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Question on how price moves

  • #1
  • First Post: Edited Jan 12, 2011 5:36pm Jul 27, 2010 11:18am | Edited Jan 12, 2011 5:36pm
Hi, can someone explain this to me please? ECNs are part of the "interbank", right? That is, I see actual quotes from banks and other traders etc., though the liquidity I see will be limited to the amount the participating bank chooses to display to the particular broker I'm with.

Let's say there is 100 million offered over 10 pips on an ECN. I put a 100 mio market order in and consume all that liquidity, moving the offer up 10 pips. Let's assume for the sake of argument that the bid follows suit, maybe because people think it's a genuine move, so we get a normal spread bid/ask 10 pips higher than it was before. I've moved price 10 pips higher. Who sees this higher price? The people/banks who get my broker's feed, presumably. Now it is my understanding that, as there's no central exchange or single market maker, the price that the various banks and market makers etc are bidding or offering at is kept pretty much the same as each other via arbitrage.

So what would happen to the currently out of whack feed that my broker is displaying? Would it immediately get arbitraged away by programs/people selling to the new high bid and buying at the current normal (low) offer and wait for the prices to line up again (this is my understanding of arbitrage - I'm not clued up on it so may be wrong)? Or would other banks see the high price and start raising their bids/offers, thinking they're offering cheap because it's gone high somewhere else? Or would they somehow know that that price is "wrong" and just short it if they can?

Basically I'm trying to understand how big buying from one or a few banks would raise the price for everyone. I get the "hot potato" effect but I'm not sure this explains it.

Thanks.
  • #2
  • Jul 27, 2010 11:30am Jul 27, 2010 11:30am
Quoting eurotrash
Hi, can someone explain this to me please? ECNs are part of the "interbank", right? That is, I see actual quotes from banks and other traders etc., though the liquidity I see will be limited to the amount the participating bank chooses to display to the particular broker I'm with.

Let's say there is 100 million offered over 10 pips on an ECN. I put a 100 mio market order in and consume all that liquidity, moving the offer up 10 pips. Let's assume for the sake of argument that the bid follows suit, maybe because people think it's a genuine move,...
The price of other banks will change DURING your order execution. You will be filled in multiple batches, and the HFT programs will arbitrage the various feed during this time. The moment the first part of your order is executed, the market depth you see behind the current bid/ask may disappear. A paper stated that on Hotspot (http://forexmagnates.com/hotspot-rep...-2010-volumes/), more than 60% or orders are canceled a few moments (think milliseconds) after they are placed.

So to answer your question, the price of the feed you executed on will never get 10 pips out of whack with the other feeds.
  • #3
  • Jul 27, 2010 1:41pm Jul 27, 2010 1:41pm
Quoting Adal
The price of other banks will change DURING your order execution. You will be filled in multiple batches, and the HFT programs will arbitrage the various feed during this time. The moment the first part of your order is executed, the market depth you see behind the current bid/ask may disappear. A paper stated that on Hotspot (http://forexmagnates.com/hotspot-rep...-2010-volumes/), more than 60% or orders are canceled a few moments (think milliseconds) after they are placed.

So to answer your question, the price of the...
Hi Adal,

So in the time it took for the market order to be filled, the resulting difference between feeds would be arbitraged away? As I said I'm not knowledgeable about arbitrage, so sorry if this is a stupid question, but if I put a 100 mio market order on a broker (not dealer) with thin liquidity, price would in theory rise till I consume all the liquidity I need, if no one added/removed orders during that time. So if this doesn't happen, are the HFT arbitrage programs automatically offering me liquidity as soon as the offer starts going up (due to my consumption) because they see a tiny rise in price on that feed, and like that keep price down? Or will price go up for everyone? If they pull liquidity when a large market order comes in (maybe not for 100 mio but something large) then price should rise all the faster - but then it will have to do so for everyone. But that would mean that a very small order could affect the whole market if for any reason liquidity became extremely thin for a moment on one price feed while remaining deep on the others, yet their deep liquidity on the offer wasn't consumed - or it was by the HFT arbitrage, but still it doesn't seem right that one moment of low/pulled liquidity plus a market order large enough to consume what is available on that feed would raise the price for everyone... in fact it cannot work like that now that I think of it because it would be too easy to manipulate price. Is it that when I place a large-ish market order, it gets spread out from those who got filled to others, thereby somewhat negating the effects?

Maybe I need to read up on arbitrage and HFT, but I'm not in a position where knowledge of that will benefit me, I was just curious (although I'm always interested in a short paper on the subject - as long as it's not full of math lol). But that still doesn't explain to me why, if there is only 100 mio worth of liquidity available to me on my price feed over 10 pips, why won't price go up 10 pips? Especially if you say programs offering liquidity will pull it, then it should rise even more. If it doesn't, who is filling me?

BTW that link shows some broker volume but no paper on HFT unless I missed it?

Thanks
  • #4
  • Edited 10:31pm Jul 27, 2010 3:39pm | Edited 10:31pm
  •  Czech
  • | Joined Feb 2010 | Status: You Don't Know What You Don't Know | 111 Posts
The price you see is the price that your broker takes from its bank(s) plus spread. the banks price is what they pull off the EBS plus their spread.

The "liquitidy" you see from your broker is meaningless. Putting aside the fact that most of those limit orders will be cancled anyway before they fill, the orders you're seeing are mostly small, uninformed, retail traders that have no influence on the market.

Quote
Let's say there is 100 million offered over 10 pips on an ECN. I put a 100 mio market order in and consume all that liquidity, moving the offer up 10 pips. Let's assume for the sake of argument that the bid follows suit, maybe because people think it's a genuine move, so we get a normal spread bid/ask 10 pips higher than it was before.
The bid followed suit because the dealer you just bought those units from is in the market in the opposite direction now (he had to sell in order for you to buy). to minimize his risk he wants to unload his position as fast as possible. He needs someone to sell to him. If he can't be filled at the current level he will raise his bid to a more competitive price until he is filled to offset his risk.

Quote
Basically I'm trying to understand how big buying from one or a few banks would raise the price for everyone. I get the "hot potato" effect but I'm not sure this explains it.
the EBS shows the best offer and best bid. when there is nobody willing to transact at these prices any longer they move. price moves for everyone because everyone is looking at the EBS. your broker is looking at its bank(s) price, the bank is looking at the EBS.



Quoting eurotrash
Hi Adal,

But that still doesn't explain to me why, if there is only 100 mio worth of liquidity available to me on my price feed over 10 pips, why won't price go up 10 pips? Especially if you say programs offering liquidity will pull it, then it should rise even more. If it doesn't, who is filling me?

Who is saying your order won't move price 10 pips up? If orders are being pulled then price could rise even higher, as you said.

Quote
But that would mean that a very small order could affect the whole market if for any reason liquidity became extremely thin for a moment on one price feed while remaining deep on the others, yet their deep liquidity on the offer wasn't consumed
everyone has the same liquitidy. I think the liquitidy your refering to is in the bucketshop.

edit: take what i say with a grain of salt. i'm just a noob that reads.

edit #2: when i said ECN... what i meant was EBS
  • #5
  • Jul 27, 2010 3:39pm Jul 27, 2010 3:39pm
Quoting eurotrash
Hi Adal,

So in the time it took for the market order to be filled, the resulting difference between feeds would be arbitraged away? As I said I'm not knowledgeable about arbitrage, so sorry if this is a stupid question, but if I put a 100 mio market order on a broker (not dealer) with thin liquidity, price would in theory rise till I consume all the liquidity I need, if no one added/removed orders during that time. So if this doesn't happen, are the HFT arbitrage programs automatically offering me liquidity as soon as the offer starts going up...
You are right, if you put a 100 mil order in one piece, you will be filled AND SLIPPED, because the HFT will pull the liquidity and repost it again at a higher price. After your order will be executed, they will push the market back or not, depending on how their algorithm see your order (as informed or not).

I do not know the finer details however of how exactly this happens, sorry.

I do know this sequence of events however:

1. you sell 100 mio at the market
2. the depth is currently 10 mio, and you are filled
3. the ECN sends the trade confirmation to everybody connected, including you (we are talking of raw event feeds here, not consolidated top of book info)
4. the HFTs see the confirmation
5. you are filled for another 10 mio
6. another trade confirmation is sent to everybody connected
7. some HFTs might consider that you are "informed" and send cancel orders for their posted liquidity, and decide to buy with you
8. you can't be filled anymore 10 mio at the third level that you've seen when putting in the 100 mio order, because the third level was canceled above
9. you will be filled at the next level, incurring the first slippage
10. note that this slippage happened because some algo decided to get out, or buy in front of you AFTER you posted your order. you can't escape this, they are faster then anyone
11. there are also algos trying to manipulate/game other algos (http://www.nanex.net/20100506/FlashC...s_Part4-1.html for example)

Also read this, from a Oanda paper:

http://dl.dropbox.com/u/190212/ff/depth_1.png

http://dl.dropbox.com/u/190212/ff/depth_2.png

As you can see, Oanda Research says that a 200 mio order will move EUR/USD.

PS: I didn't said that the market won't move 10 pips. What I did said was that whatever move there will be, it will happen in all places at almost the same time (because of HFT arbitrage). So there won't be a 10 pips difference between the place where you executed and other places.
  • #6
  • Jul 27, 2010 5:08pm Jul 27, 2010 5:08pm
Adal, thanks for the explanation. I'll read it more carefully later and see if I have more questions (for you or anybody).

Czech, thanks, I'm aware of how it works from that perspective, I'm looking at it a bit deeper than that I think. Also note that I specifically mentioned that the trade would not be with a dealer (i.e. bucketshop), I'm talking about trading on the interbank so liquidity does come into play and bucketshop tactics doesn't, and there are bids/offers from multiple parties etc. Also price is not the same for everyone because not everyone is looking at the same feed, there are multiple ECNs who gets their quotes/prices from different banks/traders and it's arbitrage that keeps them in line with each other. My question then was if I consume liquidity that is provided by various banks to one broker/ECN, how would that affect the price of other ECNs/brokers' feeds who may be getting their liquidity from other banks, and how arbitrage would affect my own price feed given that I consumed liquidity which should move price but haven't consumed liquidity currently offered at lower prices on other ECNs, how would the feeds get in line with each other.
  • #7
  • Jul 27, 2010 6:03pm Jul 27, 2010 6:03pm
I doubt that you can move the EURO 10 pips with only 100mil

To move it 1 pip you need in the best case 50-300mil depending on the daytime and when no other market maker / bank(s) refill the supply-ladder and when the bid stays "calm".

That is an old picture of an aggregated interbank market depth:

http://img837.imageshack.us/img837/1629/mdepth.png
  • #8
  • Jul 27, 2010 10:52pm Jul 27, 2010 10:52pm
  •  Czech
  • | Joined Feb 2010 | Status: You Don't Know What You Don't Know | 111 Posts
Quoting eurotrash
Adal, thanks for the explanation. I'll read it more carefully later and see if I have more questions (for you or anybody).

Czech, thanks, I'm aware of how it works from that perspective, I'm looking at it a bit deeper than that I think. Also note that I specifically mentioned that the trade would not be with a dealer (i.e. bucketshop), I'm talking about trading on the interbank so liquidity does come into play and bucketshop tactics doesn't, and there are bids/offers from multiple parties etc. Also price is not the same for everyone because not...

Earlier i was talking about EBS when i wrote ECN, whoops. My understanding is that your ECN is passing you the quote directly from their bank(s). The difference in feeds is from varying "costs of business" for different banks resulting in different spreads. who's to say you're not consuming the "liquidity" on the other ECNs? Their bank is quoting EBS + *their* spread. For you to move price you have to first consume the liquitiy at your own bank and then from every other participant because that is what makes up "open interest".

my point earlier was that if your consuming the banks internal liquidity then thats a bucketshop, no? your order will only affect price once the banks internal book goes out of wack and they're forced to place an actual order on the interbank market.

anyhoot, sorry if this information is obvious or incorrect (or obviously incorrect). I'm selfishly reiterating what i think i know so that someone can correct me where i'm wrong and possibly improve my understanding
  • #9
  • Jul 28, 2010 7:58am Jul 28, 2010 7:58am
Mr-Forex, that number was just for convenience, not meant to represent reality. Nice looking app there!

Czech, I think I get what you're saying but I'm not sure I agree with it. You say the price I see on my ECN that various banks display is the EBS price plus spread, suggesting (at least that's how it seems to me) that EBS is the "one true price" and all other prices are derived from that. My understanding is that EBS is just an ECN like any other, except the liquidity and volume on it is higher than most, at least on certain pairs. So banks A, B, C, and D might be putting quotes on EBS (broker 1), banks C, D, E, and F might be putting them on broker 2 (some other ECN). So let's say on broker 2's feed, the best offer is 1.4000 and there's 10 mio from there at each pip up to and including 1.4009 so if I were to consume all that liquidity with a 100 mio market order then price should move up 10 pips. Let's forget about slippage or any change in liquidity while the market order is being filled, for simplicity's sake. So in theory I should move price up 10 pips. However broker 1 also has 100 mio of liquidity over those same prices (10 per pip). Let's say banks C and D are offering their liquidity on both brokers so when I consume their liquidity on broker 2, it disappears from broker 1. OK so now broker 1 would have less than 100 mio over those 10 pips, maybe 50 mio. And maybe banks C and D were offering at higher prices so when I consumed their offers it didn't affect the best offer on broker 1 (let's say bank A was offering at 1.4000). In that case broker 1 would still be displaying an offer of 1.4000 (assuming their prices were in sync before) while broker 2 would be offering at 1.4010.

As Adal said though, that wouldn't happen because the prices are kept in sync with each other via arbitrage while my market order is being filled (at least that's what I understood). What I'm still having trouble with is if I'm consuming liquidity provided on one broker, and therefore the offer is rising as it must, what is making price rise on other brokers since I'm not consuming the liquidity currently offered at lower prices by other banks? OK arbitrage, but does that mean offers are being pulled all over other ECNs to sync with my ECN's rising offer, or are they being consumed? And regardless of that, if we imagine for a moment that I entered even a 10 mio market order on a broker and at that instance for whatever unrelated reason practically all offers (on that ECN) were pulled and there was only 10 mio of liquidity over 10 pips, yet the liquidity remained deep on other ECNs, and no more liquidity returned on my broker while filling my order - price should rise 10 pips on my ECN; but if price is kept in sync with other ECNs via arbitrage, and it raised the price for everyone else, it would seem very wrong to me that with a moment of low liquidity on one broker I was able to raise the price for everyone.

Maybe it's that when I consume the best offer on my broker, programs watching that broker's feed plus others will see that only my broker's best offer was consumed, and may offer at that price again on that broker (or just watch). Then if I consume that as well then if we assume they think I'm possibly informed, then they pull their offers there and on other ECNs. The thinning liquidity on offer at other ECNs causes other banks/traders to pull their offers, and/or causes the best offer to be consumed on other ECNs more easily due to it having become thin, so the offer goes up for everyone. Then as I keep consuming more and more, price keeps moving up and up due to the same process until my order is filled. Market would never be that thin so 10 mio wouldn't affect it, and if I had an order massive enough to move price that high then it would be right that price managed to be affected all over like that. Something like that?
  • #10
  • Edited 10:54am Jul 28, 2010 10:29am | Edited 10:54am
  •  Czech
  • | Joined Feb 2010 | Status: You Don't Know What You Don't Know | 111 Posts
Very interesting stuff eurotrash. I very much enjoy wrapping my head around it.

first off- i'm making assumptions about the EBS based on this
Quoting darkstar
Layered on top (in a manner of speaking) of the Interbank communication links, the EBS service enables banks to see how much and at what prices all the Interbank members are willing to transact. Pains should be taken to express that EBS is not a market or a market maker; it is an application used to see bids and offers from the various banks.
Quoting darkstar
An ECN operates similar to a Tier 2 bank, but still exists on the third tier. An ECN will generally establish agreements with several tier 2 banks for liquidity. However instead of matching orders internally, it will just pass through the quotes from the banks, as is, to be traded on. It’s sort of an EBS for little guys. There are many advantages to the model, but it is still not the Interbank. The banks are going to make their spread or their not go to waste their time. Depending on the bank this will take the form of price shading or widened spreads depending on market conditions. The ECN, for its trouble, collects a commission on each transaction.
EBS is the information exchange for the first tier. ECN's, by definition, exist on the 3rd tier like a retail broker. A bank wouldn't submit orders thru an ECN, an ECN would submit orders to the bank. The bank is then placing orders on the inter-bank market thru EBS/Reuters.

so the different prices we see are a result of trading on the 3rd tier. ECN's are passing thru the banks prices and charging a commission, retail brokers are adding a small spread on the banks prices. The banks have different ways of making their spread, resulting in slight variations of price around the 3rd tier, even for an ECN.

Quote
What I'm still having trouble with is if I'm consuming liquidity provided on one broker, and therefore the offer is rising as it must, what is making price rise on other brokers since I'm not consuming the liquidity currently offered at lower prices by other banks?
I'm imagining the liquidity in your Broker as relatively paper thin. when you asked your ECN for 100 mio that order got passed directly to their bank(s). The bank will fill what it can from its internal order book and then it needs to place a real order in the inter-bank market. The banks order will take from all of the open interest available in the market. this includes every broker, ECN and ultimately, bank. Only after you've exausted ALL the interest at a particular level will price move.
For the bank to move prices just because you consumed all of its internal liquidity seems ludicrous to me. They individually hold only a very small amount of the total open interest. Why raise their own price when they could still be buying from someone else at a cheaper rate via the EBS.

This is why i believe different feeds move in sync but may be off by a pip or two. If price gets too out of sync then, as you mentioned, arbitrageurs will come in and fix it (thanks for keeping price informative mr. arbitrageur).


heres darkstar's thread where i'm basing (or possibly mis-interpreting) this information from http://www.forexfactory.com/showthread.php?t=7484
  • #11
  • Edited 11:34am Jul 28, 2010 11:17am | Edited 11:34am
You could move the market in Asian hours with that amount. If you traded with us, you would move the market with that order. We are a broker. if you buy 100mio at 1.55. You may end up paying up to 1.5510. If you sell 100mio. You may end up selling down to 1.5500. So there's no real point. You might catch a broker out with slow pricing, but a banks price feed is intelligent and will adjust accordingly. The price may not even move and more offers may be placed automatically. Being long 2 yards and 100 pips in the money is just theoretical. By the time you close it, you might be 100 pips offside.
  • #12
  • Jul 28, 2010 2:50pm Jul 28, 2010 2:50pm
You know what Czech, you may be right. I need to read and think about it. However although DS says in your quote that ECNs are not the interbank, if you search through his posts for the word "interbank" you will see that he often says that he trades on the interbank. In fact I believe that was what made me consider ECNs as part of the interbank and therefore in the same playing field as EBS (although I'm sure I read that somewhere else...), when I went through all his posts awhile back. As far as I know he was trading with ODL Securities on Currenex, which is an ECN, so why is he saying he's trading on the interbank?

What I gather from what you're saying is that the interbank is just those exclusive banks trading with each other for whatever reason, iirc mainly offsetting large trades from corporate customers and subsequent hot potato trading, over EBS/Reuters. Then some of those banks also supply liquidity to ECNs. If Bank A is offering liquidity on ECN 1, 20 mio a pip , and I put in a 100 mio market order, that should move price up 5 pips if liquidity doesn't change while my order is filling. But that shouldn't move actual interbank price - maybe the bank offsets the 100 mio they sold me by buying 100 mio on the interbank, maybe even as a market order, paying half or a whole pip spread without probably moving price at all due to the deep liquidity (obviously depending on the time, and again the numbers are just made up etc) while collecting a higher spread from the fact that I chased price up and bought their offer 5 pips above interbank price. Then when I'm done buying they can put in liquidity at a lower offer again, and I'll have created my own spike. Although I suppose it's more likely that a program will be watching the feeds, sees my ECN's offer going up but not other ECNs or not the EBS feed (if they have access to that), and put an offer on my ECN above the other feeds but below Bank A's higher offer (and maybe an aggressive bid somewhere else, and wait for the wider spread between the two to get back to normal, thus capturing the spread... or not, I have no idea if this happens), and like that it might stop prices from moving much on an ECN as well. Or maybe I should stop imagining out loud on a public forum and try to find the answers somewhere (but then that's what I'm in this thread for, argh!!)

So the price on any typical ECN and any buying or selling, consuming liquidity this way or that way and consequently moving the price wildly on the ECN, should have no effect on "real" price other than if I put in a truly large order which had to be offset on the interbank, and that offsetting was large enough to consume liquidity there and move price. Correct? Although I suppose the prices will never get very much out of sync, or at least not for long, due to arbitraging and stuff. If the offer is 10 mio at 1.4005 and I consume it, the offer may go to 1.4006 on that ECN (and possibly other ECNs where that bank was the only best offer, as they'll be displaying the same 10 mio to all the ECNs they're with), but as soon as I'm done buying it will go right back to 1.4005 either by the bank offering again at that price or other traders/banks who see the offer's unnecessarily high.

The whole reason why I started this thread in the first place was because I read a post by someone which made me think about how someone who wanted to move price to a certain level could do it, how could their liquidity consumption on one feed affect prices on another when the liquidity providers might be different and the liquidity wasn't being consumed on their feeds. So even if I was trading through an ECN with low liquidity on offer, I would still have to eat through all the available liquidity on EBS and anywhere else offering liquidity at the current price before it would move. Right? This of course would be helped by liquidity being pulled and others buying due to price movement/large order, as Adal mentioned.

One last thing, I don't think ECNs will necessarily have wider spreads than EBS, because it's not just banks trying to capture a spread, they or funds or other institutions may be speculating or actually want exposure to the market and not offset it straight away, and if the spread is wider on an ECN than EBS they could just put a limit inside the spread and get filled at the same price as on EBS, but sooner (and surer) because of price-time priority, and that would in effect keep the spreads in general the same as EBS. You or I could do the same, so I think the spreads really depend on the competition, and given that we're not dealing with a single market maker who can widen his spreads and people have to pay them like a bucketshop, since here we have other banks or institutions that would see the opportunity and offer a better spread, that will prevent those from offering wide spreads from trading and thus give them an incentive to offer tighter spreads. So I think (though I don't know) that the spreads on a good ECN will generally be the same as the interbank.


And now someone else is going to say "No euro that's not at all how the interbank and ECNs work!" and I'll have to rebuild my mental model all over again. I think it makes sense though... a bit.
  • #13
  • Jul 28, 2010 3:37pm Jul 28, 2010 3:37pm
Quoting eurotrash
But that shouldn't move actual interbank price - maybe the bank offsets the 100 mio they sold me by buying 100 mio on the interbank, maybe even as a market order, paying half or a whole pip spread without probably moving price at all due to the deep liquidity (obviously depending on the time, and again the numbers are just made up etc)
I find it funny how everybody assumes that for EUR/USD to move you need trillions of dollars, and how everybody ignores the pictures from the Oanda paper I posted where they (who are one of the first doing HFT - and also a huge dealer who should know these things) said that a 200 mil market order will move EUR/USD by 20 pips.

Or how people don't believe popular EAs can move markets: http://ftalphaville.ft.com/blog/2009...-an-fx-impact/

Or how EBS and Reuters are not the end-all be-all of Forex: http://www.euromoney.com/Article/233...&CategoryID=16

And BTW, you can trade on interbank ONLY if you have credit agreements with EACH of the parties from interbank.

You can find DB, UBS, GS, .. on interbank. You won't be able to hit a UBS quote UNLESS you have a separate contract with UBS. You need individual contracts with ALL of the banks on interbank you want to hit.

So what to think about DS statement that he trades on interbank then?

http://www.dummies.com/how-to/conten...nk-market.html
  • #14
  • Jul 28, 2010 3:51pm Jul 28, 2010 3:51pm
Quoting Adal
I find it funny how everybody assumes that for EUR/USD to move you need trillions of dollars, and how everybody ignores the pictures from the Oanda paper I posted where they (who are one of the first doing HFT - and also a huge dealer who should know these things) said that a 200 mil market order will move EUR/USD by 20 pips.
Hi Adal, the figures I was using was just as an example, not saying that 100 mio would not move the market. And yes I read the pictures you posted (and downloaded the paper it's from to read later), but look at Mr-Forex's screenshot - 100 mil would not do that much unless liquidity was pulled.

I think you need to have a subscription to euromoney to view that article.

And yeah I didn't think DS traded on the interbank i.e. directly with those banks, it's just that I considered ECNs to be part of the interbank (an extension if you wish but still part of it) and therefore he traded on it.
  • #15
  • Jul 28, 2010 4:02pm Jul 28, 2010 4:02pm
Quoting eurotrash
look at Mr-Forex's screenshot - 100 mil would not do that much unless liquidity was pulled.
Think a little bit more about this.

On his system you can see 300 mil liquidity in 1 pip depth. On your system you see 100 mil in 10 pips. On my broker I can see 50 mil let's say. On Dukascopy (http://www.dukascopy.com - right side) you can see 200 mil (not sure over how many pips).

Now, if you add at one moment in time ALL these different platforms together, you will get billions of dollars of depth on the bid/ask at the top of book.

Do you think that all that depth is real?

And the second thing: Oanda surely knows about displayed liquidity like that itself. Either Oanda is wrong, or Mr. Forex is wrong. I will trust somebody moving billions of dollars a day in this case, and not a retail trader who probably never sent a 5 mil market order and then report if he was slipped or not.

Quote
And yeah I didn't think DS traded on the interbank i.e. directly with those banks, it's just that I considered ECNs to be part of the interbank (an extension if you wish but still part of it) and therefore he traded on it.
I think it would be more correct to say that the bank is also on the ECN, instead of the ECN being on interbank.
  • #16
  • Jul 28, 2010 4:31pm Jul 28, 2010 4:31pm
Quoting Adal
I think it would be more correct to say that the bank is also on the ECN, instead of the ECN being on interbank.
Yes, that makes sense. As for the rest, hmmm I'll have to spend some time thinking...
  • #17
  • Jul 29, 2010 11:29am Jul 29, 2010 11:29am
It isn't that different as you think.

Today,in the interbank market there are all major banks,big hedge funds,some brokers or very healthy individuals (>10mil) connected through elect. platforms.

If you are trading really big sizes 10-100mil and your counterparty/bank can only handle a part of it,they will try buying the rest from the interbank where other banks/participants can handle the rest of the order while they are willing to take the other side/risk of the trade due to motive like: speculation,better information on market trend ,arbitrage on their clients or (excess) inventory.

http://img705.imageshack.us/img705/1537/vwapladder.png

The market depth is always flexible and you will never know if they would take the other side of "your" trade or cancel immediatley before you can execute on favorable prices what then causes slippage.

They are market makers and operate in their own interest.
  • #18
  • Jul 29, 2010 11:38am Jul 29, 2010 11:38am
Quoting Mr-Forex
It isn't that different as you think.

Today,in the interbank market there are all major banks,big hedge funds,some brokers or very healthy individuals (>10mil) connected through elect. platforms.

If you are trading really big sizes 10-100mil and your counterparty/bank can only handle a part of it,they will try buying the rest from the interbank where other banks/participants can handle the rest of the order while they are willing to take the other side/risk of the trade due to motive like: speculation,better information on market trend ,arbitrage...
Is that an screenshot of the IB depth?
  • #19
  • Jul 29, 2010 12:33pm Jul 29, 2010 12:33pm
Quoting Mr-Forex
It isn't that different as you think.

Today,in the interbank market there are all major banks,big hedge funds,some brokers or very healthy individuals (>10mil) connected through elect. platforms.

If you are trading really big sizes 10-100mil and your counterparty/bank can only handle a part of it,they will try buying the rest from the interbank where other banks/participants can handle the rest of the order while they are willing to take the other side/risk of the trade due to motive like: speculation,better information on market trend ,arbitrage...
In other words the quotes shown above are not executable. But there are venues which provide executable streaming prices - Hotspot, Lava, Integral, FXAll. They offer true liquidity instead of indicative liquidity like in the screenshot above.
  • #20
  • Jul 29, 2010 1:40pm Jul 29, 2010 1:40pm
From Marex, vwap ladder view.

That are ESP prices and for the most time executable.

Latency and how fast banks analyze order flow is an important factor -
especially during volatile times.
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