the ask?

Can they sometimes steer the price to where they want? For example not having it breaking through a certain pivot point?

And finally, is there anyway to see these EBS price levels on an active graph? For example in metatrader. Just see that is, not trading on them, that'd be impossible, i know

If there are any noob-flamers here, please take your agression elsewhere, i would only like kind replies here
  • #2
  • Feb 9, 2008 3:23am Feb 9, 2008 3:23am
Quoting gindrol
Hello

As the topic says.

I know many marketmaker brokers use fixed spread, does that mean that they take their liquidity providers bid price and just add 3 (for example) pips to create the ask?

Can they sometimes steer the price to where they want? For example not having it breaking through a certain pivot point?

And finally, is there anyway to see these EBS price levels on an active graph? For example in metatrader. Just see that is, not trading on them, that'd be impossible, i know

If there are any noob-flamers here, please take your agression elsewhere, i would only like kind replies here
I've had up to 3 different live feeds running side by side. The MT4 broker I'm using at the moment typically straddles the quotes that I'm getting from IB, supposedly the best interbank market rate available. Typically the MT4 bid is one or two pips below and the ask just above by whatever their spread is.

I've seen quotes drift away between brokers (not IB) by up to 20/30 pips for a couple of hours and then slowly drift back. Only seen that once though.

Normally I see a consistent pip +-1 pip difference between some brokers.

As there is no single market so you should expect some differences. Certainly anybody not charging commission is loading the spread to make money.

Can they steer prices to where they want? For a marketmaker, sure, all they have to do is create the right sized buy/sell transactions to move the price to where they want it to be. The broker can aggregate orders that have been created, so it's relatively easy to create the right transactions to move price to where you want it to be. Especially when it's house money you're using to trade with.

Problem with this is that sooner or later price has to return to the common level. If a broker did this on a regular basis, it would create a trading opportunity. Sometime, the broker's quote has to get back in touch with reality.

If you're trading with a market maker, technically, you're at their mercy. They have all the cards, plus they see everything you put into their system. Add to that the killer fact that money you win is money they lose.

Do they do it? I don't think so, they don't have to, the typical trader does a better job of handing over his money than any price manipulation could. Do they nudge the quote a bit now and then, given the fact that it's relatively easy to do? Think about it and decide for yourself whether you can afford to ignore the possibility.
  • #3
  • Feb 12, 2008 12:57am Feb 12, 2008 12:57am
Quoting coda
I've had up to 3 different live feeds running side by side. The MT4 broker I'm using at the moment typically straddles the quotes that I'm getting from IB, supposedly the best interbank market rate available. Typically the MT4 bid is one or two pips below and the ask just above by whatever their spread is.

I've seen quotes drift away between brokers (not IB) by up to 20/30 pips for a couple of hours and then slowly drift back. Only seen that once though.

Normally I see a consistent pip +-1 pip difference between some brokers.

As there is no single market so you should expect some differences. Certainly anybody not charging commission is loading the spread to make money.

Can they steer prices to where they want? For a marketmaker, sure, all they have to do is create the right sized buy/sell transactions to move the price to where they want it to be. The broker can aggregate orders that have been created, so it's relatively easy to create the right transactions to move price to where you want it to be. Especially when it's house money you're using to trade with.

Problem with this is that sooner or later price has to return to the common level. If a broker did this on a regular basis, it would create a trading opportunity. Sometime, the broker's quote has to get back in touch with reality.

If you're trading with a market maker, technically, you're at their mercy. They have all the cards, plus they see everything you put into their system. Add to that the killer fact that money you win is money they lose.

Do they do it? I don't think so, they don't have to, the typical trader does a better job of handing over his money than any price manipulation could. Do they nudge the quote a bit now and then, given the fact that it's relatively easy to do? Think about it and decide for yourself whether you can afford to ignore the possibility.
Okay. What does IB stand for? Is that the Interbank? After reading this post it does seem as there is a way to get the correct interbank prices, you just use Reuters or EBS. If i understood it right they collect all the limit orders the banks and hedge funds place and create the bid/ask price from that.

How do you mean by the broker "creating the right sized buy/sell transactions to move the price to where they want it to be". Do you refer to the broker making transactions with their liquidity provider? How would that affect their price then?
  • #4
  • Feb 12, 2008 6:04am Feb 12, 2008 6:04am
Quoting gindrol
Okay. What does IB stand for? Is that the Interbank? After reading this post it does seem as there is a way to get the correct interbank prices, you just use Reuters or EBS. If i understood it right they collect all the limit orders the banks and hedge funds place and create the bid/ask price from that.

How do you mean by the broker "creating the right sized buy/sell transactions to move the price to where they want it to be". Do you refer to the broker making transactions with their liquidity provider? How would that affect their price then?

Hi,

Sorry for not being precise. IB here, is Interactive Brokers, who do not make the market but act as a intermediary, passing your order on. They have a dynamic selection process which supposedly selects the current best quote available from a pool of market makers.

"...creating the right sized transaction..." . Here I'm referring specifically to brokers targeting retail traders. Brokers who are making the market instead of acting as an intermediary. They pocket your losses, and pay you out of their own pocket. Look at their terms and conditions, they are normally pretty up front about being the market maker or not.

It is trivial for a broker to aggregate all current positions and pending orders. If they know that a clump of orders are sitting at a delta which is sufficiently small, it is simple to work out what transaction would be required to get the price to go there.

In fact, I think it could be done without any system aggregation, as it's pretty obvious sometimes where stops are going to be.

For the duration of this exercise the broker will ignore the real world prices. The broker would use house money to create the transaction and then later, with more or less elegance, bring their price into alignment with reality.

I'm not saying that this is being done. I'm saying that with house money something like this would be trivial to do. Done properly the transaction and accounting would all look perfectly legit, and customers would be powerless to do anything about this, other than to adapt your trading strategy to accommodate the possibility or to use a broker who doesn't have a direct interest in your losses.
  • #5
  • Feb 12, 2008 9:32am Feb 12, 2008 9:32am
Okay, thanks for the answer.

I'm still a beginner at forex though, i don't understand how the broker changes their prices through transactions. I mean, to who do they transact? To the liquidity provider? And how does that affect the price.

Sorry for my beginner questions..
  • #6
  • Feb 12, 2008 10:51am Feb 12, 2008 10:51am
Quoting gindrol
Okay, thanks for the answer.

i don't understand how the broker changes their prices through transactions. I mean, to who do they transact? To the liquidity provider? And how does that affect the price.

Sorry for my beginner questions..
//Danger ahead, assume I am talking through my hat.

I just find it simplest to explain moving price as being the result of one or more transactions because getting the price to move where you want it can be done manually by someone sitting behind the same screen that you use to trade using an large amount of house money.

Do you know how share prices move? Interbank and hence currency quotes work in a similar bid/offer fashion with layers of bid/offers at different prices and quantities. Quotes show the last bid and offer transacted. I'm sure you can find better descriptions of the process.

Realize that a market making forex broker's circulation of currency is virtual. It has nothing to do with anything out in the real world. The only contact with reality is the broker's promise to pay you any profits you may obtain from trading in this virtual world and the broker's promise to take the money that you lose. That's the game. Much like many, if not all CFD brokers.

The mm broker's quotes have to reflect reality because everyone is watching the real world as well, but the only connection between the mm broker and the real world of currency is if/when they decide to limit their risk when overexposed to trades on their system by passing these through to the real world. I'm sure that most of the time that doesn't have to take place.

Doesn't mean that a mm broker is not honorable, and that you shouldn't use them. Just understand what it is that you are using when you decide to trade with them.
  • #7
  • Last Post: Feb 23, 2008 1:44am Feb 23, 2008 1:44am
Thursday night I placed the same GU long at 1.9411 order on two different systems. The MT4 broker reached that price 3 times during the night and obviously the trade ran.

The pass-thru broker came within 1/2 a pip once but the order never triggered.

Turned out to be a nice trade on the MT4 system. Point is, using a MM broker with slight pip differences can work in your favor sometimes. I think it all comes out in the wash.
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