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clearing house

  • #1
  • First Post: Mar 18, 2009 11:32am Mar 18, 2009 11:32am
Hi

Does anyone has an idea how can a forex trader use a clearing house to settle open trades? Any names?

thanx heaps
  • #2
  • Mar 18, 2009 6:16pm Mar 18, 2009 6:16pm
that's essentially what a dealing desk is. since retail forex isn't technically futures in the most technical and specific of terms (i.e. no standardized contracts, no expiration dates, no real market closes) they don't need to have a clearing house. they are essentially their own clearing house. although, now that i think about it, IF they use a liquidity provider, that can be considered a clearing house. but anyways, for the purposes you are talking about like settling open orders or whatever, their dealing desk would handle that. if the broker doesnt have a dealing desk, they are most likely not connected to the interbank market, so all orders stay in house. at this point, they can just choose to pair you with an order that suits you. it would all be internal. but yeah, to my knowledge, most brokers don't actually use a real clearing house.

now, for institutional forex (which IS actual futures contracts) most banks/institutional brokers do use a clearing house/liquidity provider.
  • #3
  • Mar 19, 2009 5:48am Mar 19, 2009 5:48am
Quoting blacksun1
that's essentially what a dealing desk is. since retail forex isn't technically futures in the most technical and specific of terms (i.e. no standardized contracts, no expiration dates, no real market closes) they don't need to have a clearing house. they are essentially their own clearing house. although, now that i think about it, IF they use a liquidity provider, that can be considered a clearing house. but anyways, for the purposes you are talking about like settling open orders or whatever, their dealing desk would handle that. if the broker...
Thanx mate.

I ll explain what i m trying to achieve. For example, if i go short 10,000 USD/JPY at 70.00. I want to have 700,000 Yen in my account which i can use to buy another currency. What happens in my account is that i go short USD/JPY and it remains open and needs to be closed. If i want to buy EUR/JPY thats another open trade. But i should be able to use my 700,000 Yen to buy whatever EUR's i can buy.
So badically one trade settling other. How can i do that?
  • #4
  • Mar 19, 2009 6:55am Mar 19, 2009 6:55am
You never posses anything. If you sell EUR/JPY that means you sell Euro and Buy Yen. You don't have to posses any Euro before doing that.
If I understand you correctly.
  • #5
  • Mar 19, 2009 7:15am Mar 19, 2009 7:15am
Quoting Tjpld
You never posses anything. If you sell EUR/JPY that means you sell Euro and Buy Yen. You don't have to posses any Euro before doing that.
If I understand you correctly.

Yes you are right.

Ok i ll put it down very simply what i m lookin for.

Present rates are:

EUR/JPY = 100
USD/JPY = 50
EUR/USD = 2.

I start with 10,000 USD.

I go long EUR/USD . So i have 5000 EUR.

I go short EUR/JPY . So i have 500,000 JPY.

I go long USD/JPY . I again have 10,000 USD that i started with.

I want to put these three trades at the same time. Then click on a hypothetical button "Settle all trades".

But this doesnt happen in a real trading platform. All of my trades are open and i have to close them one by one to arrive at a "no borrowed money" state.

So basically i want my open trades to settle against each other.

HINT: netting service or a clearing house?? i just cant find how they work.


Thanx heaps.
  • #6
  • Mar 19, 2009 11:28am Mar 19, 2009 11:28am
Quoting sunnytrader
Yes you are right.

Ok i ll put it down very simply what i m lookin for.

Present rates are:

EUR/JPY = 100
USD/JPY = 50
EUR/USD = 2.

I start with 10,000 USD.

I go long EUR/USD . So i have 5000 EUR.

I go short EUR/JPY . So i have 500,000 JPY.

I go long USD/JPY . I again have 10,000 USD that i started with.

I want to put these three trades at the same time. Then click on a hypothetical button "Settle all trades".

But this doesnt happen in a real trading platform. All of my trades are open and i have to close them one by one to...

think about it this way, instead of actually buying one currency against another, imagine you are buying the futures contract for the currency pair. so now instead of buying one instrument against another, your now only dealing with one instrument. this isn't technically correct, but it should help you get it for now.

the only way to settle these trades AGAINST each other is to go into a hedge. with the example you put above, you sort of are in a triangular hedge. the EUR in EURUSD cancels the EUR in EURJPY, the USD in EURUSD cancels the USD in USDJPY and the JPY in EURJPY cancels the JPY in USDJPY. so technically, you are somewhat settled in the way youre talking about. however, because of fluctuations in roll/pip cost/price, you can still (and probably will) lose money. the best bet is to just close each of em individually.

as for the clearing house and how it works, here's a definition from wikipedia:

"A clearing house is a financial services company that provides clearing and settlement services for financial transactions, usually on a futures exchange, and often acts as central counterparty. A clearing house may also offer novation, the substitution of a new contract or debt for an old, or other credit enhancement services to its members."

basically it does exactly what you think it does. if there is a clearing house involved, it will settle open/disputed contracts or transactions, take the counterparty role in the event that there is none, and also rolls over old contracts for new so you can keep an open position.

in FX, usually the banks/brokers fulfill this role themselves.

again, i hope this helps dude. i'm not sure if i answered your question the way you wanted lol. just ask again if you need more info/more explanation.
  • #7
  • Edited 7:32pm Mar 19, 2009 7:19pm | Edited 7:32pm
Thanx blackSun.

I have come with a way of further simplyfying my question.

Let us forget software based trading for some time. Say i am at Dubai airport. I have 100 US Dollars on me. I go to a forex counter. (Dubai is a very nice example coz they dont charge any commisions over bid-ask spreads, just like our software trading!). Now at forex counter i see a triangular arbitrage oppurtunity even after considering spreads. They change their prices every 15 minutes. This oppurtunity is as follows:

EUR/USD = 2.0 EUR/JPY = 100 USD/JPY = 60. Clearly USD/JPY is overpriced. So i exchange USD 100 to get 6000 JPY. Then i come back at the same counter within 15 minutes to exchange 6000 JPY's to get 60 EUR's. Again within 15 minutes i come back (probably in disguise to stop him from getting crazy) to exchange 60 EUR's to 120 USD. So i have a risk - free arbitrage profit of 20 USD's. Now this example is overblown , the arbitrage profits are normally peanuts and involve high execution risks. Instead of 15 minutes we have one tick in software trading.

So any ideas on how can this be done on a trading platform? Even if u think i cant really make a profit this way, i just want to know how can this transaction be done.

Thanx in advance.
  • #8
  • Mar 19, 2009 10:40pm Mar 19, 2009 10:40pm
As a retail trader, you cannot do that !

there are scripts to CLOSE ALL and i believe one is already within the MT4 program.

to gain access to a clearing house, you must be either a tier one or tier two bank or liquidity provider, and its doubtful you will meet the minimums THAT requires.

Why on earth you want to make like a junior arbitrager is beyond me, when you can make SO MUCH more simply trading forex, but i guess if you want the taste of arbitrage, youll need to use the CLOSE ALL script !

enjoy and trade well

mp



Quoting sunnytrader
Thanx blackSun.

I have come with a way of further simplyfying my question.

Let us forget software based trading for some time. Say i am at Dubai airport. I have 100 US Dollars on me. I go to a forex counter. (Dubai is a very nice example coz they dont charge any commisions over bid-ask spreads, just like our software trading!). Now at forex counter i see a triangular arbitrage oppurtunity even after considering spreads. They change their prices every 15 minutes. This oppurtunity is as follows:

EUR/USD = 2.0 EUR/JPY = 100 USD/JPY = 60. Clearly...
  • #9
  • Mar 19, 2009 11:10pm Mar 19, 2009 11:10pm
Hello Mparker

I wanted to make money with arbitrage instead of trading because arbitrage returns depend on one's mathematical and computational skills. Its one thing to just find a 1 pip arbitrage and taking execution risk for just that, but its another to write a computer program that finds an arb and automatically open trades. This way i can exploit an arb several hundred times a day. Compared to your 100 dollar return after taking "calculated risk" as a trader i want to pick up 20 cents coins lying on the streets "risk-free" (minus execution risk) and by the end of the day i want to have 100 dollars.

Why do it the tough way?? because in the process of doing that i will also satisfy the mathematician and computer programer inside me!

But from the posts it is very clear that a retail trader cannot probably do that.
  • #10
  • Mar 19, 2009 11:34pm Mar 19, 2009 11:34pm
While i think this situation beyond the limits of what is available to the retail trader, I wonder if youve looked at the costs involved of that many extremely small trade executions versus the cost of each ! Other words, how much does it cost to make that ONE pip, and then how much multiplied by the hundred times you wish to do it ?

while making $100 in forex is similar to stepping off a curb to me, the 350 pips i average takes a bit of "understanding" although certainly no mathematical skills, and while it may be for a newbie, there is no "risk" in what i do --- i simply trade the direction of present movement, which ever way it may be going and find it actually to be a bit boring most of the time, but I wont earn this much doing any other "boring" work, so I put up with it ! (LOL)

but thanks for the answer and i hope you find your happiness down the road ---- guess you should research each and everything about "arbitrage" you can get your hands on, and the solution will probably appear, as it invariably does !

enjoy and trade well

mp




Quoting sunnytrader
Hello Mparker

I wanted to make money with arbitrage instead of trading because arbitrage returns depend on one's mathematical and computational skills. Its one thing to just find a 1 pip arbitrage and taking execution risk for just that, but its another to write a computer program that finds an arb and automatically open trades. This way i can exploit an arb several hundred times a day. Compared to your 100 dollar return...
  • #11
  • Mar 20, 2009 12:14am Mar 20, 2009 12:14am
Hello mparker

I just found out how professional arbitrageurs work! And u will be amazed at the source of this info--- a recruitment agent who hires for financial companies.

BAsically this is what u need:-

(1)You need to be able to exchange directly from banks.

(2) No question of leverage. You use your own funds.

(3) Normally these companies have a handful of guys with PHD is maths who create mathematical models to identify arbitrage in spot forex, stock options and even propertly trust listing.

(4) They also have a guy who puts these mathematical models into c++ program code.

So, i come to the conclusion that before i can be a profesional arbitageur i will have to be a successful trader(To earn the sort of money so that i can avoid using leverage). ALso i would have to be registered as a broker myself to be able to deal directly with banks.

Thanx for your time mparker, may be you i could use a little help from you in terms of your trading strategies etc..

I m software engineer by profession. As many others, i also have lost my job as a result of recession and hence i want to use this oppurtunity to never be able to be dependent on a job again.

Thank you again.
  • #12
  • Mar 20, 2009 12:30am Mar 20, 2009 12:30am
As i thought, not a job for a retail trader like us, but once you have a few million, whats not to like ?

lemme say this about forex ---- its actually simple, although not easy. It is the MOST trending market in all of the trading markets and almost follows very specific behaviors, which can also be measured by time of day.

It is learnable by those who WISH to learn, but unless youre one of those with a HUGE rabbits foot and the most unbelieveable beginners luck in the world, it aint no "get rich quick" scheme.

it is a whole new culture and world, with its own rules and punishments and if you do it wrong, it will take your money faster than a crack whore, BUT ----- once you understand what it is and how it works, the money DOES come forth, but it may not come forth fast enough for one in your position (although that is for you to figure)

I may be coming here to teach, or I may go somewhere else -- this i dont know yet, but im "putting toe in water" over here at FF just to see what its like ----

just remember, forex is like ANYTHING else -- it takes time to understand, and even more to become competent --- then you face becoming GOOD !

excuse the spaghetti on my attached chart, but i like not being able to see the candles (LOL) --- just notice the PATTERN of movement and youll understand why forex is the MOST trending of all financial instruments.

Im around

mp




Quoting sunnytrader
Hello mparker

I just found out how professional arbitrageurs work! And u will be amazed at the source of this info--- a recruitment agent who hires for financial companies.

BAsically this is what u need:-

(1)You need to be able to exchange directly from banks.

(2) No question of leverage. You use your own funds.

(3) Normally these companies have a handful of guys with PHD is maths who create mathematical models to identify arbitrage in spot forex, stock options and even propertly trust listing.

(4) They also have a guy who puts these...
Attached Image (click to enlarge)
Click to Enlarge Name: gj LRC.jpg Size: 417 KB
  • #13
  • Mar 20, 2009 4:18am Mar 20, 2009 4:18am
Quoting mparker
As i thought, not a job for a retail trader like us, but once you have a few million, whats not to like ?

lemme say this about forex ---- its actually simple, although not easy. It is the MOST trending market in all of the trading markets and almost follows very specific behaviors, which can also be measured by time of day.

It is learnable by those who WISH to learn, but unless youre one of those with a HUGE rabbits foot and the most unbelieveable beginners luck in the world, it aint no "get rich quick" scheme.

it is a whole new culture...
Hello mparker.
Thankyou very much for sharing your widom.
I m reading a book on tech analysis and at the moment the only drawing that i can understand on your chart is the yellow ones that show the range of price movement i suppose.
Slowly and slowly i will sink in the tech jargon. At the moment i m really looking to find out how other traders start their day. How it builds up and how they enter a trade and come out of it.
I am assuming that a trader wakes up early in the morning, scans news, target a particular time zone (New York) or may be target the voltile peroid of opening a new time zone(opening of NY) etc.
I find it funny that in order to become a trader with his own original views i have to copy a trader's style first.
If you could share with us how ur day builds up, how many computer screens u have, whatz on thoise screens etc, it will become really easy for me to undertand a trader psycology and work habit.

cheers
I am in Sydney time zone by the way
  • #14
  • Mar 20, 2009 12:29pm Mar 20, 2009 12:29pm
LOL ---- when you first begin to study ANYTHING, you have to duplicate anothers methods and experience before you can begin to think of applying what you know, simply because you know so little at the newb stage.

forex is simple, but not easy --- its the most trending trading thingie in the world which makes it "simple" ---- BUT to get to "simple" requires learning a new culture, language and rules, and that only gets you in the front door.

If youre serious, and not a "get rich quick" person, it will take a year to become "competent" and then a few more before you become GOOD !

but the rewards are great and the work pretty simple, although rather boring at times (but what work isnt ?) and everyone finds a "niche" within forex's waiting arms.

my day begins at midnite the night before, when i either place, or modify an H4 trade i had chosen to be an "overnite" trade (one that takes place while i sleep), and at that time, i will check the news to get an idea of which direction the currency should move during that period, confirming with my indicators and LRC.

i wake at 7:30am, est because my trade is already in progress, and take profit BEFORE the 8am, est NY openl.

I then check the futures which will tip me off to the direction the NY stock exchange and the DOW will take, and relate it to how that effects my currency (i trade ONLY ONE currency at a time, which allows me to KNOW that currencies behavior and to capitalize on that knowledge)

watching the normal reversal points for early in the morning, i trade up and down as the cycles form and then take my trades which i allow to run till the NOON edt REVERSAL in direction.

I trade with two monitors and a third open to my email and yahoo messenger, use a voice activated text program and reply to emails, etc while i continue to trade.

Where most will stop trading by NOON, edt, i simply place my reverse trades, tidy up and attend to bookkeepping and necessary chores and let my trades run to 5pm, est (rollover point) at which point the direction will reverse again, and i take those trades to run into the evening sessions, which usually includes at least one which later becomes the overnite trade !

But this is what I DO, as i have to produce a profit for my shareholders, but its also something i happen to love and that emotion has lasted many years now and doesnt seem to be going away.

enjoy and trade well

mp







Quoting sunnytrader
Hello mparker.
cheers
I am in Sydney time zone by the way
  • #15
  • Mar 20, 2009 7:17pm Mar 20, 2009 7:17pm
Quoting mparker
LOL ---- when you first begin to study ANYTHING, you have to duplicate anothers methods and experience before you can begin to think of applying what you know, simply because you know so little at the newb stage.

forex is simple, but not easy --- its the most trending trading thingie in the world which makes it "simple" ---- BUT to get to "simple" requires learning a new culture, language and rules, and that only gets you in the front door.

If youre serious, and not a "get rich quick" person, it will take a year to become "competent"...
Hello mparker

So you are working pretty much 24*7*5. If i m not wrong you are using the H4 time frame for recognizing ur overnight or autopilot trade and a lesser time frame say around M15 for other trades. Also i m assuming that the stop limit on your overnight trade would be a little wide whereas the other trades are directly being watched by you and might have closer stop losses.

I m reading book on tech analysis by Schlossberg. He has mentioned patterns like three black crows, three advancing soldiers etc. What you reckon is the best time frame to look for these patterns?
Also, in case of a ranging pattern where do you get information about support and resistence values?

One thing i noticed is that EUR/USD is heading upwards if you look at the monthly time frame, a clear wonderful upward trend. But thing are different in shorther time frames. So what do u think is the ideal time frame to watch for a days' trade?

Now i m not in US but i still guess that following NYSE and Dow might be helpful. Do you ever utilize increased volaitility during teh period of an opening markey, say opening of New York??

Cheers
  • #16
  • Last Post: Mar 20, 2009 9:47pm Mar 20, 2009 9:47pm
WHEWWW --- that could take a book unto itself, but I'm opening a thread in the newb section and will be going through all of that in time.

Quoting sunnytrader
Hello mparker

So you are working pretty much 24*7*5. If i m not wrong you are using the H4 time frame for recognizing ur overnight or autopilot trade and a lesser time frame say around M15 for other trades. Also i m assuming that the stop limit on your overnight trade would be a little wide whereas the other trades are directly being watched by you and might have closer stop losses.

For the overnites, I use the H1 or H4 depending on how i feel at the moment AFTER it has reversed to its correct direction for the day, and i use NO sl, so i never worry about that situation --- in fact, i never use stoplosses on ANY trade, BUT do not advise that for those without accounts to handle that and certainly not to newbs and those not familiar with the trend of a trade.

I trade EVERY TIMEFRAME during the day often taking the H4 trade early on so i dont have to pay any attention to it, but always aware that i will be going through drawdowns which do not matter as long as i trade with the trend. (BUT, thats because of my account size, and as stated, only partially passed on to newbs)

I m reading book on tech analysis by Schlossberg. He has mentioned patterns like three black crows, three advancing soldiers etc. What you reckon is the best time frame to look for these patterns?
Also, in case of a ranging pattern where do you get information about support and resistence values?

They appear in all timeframes, but the longer the timeframe, the longer (naturally) it takes for one to show up --- btw, there is candle recognition indicators available for the MT4 platform that are pretty good, although i dont know that they cover the "exotic" candle patterns.

support and resistance comes from another few MT4 chart overlays that show all the information one could ever need and the use of my favorite overlay, the LRC, will show the support and resistance areas in a ranging market as well.

One thing i noticed is that EUR/USD is heading upwards if you look at the monthly time frame, a clear wonderful upward trend. But thing are different in shorther time frames. So what do u think is the ideal time frame to watch for a days' trade?

for the day, one uses the daily and switches to the H4 as overall trend, and the H1 for major s+r values, with the H4 still being king
The EU will surprise many who are calling for its demise I believe, but will take a few days yet.

Now i m not in US but i still guess that following NYSE and Dow might be helpful. Do you ever utilize increased volaitility during teh period of an opening markey, say opening of New York??

of course, and im also aware of when to get out of that volitility, as it usually terminates within half an hour of the open --- checking the futures prices prior to the open will tell you which direction the market will open !

Cheers
enjoy and trade well

more answers as the days unfold will be in my new thread -- look for my initials.

mp
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