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How the retail Forex works. Dealers vs. Clients

  • #41
  • Apr 10, 2007 6:41am Apr 10, 2007 6:41am
So are you trading forex Igork and if you do who is your broker..caz i'm making a living from this but the only thing that i've told you about is that i never feel safe i always feel that my money is gonna vanish one day not because of me but because of the broker going bankrupt or something like that ..thats why i'm always keeping the amount out there as small as i can and always withdrow profits so its like wishing to have a chicken farm and insted of leaving the eggs to grow to another full chicken you get all the eggs in the mornning and eat it for breakfast so at the end of every day you only have the old mother chicken ..so you'll never have this farm, all of that is because of my bad experience with refco and all of this i'm reading and hearing on the net..so we have a problem every body saying its risky or all brokers wants to take your money..so what is the answer..the solution please..thanks in advance.
  • #42
  • Apr 10, 2007 6:45am Apr 10, 2007 6:45am
Dear howard,

I am client of a Swiss broker - MIG (http://www.migfx.ch/index.php?id=5&L=0). AFAIK, they are offering a pretty good service I don't think they rip you off to much

Quoting howard
Please comment on Swiss banks and brokers as well , if you have any experience and as to what possibilities and facilities are available over there, with names if you don't mind.
  • #43
  • Apr 10, 2007 7:00am Apr 10, 2007 7:00am
Quoting cementman
thats why i'm always keeping the amount out there as small as i can and always withdrow profits

so what is the answer..the solution please..thanks in advance.

Simple, pretend the money is still inside the broker and calculate your risk accordingly, i.e. use 2% of the "total" even if 80% is "outside" of the broker. Be aware however that this means the money really has to remain untouched and not used for other things.

Keep only as much in the live broker account as about 10-20 trades, all losers, and all using 2%, would require(keeping margin in mind as well).
That way you are still using sound money management and trading like it was all in, but still have it on the safe side.

And only re-inject as much money as is needed if there ever is a losing streak. Same logic. That way most of your money is always out "safe".
Trust price. Know yourself.
  • #44
  • Apr 10, 2007 7:03am Apr 10, 2007 7:03am
Quoting cementman
So are you trading forex Igork and if you do who is your broker..caz i'm making a living from this but the only thing that i've told you about is that i never feel safe i always feel that my money is gonna vanish one day not because of me but because of the broker going bankrupt or something like that ..thats why i'm always keeping the amount out there as small as i can and always withdrow profits so its like wishing to have a chicken farm and insted of leaving the eggs to grow to another full chicken you get all the eggs in the mornning and eat it for breakfast so at the end of every day you only have the old mother chicken ..so you'll never have this farm, all of that is because of my bad experience with refco and all of this i'm reading and hearing on the net..so we have a problem every body saying its risky or all brokers wants to take your money..so what is the answer..the solution please..thanks in advance.
There is no bulletproof guarantee in any business or even in any human activity. Perhaps trading under something like a "letter of credit' would give you some additional protection but I doubt you will be able to get such deal with any dealer for such a small amount as $20K. You just have to accept that risk and to be carefull when chosing a dealer. However, as I understand, after REFCO went down there is no dealer that would look safe enough for you. "Barrings" story also shows that even a bank cannot be completely trusted. Take it easy. The whole life is about gambling after all. At any time your desire to win just must be greater than your fear to fail.
  • #45
  • Apr 11, 2007 5:50am Apr 11, 2007 5:50am
Quoting Kurka Fund
Funny story.... I had my trading suspended by one of my brokers today. Apparently I was executing trades at "off market" prices. They said that there was a flaw in metatrader that i was exploiting. I asked if it was the ordersend and orderclose functions... adn why are you filling my orders if the prices are "off market"...

anyway mabye there is some truth to the metatrader flaw ( if so I want to knwo it so that i can exploit it in all of my EA's)

I run a very active EA. that is very profitable as well. This particular broker has had requote issues ever since the EA started trading more than 1 lot orders too. I know this because I run the same EA with the same settings at two other brokers. This account has gone from 2500 to 4200 in the past 3 weeks. the other two have gone from, 2500 to 5100 and, 5000 to 12400. much different performance... I read through the logs and noticed that I was getting roughly 20 - 40 requotes a day. ouch

Bottom line....
On our phone conversation They told me that it was going to take a few days to review and fix the problem (reactivate my account). Then I emailed them the first post from this thread and asked if there was any truth to this.... My account was re activated withing 15 mins of the email.

I am however still pissed because they forced me to close an open buy position for a loss at 23:49 on the EUR/USD which then in the next two hours rallied up more than 50 pips. Is there any recourse that can be taken against a broker for something like this ?
Best thing you can do is take the loss and switch to a reputable broker, preferably an ECN whose primary interest is in you WINNING. The more wins you make, the more likely you are to increase your position sizes, and their commission goes up.

It's more difficult trading with an ECN as you have the additional burden of order matching (rather than accepting the bucketshop as the counterparty of last resort) but at least you're trading in the real market - much more exciting in my opinion.
  • #46
  • Apr 11, 2007 6:05am Apr 11, 2007 6:05am
Igork..i've been reading an article about the retail forex business making huge amount of profit for the retail brokers like 1-2 billion a year which made some of the biggest banks in the world like deusche bank and UBS HSBC is considering to start launching new retail trading service with platforms just like the retail brokers to atract the small investors..i've read that in Fxweek but its in front of me as a hard copy now i don't know if i can attache it..any way wouldn't that be much safer..thanks again
  • #47
  • Apr 12, 2007 5:17pm Apr 12, 2007 5:17pm
Igrok, Very good article. I'm currently reading your book and think it good, as well.
Hej.
  • #48
  • Apr 12, 2007 10:11pm Apr 12, 2007 10:11pm
Quoting SeekingLight
Simple, pretend the money is still inside the broker and calculate your risk accordingly, i.e. use 2% of the "total" even if 80% is "outside" of the broker. Be aware however that this means the money really has to remain untouched and not used for other things.

Keep only as much in the live broker account as about 10-20 trades, all losers, and all using 2%, would require(keeping margin in mind as well).
That way you are still using sound money management and trading like it was all in, but still have it on the safe side.

And only re-inject as much money as is needed if there ever is a losing streak. Same logic. That way most of your money is always out "safe".
BRILLIANT
  • #49
  • Edited May 18, 2007 3:35pm May 17, 2007 6:51pm | Edited May 18, 2007 3:35pm
Quoting SeekingLight
Simple, pretend the money is still inside the broker and calculate your risk accordingly, i.e. use 2% of the "total" even if 80% is "outside" of the broker. Be aware however that this means the money really has to remain untouched and not used for other things.

Keep only as much in the live broker account as about 10-20 trades, all losers, and all using 2%, would require(keeping margin in mind as well).
That way you are still using sound money management and trading like it was all in, but still have it on the safe side.

And only re-inject as much money as is needed if there ever is a losing streak. Same logic. That way most of your money is always out "safe".
I am currently using US brokers and have been thinking using the same strategy to protect my accounts from brokers failure like Refco, I can wire the money by phone anywhere from my bank account if more fund is needed and even make a tiny interest while my fund is sitting in my ownbank account,

However, the problem with this strategy is in when the market is moving too much and too fast a pace against you for you to wire in the money to cover the margin calls like what happened on Feb. 27 this year, and you'll be margined out to realize the losses. (Luckily, I did not employ this strategy that day)

The only way to "protect" my account from broker failures I could think of was diversified my accounts into few brokers to avoid the "wipe out" by a single broker's failure and withdraw ALL my profits ASAP till I get back my initial investments (I am half way there already) before I do the "Compounding".

The other ways might be using "letter of credit" or "settlement cost only" but I do not know any Fx brokers offering them to retail customers,

Any suggestions?

BTW, any one knows which UK brokers offer the best swap rates to Non-Americans traders?


Thanks!

B.N
  • #50
  • May 20, 2007 9:34am May 20, 2007 9:34am
By the way, because of the methodologies used,my Fx managed accounts wouldn't have margined out on Feb. 27th, only 2 of them needed to be much more closely monitored in the week following,

Fxfactorygold
  • #51
  • May 20, 2007 8:34pm May 20, 2007 8:34pm
It was mentioned.. but people keep mentioning about 'protection of funds'.

Interactive Brokers - your funds are insured there and you can trade Stocks/Futures/Forex...

The interface isn't great - BUT - you can get many diff programs like ButtonTrader, NinjaTrader, etc.. which can be the front-end for it.


Min trade size is 2.5minis (25k)
Min Acc size 5k

If you have less than 5k, why you worrying about protection of funds anyway?
  • #52
  • May 20, 2007 8:39pm May 20, 2007 8:39pm
Quoting Fxfactorygold
I am currently using US brokers and have been thinking using the same strategy to protect my accounts from brokers failure like Refco, I can wire the money by phone anywhere from my bank account if more fund is needed and even make a tiny interest while my fund is sitting in my ownbank account,

However, the problem with this strategy is in when the market is moving too much and too fast a pace against you for you to wire in the money to cover the margin calls like what happened on Feb. 27 this year, and you'll be margined out to realize the losses. (Luckily, I did not employ this strategy that day)

The only way to "protect" my account from broker failures I could think of was diversified my accounts into few brokers to avoid the "wipe out" by a single broker's failure and withdraw ALL my profits ASAP till I get back my initial investments (I am half way there already) before I do the "Compounding".

The other ways might be using "letter of credit" or "settlement cost only" but I do not know any Fx brokers offering them to retail customers,

Any suggestions?

BTW, any one knows which UK brokers offer the best swap rates to Non-Americans traders?


Thanks!

B.N

i do the same as you do..
  • #53
  • May 20, 2007 8:56pm May 20, 2007 8:56pm
excellent thread, very informative. thanks to igrok and all who contributed, only place on the net to learn this stuff.
I miss cloggie.
  • #54
  • May 20, 2007 9:46pm May 20, 2007 9:46pm
Quoting dimmi
It was mentioned.. but people keep mentioning about 'protection of funds'.

Interactive Brokers - your funds are insured there and you can trade Stocks/Futures/Forex...

The interface isn't great - BUT - you can get many diff programs like ButtonTrader, NinjaTrader, etc.. which can be the front-end for it.


Min trade size is 2.5minis (25k)
Min Acc size 5k

If you have less than 5k, why you worrying about protection of funds anyway?
Yep... and when you get to around $10k-$20k, you might as well trade currency futures, as the narrow spreads, regulation, and not worrying about interest rates is worth it. At that point, the only reason why you'd want to use the FOREX market is to trade cross pairs, as all currency futures on the CME is crossed with USD.
  • #55
  • May 21, 2007 10:51am May 21, 2007 10:51am
Quoting Blackinc
2. Can brokers actually make money without engaging in these practices, if they can't, are we ever going to get a true service without having to invest millions in a bank?
The problem lies in the brokers' underlying business model. In other words, the brokers are employing a business model that inherently puts them at odds with their own clients. Most retail traders actually ENJOY this arrangement - whether they admit to it or not - because they are enamored with the illusion of "no commissions". Anyone who spends a few minutes thinking about the whole situation has to realize that there is NO SUCH THING as commission free trading - brokers are not doing this as a charity. They are businesses and they need to make money to survive, so when they say "no commission" they are really saying that they will suck their profits out of your trading activity using any sneaky means at their disposal.

IMHO, the only true way to maintain a profitable brokerage without screwing over your own clients is to charge a commission. This is why I use a commission broker. It means that, in some ways, the broker's goals are aligned with mine. In other words, if I go broke, then I can make no more trades and the broker will make no more commission (on me). If my trading is successful, my account grows and I make ever-larger trades, which leads to ever-larger commissions for the broker. Sure, the broker is not actively trying to HELP me, but he's not working AGAINST me either - and I'm very happy with that arrangement. I don't need the broker to hold my hand. I just want to pay him a reasonable commission and then he should get out of my way.
  • #56
  • Jul 1, 2007 1:50am Jul 1, 2007 1:50am
First, let me say thanks for this thread. I thoroughly enjoyed reading it. I know of two FX brokers out there that offer insured funds. One is Saxobank and I believe they insure up to about $40,000 euros. The other one is Canadian based branch of Man Financial which is insured under our Canadian Investor Protection Fund. If I remember right, it is up to 1 million CAD$.

The problem with Man Financial appears that they had to change their leverage to fit Canadian law. This was a recent change, and if i remember correctly it went to 30:1 leverage. This doesn't fit my trading needs, so I choose to not open an account with them.

My decision was to open four accounts with four truly independent brokers. Brokers with a good reputation, and all U.S. or Canadian based. One of the brokers I have been with for a while (Oanda) and choose to keep a bit more funds there, than the others.

I don't have the experience of being intimately involved in the forex business, but I have to disagree with the idea that the only way a forex company can make any money is by trading against retail clients. I'm not at all suggesting this doesn't happen frequently... However:

  1. For years market makers on the CME, NYSE, etc have made millions of dollars just making the spread between bid and ask. No different than your forex broker is doing between you and the interbank market. But for many of them they are picking up 2 pips every time you trade a 3 pip spread in eurusd, usdjpy, etc. Many of them on triple swap Wednesday at 5:00 EST are making a fortune as I often see spreads that are advertised as 2 pips, go to 4 and 5 pips before and after for 15 or 20 mins. The forex dealers are making a killing on spreads.
  2. You also have interest. So many clients are getting no interest paid on their unused account balances... but in theory that money is in a segregated account. Who gets that interest?

Those are just a couple of examples. But if you need another one, I just went to one of my brokers and from June 15th to June 28th the DIFFERENCE in ticket numbers is 4,235,986. That is a period of 13 days. Pretend only 10% of that is legitimate transactions, and say each pip of each transaction was only worth 10 cents. And say each transaction the broker only made 1 pip!! (Not 2 or 3 pips like most transactions).
THAT IS A GROSS PROFIT OF $42,359 IN 13 DAYS.

Remember that is only using 10% of the ticket numbers, and assuming of those transactions the average client only traded a micro-lot or 1,000 units (1/10th of a lot)... AND assuming the broker only made 1 pip profit. ALL of which is being VERY conservative!! You can only guess what it really is.

IF a broker can get up to high client volume, I don't know why they would bother with the risk of trading against clients. Give them the best service available, and keep them trading with you for as long as possible, and a good FX broker will make a killing once their infrastructure is paid for.

Good Trades,
Yukoner

  • #57
  • Jul 1, 2007 9:00am Jul 1, 2007 9:00am
Quoting Yukoner
Those are just a couple of examples. But if you need another one, I just went to one of my brokers and from June 15th to June 28th the DIFFERENCE in ticket numbers is 4,235,986. That is a period of 13 days. Pretend only 10% of that is legitimate transactions, and say each pip of each transaction was only worth 10 cents. And say each transaction the broker only made 1 pip!! (Not 2 or 3 pips like most transactions).
THAT IS A GROSS PROFIT OF $42,359 IN 13 DAYS.

Remember that is only using 10% of the ticket numbers, and assuming of those transactions the average client only traded a micro-lot or 1,000 units (1/10th of a lot)... AND assuming the broker only made 1 pip profit. ALL of which is being VERY conservative!! You can only guess what it really is.

IF a broker can get up to high client volume, I don't know why they would bother with the risk of trading against clients. Give them the best service available, and keep them trading with you for as long as possible, and a good FX broker will make a killing once their infrastructure is paid for.

Good Trades,
Yukoner
This is a good point. While $42k in a half month is nothing for a multimillion dollar company, you can easily multiply that number by 20 to 100 for a more realistic figure. I think the reason why brokers wind up trading against their clients despite the money they're making from the spread is greed: it makes everyone stupid.
  • #58
  • Jul 1, 2007 10:10am Jul 1, 2007 10:10am
Quoting bluebuddha
This is a good point. While $42k in a half month is nothing for a multimillion dollar company, you can easily multiply that number by 20 to 100 for a more realistic figure. I think the reason why brokers wind up trading against their clients despite the money they're making from the spread is greed: it makes everyone stupid.
oanda has the best business model out of all retail forex brokers, they buy and sell what every comes there way then offset those trades with there banks, thats what a true market maker is suppose to do.
If I Go Broke Trying Then I Will die happy.
  • #59
  • Jul 1, 2007 11:02am Jul 1, 2007 11:02am
Quoting Moe
oanda has the best business model out of all retail forex brokers, they buy and sell what every comes there way then offset those trades with there banks, thats what a true market maker is suppose to do.
Yeah... the fact that Oanda's internal and external trades are 99.99% automated by their computers make it objective and fast as possible.

There's an interesting interview with Richard Olsen (CEO and founder of Oanda) in the book, The (Mis)Behavior of Markets (http://www.amazon.com/Mis-Behavior-Markets-Fractal-Reward/dp/0465043577/ref=pd_bbs_1/002-4094806-4572067?ie=UTF8&s=books&qid=1183305517&sr=8-1)... which in itself is an interesting book.
  • #60
  • Sep 27, 2009 3:24pm Sep 27, 2009 3:24pm
Quoting lalilo
nice article.
that is why I swiched to a long-term trading, then spreads, slippage, and (negative) swap wouldn't matter much. Also, I use hidden stoploss and takeprofit controlled by EA.

If I want to invest $1+ mil, is there anyway I go around the broker?
Hello great traders,

Going by what lalio posted above my question is this: Is it really possible to have an EA which controls and inserts hidden Stop Losses (SL's) in a way that the broker cannot notice at all or perhaps notice at a glance. This may sound like a stupid question but kindly pardon my ignorance.

Thanks
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