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  • #141
  • Apr 12, 2008 5:12am Apr 12, 2008 5:12am
Quoting Atomic_Sheep
Whats an in house stop loss?
Anyone? are in house stop losses special cases of stop losses?
  • #142
  • Apr 12, 2008 8:15am Apr 12, 2008 8:15am
Quoting fxtrader42
No it just means they would have to give me a larger spread and they sometimes did that when I was dealing at their max but it wasnt a regular occurance. Also, I only traded EURUSD and USDJPY with them and I didnt trade that often with them. The real reason they wont go higher is because they are a smart bunch. They have a business model that works for retail clients and some small institutional business. Larger orders is not what they do and what they do, they do real well.


But wouldn't that happen with any broker? Since they can't really control liquidity, why would there be a broker our there that _can_ give you lower spreads on giant orders?

Why do you say that Hotspot is much different?
And how big of orders are you dealing with?

Sorry, but I'd also appreciate it if you could answer my above post on moving pips as well, since I havent' really seen FX market depth before.
  • #143
  • Apr 12, 2008 10:29am Apr 12, 2008 10:29am
Quoting Atomic_Sheep
Anyone? are in house stop losses special cases of stop losses?
Hey Atomic,

Iīm not 100% sure of this but I think an in-house stop is simply a stop with your broker. Disadvantage would then be that your broker knows where your stops are and could hunt them.
Please note: I do NOT recommend that kind of practice (setting no stops at all). And I also do not discuss if stop-hunting by your broker is truly a common scenario. Maybe from a certain account/trade size on it is.
If you want to learn more about brokers and market microstructure I recommend doing a search for Darkstarīs threads/posts here on FF.

Hope that helps
RM
  • #144
  • Apr 13, 2008 11:58am Apr 13, 2008 11:58am
Quoting Skyhr
But wouldn't that happen with any broker? Since they can't really control liquidity, why would there be a broker our there that _can_ give you lower spreads on giant orders? there arent brokers that are going to give me a better spread on larger orders. However, I can get a better spread on orders below 10M.

Why do you say that Hotspot is much different? Hotspot has deeper liquidity and a much more stable platform. Spreads dont widen as much during off hours as well.
And how big of orders are you dealing with? Trade size for me depends on a lot of things, when I am not dealing with DB my orders are never over 50M at one click. However, I do not trade that size often. Not sure why it matters or why knowing how much I trade will help you?

Sorry, but I'd also appreciate it if you could answer my above post on moving pips as well, since I havent' really seen FX market depth before.
Anything over 10M should move the spread, a lot of the times it can be less all depends on liquidity in the market and the broker.
  • #145
  • Apr 21, 2008 9:00am Apr 21, 2008 9:00am
Quoting keo
why would they be? if they act as a true middleman, they win on your opening and they win again on your closing (with their spread).

Of the order can't go through because of loq liquidity, then the broker would simply not let it through, so there is no risk.


Or am I thinking something wrong?
Marketplaces earn only from volume (open and close) because then they charge you commission. But with them there are one great thing if you place your bid or ask in the market then you do not pay spread at all.
  • #146
  • Apr 21, 2008 10:42am Apr 21, 2008 10:42am
Quoting Sandyfx
Marketplaces earn only from volume (open and close) because then they charge you commission. But with them there are one great thing if you place your bid or ask in the market then you do not pay spread at all.
I think this is the most straight forward way to look at the two types of FDM's in this market.

The first type of FDM is a Market Maker commonly referred to as a dealing desk. These FDM's make their money in a number of different ways.

  1. Spread - the difference between the bid and the ask.
  2. Commission - many do not charge an extra commission but some do.
  3. Accepting risk - almost all market makers and even some so called ECN's do this. However, we will say that a company is not an ECN if they accept risk. All this means is that the market maker will accept the risk their clients put on their books by placing a trade with the FDM. This means that they very well might be the other side of your trade or a portion of your trade. (more on this later as this is the biggest money maker for these types of FDM's)

The second type of FDM is an ECN and they are technically speaking brokers. Brokers make their money by bringing buyers and sellers together for a fee. By definition they should be accepting no risk. They set up a platform where the technology is set up to bring all market participants together bringing many different liquidity providers together. They only charge a commission and this is the only way they should be making money. All trades get matched with another liquidity provider on the platform. The idea is that clients trading on that platform will have more liquidity providers available to them and therefore giving the client more competitive price. This is a fairly straight forward process. As a client regardless of which model FDM you decide to go with you need to compare these four things and see which company is best for you.

  1. Price - spread and commission. Which FDM has the best over all price, taking into account the spread, no matter which model you choose their will always be a spread that you have to overcome (with some ECN models there are rare circumstances when there is no spread or an inverted spread, although it will be very hard to deal fast enough to take advantage) and the commission being charged.
  2. Execution - speed of execution, in my opinion is the number one component to trading in this market. If you get great spreads but lousy execution then the low spread doesn't mean anything.
  3. Platform - is that platform easy to use, does it allow you to do everything you want to do like easily place orders, edit or cancel those orders and does it have a charting package that will work for you. If the FDM has great pricing and great execution but you dont like the platform it will make it hard for you to take advantage of numbers 1 and 2. However, it might mean that you just need to take a lot more time to get used to the platform.
  4. Customer service - sometimes this is overlooked but it never should be. The company you choose should always have someone available to help you with problems and you should get quality and timely service. The other part to this is what happens when either your connection or their connection goes offline? Make sure their is a way for you to place trades over the phone if necessary.

More to come in my next post about Market Makers....

  • #147
  • Apr 21, 2008 11:26am Apr 21, 2008 11:26am
Market Makers:

The last thing I wanted to talk about was the concept of how Market Makers take risk and make most of their money. There is much more to it then just taking the other side of your trade. First thing is, it ties up capital to take the other side of your trade regardless of whether you are winning or losing. Market makers have to put up additional capital for all client positions left on their books at the end of the day. This is taken into affect when a Market Maker calculates their net capital with the NFA. The bigger the book they keep open the more capital they tie up.
With that being said most Market Makers do the following. First, they have company guidelines that they set forth depending on the companies capital position (the bigger the company, like Oanda or FXCM, the bigger the book they can run and the more risk they can take on. For example, a company might decide that they will only keep an open book of up to 100M or up to a certain amount per currency pair. Most companies manage their risk per currency pair. For example they might keep the book open up to 50M per EURUSD and might keep the book open up to 25M per GBPJPY. You can bet the more volatile and less liquid the pair the less of a book they will run for that pair. Anything over that amount they will offset with their liquidity providers. This means for anything they havent offset if you lose they win and if you win they lose.

The last component is how they manage all of that risk and their clients. To do this a Market Maker will run multiple books of business. This is commonly referred to as an A book and a B book. They might even add a C book but most just run an A book and a B book. Most of their business will go on to their B book. The B book is the book that they will leave completely open and only offset when that book reaches a certain level the company is not comfortable with. Most traders that open a new account with a Market Maker will automatically be placed on their B book as most traders lose money. Who do they put on their A book? It doesn't take a genius to figure out that if you are one of those few traders who constantly make money that you will be moved to their A book. The other traders that they might move are traders that constantly take very large positions. Traders that trade big notional amounts are putting a lot more risk on the companies books. The company would decide that they dont want to constantly deal with this added risk to their B book so they put them on their A book. Trades that come in on the A book are offset with the firm's liquidity providers. The firm offsets these trades by piping the trades so they can still make some money on the deal. Essentially they are looking to make a pip or two of your trade without any risk. They can do this because they see a more competitive spread then they offer you. They also might wait a few minutes if they think the trade will go against you in the very short term and then offset the trade. This is a very old model that many banks have used for years.

Most traders complain to no end about firm's that take the other side of their trade. However, if you get fast execution and a good spread there is no need for you to care who has the opposite side of your trade. Most of us on these forums are not big enough for a company to care about so I doubt that you are getting crapy execution and I bet that you are losing money for reasons that only have to do with the fact that you made a bad trade. However, I will say that there are plenty of companies out there that have some shady execution practices. It shouldn't take you long to figure out if that is happening to you or not. The easiest way for you to figure out which company is better then the other is to open multiple live accounts. If you are going to deposit 10K then take that 10k and spread it out between 3 or 4 different companies. Within a couple of months you should be able to find the best company for you and you might even decide that there are two companies for you.

The only other thing I think is worth mentioning about Market Makers is that most of them get their liquidity from one or two banks. They might have multiple relationships with other banks but generally they are only going to get their primary price feed from one bank. The reason for this is because the more volume they push to a bank the better clearing fee they will receive from that bank.
  • #148
  • Apr 21, 2008 12:53pm Apr 21, 2008 12:53pm
Hey fxtrader42,

just wanted to say thanks for your efforts to pass on your experience about market microstructure/"brokers". - truly appreciated!
Do you plan on another info about ECNīs or which brokers to choose when youīre trading really large sizes? That would be great if you had some info on this and were willing to share it!

Keep up the good work!
RM
  • #149
  • Apr 22, 2008 7:04am Apr 22, 2008 7:04am
Quoting Rainmaker
Hey fxtrader42,

just wanted to say thanks for your efforts to pass on your experience about market microstructure/"brokers". - truly appreciated!
Do you plan on another info about ECNīs or which brokers to choose when youīre trading really large sizes? That would be great if you had some info on this and were willing to share it!

Keep up the good work!
RM

If you trade large sizes then you need to look which broker have the biggest market depth.
  • #150
  • Apr 22, 2008 10:32am Apr 22, 2008 10:32am
Quoting Rainmaker
Hey fxtrader42,

just wanted to say thanks for your efforts to pass on your experience about market microstructure/"brokers". - truly appreciated!
Do you plan on another info about ECNīs or which brokers to choose when youīre trading really large sizes? That would be great if you had some info on this and were willing to share it!

Keep up the good work!
RM
The only ECN I still trade with is HotspotFXI. I have traded with a couple of different Currenex brokers but none have the depth or the number of liquidity providers as Hotspot. When it comes to Currenex you need to find out how many banks are adding liquidity for that particular broker. Most of them are only using 1 to 5 different banks. Not to mention, there are a lot of games brokers can play with the Currenex platform. The important thing to remember about Currenex is that it is a white label and every white label can be vastly different. A lot of people on FF really like MBTrading and my thoughts on them are inconclusive. In my opinion they are more expensive then other ECN models available. TraderKGB has a lot more knowledge of other ECN's like, MBT, Currenex, Dukas, IB Trading and if he wants to chime in he can shed some light on what it is like trading with all of these ECN's with a live account. However, I have to say, once again the only way you will know which broker you like better is by trading a live account with all of the ones you are interested in. Its like your buddy, who tells you that he loves his new Corvette, then you go and buy one only to find out that you hate the car for what ever reason that might be.

With regards to size - this is a very tricky question. Most traders that trade in the spot FX market have no real concept of size. The reason for that is leverage! When you place a trade for 1M JPY and all you need to do is have 10K (@1% leverage) in your account. That impairs your ability to realize that you just placed a trade with a notional value of 1M$.

First of all, like Sandy has pointed out, you can look at the ECN's market depth to compare. However, on demos the market depth is always different then what it is on a live account from what I have seen. Also, on some of the ECN's I have tried the market depth on a live account is not always consistent with the execution you receive. Again, TraderKGB can give you a better answer with regards to that. The second part of the equation is what is a large order? You will get very different answers depending on which broker you talk too. It all depends on the relationships that the broker has with the banks they deal with. The real question is what is a large trade to you... 1M, 10M, 50M, 100M? I have a couple of decent size accounts and all of the sizes that I mentioned are what I would consider big. However, some of the biggest brokers can handle up to 50M at one click on the platform and they can do more if you want to deal over the phone. I deal with one bank directly and their market depth for the most liquid pairs in a liquid market usually doesnt get much higher then 75M. Anything over that I have to RFQ. However, they might show more depth for a higher net worth client like a large hedge fund but I would bet those funds still have to ask them to work the order the same way I do. If you think about how ECN's are supposed to work, their market depth should be much higher considering they might have 25 different banks offering liquidity through the ECN. Sometimes this is the case but sometimes it isnt. For example, EURUSD with my bank right now for 50M is 4 wide. Comparing that to HotspotFXI, I would get filled at an aggregate spread of about 5.5 wide. The reason I use an ECN is for the smaller orders of less then like 5M when instead of getting 1 wide from my bank I might get .5, .6, or .8 from an ECN. With an ECN, it all depends on how many banks are offering liquidity and how much liquidity they are willing to offer to that ECN. Then when you factor in the commission you have to ask yourself is it consitently less expensive do deal with the ECN or one of the other brokers you are thinking about working with. The next thing you look at is execution - which one is quicker and more reliable.
  • #151
  • Apr 22, 2008 12:28pm Apr 22, 2008 12:28pm
fxtrader42: can you tell how HotspotFXi compares to their retail platform in terms of spread and liquidity?
  • #152
  • Apr 22, 2008 1:30pm Apr 22, 2008 1:30pm
Hi Shrike,

To be honest with you I can't as I have never even really looked at their retail platform. I wish I had the recent FX Week in front of me but I dont. The article gave Hotspots monthly volume for March or Feb (cant remember which month) and it was very high. The one thing that I really like about Hotspot compared to Currenex is the fact that all prices shown are executable prices. I have never had a trade rejected by them thus far. Currenex has that feature that allows liquidity providers to look back and decide if they want to execute the trade or not. (not sure about this one but from what I have heard its true) However, I must say I dont make a lot of my larger trades with them so I dont know if it is due to that or not but they claim what you see is what you get. The spreads like many ECN's jump around throughout the day but for orders under 5M-7M they are generally speaking sub pip to 1 pip depending on the pair obviously. Liquidity ranges from day to day but they do have what seems to be a very deep liquidity pool. Like I said I dont really use them for large orders so I dont really ever dig to deep into that liquidity pool. I would imagine that their retail platform is somewhat similar in terms of spreads. However, I would doubt that the liquidity is as deep. I cant imagine that anyone trading under 10M per clip with their retail platform would run into anything better. Not sure what they charge in terms of a commission for it though. Do you use their retail platform? If so, what do you like what dont you like besides the fact that they only offer a limited number of pairs? If you dont trade with them who do you trade with now?
  • #153
  • Apr 22, 2008 4:00pm Apr 22, 2008 4:00pm
I use them since ~2 month, so far it works as expected. I did choose them because they appear to be a quite solid company, have been around since a long time, and seem to be somewhat well regarded among bigger traders as well (altho on their institutional branch). I guess thats more what could be said about 90% of the other retail shops.

There is most of the time less than 10 mio on their best bid/offer, i would guess more like 5 on average. I rarely trade more than 1 mio, so this is not an issue for me, but i could see how thats a problem for bigger traders.

They charge $30 per 1 mio USD traded (the american branch charges $30 per 1 mio units traded, thats cheaper, but i wanted my funds held in euros). That is negotiable, but thats the fee when they dont impose monthly volume requirements.

I also like their new platform, with their older java application it was a headache putting in stops and targets, in general order entry is solved much better than what they had before.
  • #154
  • Apr 23, 2008 9:14am Apr 23, 2008 9:14am
Quoting shrike
I use them since ~2 month, so far it works as expected. I did choose them because they appear to be a quite solid company, have been around since a long time, and seem to be somewhat well regarded among bigger traders as well (altho on their institutional branch). I guess thats more what could be said about 90% of the other retail shops.

There is most of the time less than 10 mio on their best bid/offer, i would guess more like 5 on average. I rarely trade more than 1 mio, so this is not an issue for me, but i could see how thats a problem for bigger traders.

They charge $30 per 1 mio USD traded (the american branch charges $30 per 1 mio units traded, thats cheaper, but i wanted my funds held in euros). That is negotiable, but thats the fee when they dont impose monthly volume requirements.

I also like their new platform, with their older java application it was a headache putting in stops and targets, in general order entry is solved much better than what they had before.

Hotspot is not bad , but I use Dukascopy and they charge only 18 $ per million and their liquidity is much bigger.
  • #155
  • Apr 23, 2008 9:31am Apr 23, 2008 9:31am
Quoting Sandyfx
Hotspot is not bad , but I use Dukascopy and they charge only 18 $ per million and their liquidity is much bigger.
Sandy,

I have not used Dukascopy but there is no way they're liquidity is much deeper. I wonder why you think that...I also remember TraderKGB, who uses I believe both Dukas and Hotspot where he said Dukas liquidity has been crap. I very well doubt that Dukas is going to keep up on orders around 5 to 10M.
  • #156
  • Apr 23, 2008 3:34pm Apr 23, 2008 3:34pm
Quoting fxtrader42
Sandy,

I have not used Dukascopy but there is no way they're liquidity is much deeper. I wonder why you think that...I also remember TraderKGB, who uses I believe both Dukas and Hotspot where he said Dukas liquidity has been crap. I very well doubt that Dukas is going to keep up on orders around 5 to 10M.
Just to be specific, the displayed liquidity at the inside spread is crap at Duka. Most oftentimes it's under 1M on the best bid/best offer, which is too small to be coming from a bank liquidity provider.. The overall book depth for the majors is usually quite high, in the hundreds of millions (higher than many ECNs), but if the spreads and inside liquidity aren't there, what good is total book depth.

In talks with their reps, they have assured me that orders are automatically routed to HotSpot FXi/Currenex/Lava if those venues offer better prices/liquidity..
  • #157
  • Apr 24, 2008 4:43am Apr 24, 2008 4:43am
Quoting fxtrader42
Sandy,

I have not used Dukascopy but there is no way they're liquidity is much deeper. I wonder why you think that...I also remember TraderKGB, who uses I believe both Dukas and Hotspot where he said Dukas liquidity has been crap. I very well doubt that Dukas is going to keep up on orders around 5 to 10M.
much deeper the hotspot.
If I Go Broke Trying Then I Will die happy.
  • #158
  • Apr 24, 2008 4:44am Apr 24, 2008 4:44am
Quoting Trader KGB
Just to be specific, the displayed liquidity at the inside spread is crap at Duka. Most oftentimes it's under 1M on the best bid/best offer, which is too small to be coming from a bank liquidity provider.. The overall book depth for the majors is usually quite high, in the hundreds of millions (higher than many ECNs), but if the spreads and inside liquidity aren't there, what good is total book depth.

In talks with their reps, they have assured me that orders are automatically routed to HotSpot FXi/Currenex/Lava if those venues offer better prices/liquidity..
you can still trade 100-200 mill with 4-5 pip spread, witch is still not bad.
If I Go Broke Trying Then I Will die happy.
  • #159
  • Apr 24, 2008 6:56am Apr 24, 2008 6:56am
Quoting Moe
you can still trade 100-200 mill with 4-5 pip spread, witch is still not bad.
You can? Moe have you tried placing that large of an order with them? I mean I am 3 wide on Autobahn right now at 50M$ on EUR and 5 wide at 100M$. I would be impressed if they were giving 5 on 200M$
  • #160
  • Apr 24, 2008 11:31am Apr 24, 2008 11:31am
Quoting fxtrader42
I would be impressed if they were giving 5 on 200M$
Almost, 193M at 5 wide.
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