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Direct trading without a broker

  • #1
  • First Post: Apr 9, 2011 3:50am Apr 9, 2011 3:50am
Lets create our own community Forex firm. The trader will be designated as 'trader' and the individual or company quoting him a spread will be designated as 'quoter'. 99% of traders will blow their accounts in a one year period, especially those who trade on a daily basis. Thus there is no real point in hedging 99% of forex trades. The forex brokers only hedge profitable forex accounts in anycase. Fxpro for example have two physically seperate servers: one for the 99% of accounts running at a loss and one for the those making a profit, the trades of which they hedge.

Thus setup a forex broker firm that will quote preferably an active forex trader a 1pip spread using an broker demo account and mark-to-market all profits or losses on a daily basis from an eschrow account, held in trust by an independant third party. The advantage for the trader is that he will suffer no slippage and requotes. From the quoter he is making a bet 100: 1 that the trader will loose.

Any individual can thus quote anybody else forex spreads with zero risk to either party since they both must post margin to the
http://legal-dictionary.thefreedicti...Escrow+account account and all
lossess/profits transferred to either party's actual bank account at the end of the trading day or settled using Paypal.

Both parties could set a max limit to their respective profits/losses, the risk will be clear on the outset to both. The legal tools to setup such an agreement between two individuals are available, Hong Kong, UK would probably be preferred for very large amounts. One advantage of this would
be to reduce the spreads even further for the forex community.

The quoter would on a statistical basis be almost 99% guaranteed of making money. Imagine going to the casino and taking a bet with the odds of 100:1 that if you pull the lever with a paw-paw, banana and monkey, you won't get three bananas in a row. You thus become the house, instead of a forex trading gambling fool for a change.

Hundreds of quoters could form trust companies and scour for active traders, especially those attending trade conferences or those to deceived to understand why Larry Williams, Oliver Velez and Linda Rasche etc.. are selling people a pipe dream.

Literally anything , under any terms for any period is possible between multiple traders and quoters. An agreement for say a small amount of $100 could be so informal that only your word would be needed and the money tranferred to either party via Paypal. If either trader or quoter fails to honour his agreement , he is reported in this thread to the forexfactory community.

Me personally I would be the trader and are willing to entertain any quoter willing to give me a 1pip spread using broker demo as reference for a negotiated period and predetermined max profit/loss etc.... use your imagination.
  • #2
  • Apr 9, 2011 5:31am Apr 9, 2011 5:31am
Quoting StephanusR
Lets create our own community Forex firm. The trader will be designated as 'trader' and the individual or company quoting him a spread will be designated as 'quoter'. 99% of traders will blow their accounts in a one year period, especially those who trade on a daily basis. Thus there is no real point in hedging 99% of forex trades. The forex brokers only hedge profitable forex accounts in anycase. Fxpro for example have two physically seperate servers: one for the 99% of accounts running at a loss and one for the those making a profit, the trades...
I have to acknowledge that I only partly understand this post. What would be the use of quoting spreads?
Also isn't a spread constructed by limit orders in the market? The more limit orders, the tighter the spread, right?

In the digital age, wouldn't it be a step backward to go back to such slow individual agreements? I mean, that's kind of similar to a pit, but just over the internet. Quite slow to react.
How would people be sure that the other party really honors the agreement? No clearing bank in between.

in other words, please explain a bit more the benefits, as I can't see why this should be useful.

best regards
  • #3
  • Apr 9, 2011 10:34am Apr 9, 2011 10:34am
Quoting Custos
I have to acknowledge that I only partly understand this post. What would be the use of quoting spreads?
Also isn't a spread constructed by limit orders in the market? The more limit orders, the tighter the spread, right?

In the digital age, wouldn't it be a step backward to go back to such slow individual agreements? I mean, that's kind of similar to a pit, but just over the internet. Quite slow to react.
How would people be sure that the other party really honors the agreement? No clearing bank in between.

in other words, please explain...
Take www.fxpro.com demo platform. I will trade virtual funds the whole day trying to make lets say $50 using minilots. If I make say $45 the counter party will pay me $45 via paypal.

If though i loose $45 on demo i will pay the counter party $45 via paypal. the counter party in essence becomes a simulate fxpro.com dealer to me for only that small or agreed on amount. It is a way of taking out a binary option on a traders performance. The counter party becomes a simulated broker , liable only for the $50 we agreed to upfront is the max profit or loss for either.
  • #4
  • Edited 12:18pm Apr 9, 2011 11:26am | Edited 12:18pm
Quoting StephanusR
Lets create our own community Forex firm. The trader will be designated as 'trader' and the individual or company quoting him a spread will be designated as 'quoter'. 99% of traders will blow their accounts in a one year period, especially those who trade on a daily basis. Thus there is no real point in hedging 99% of forex trades. The forex brokers only hedge profitable forex accounts in anycase. Fxpro for example have two physically seperate servers: one for the 99% of accounts running at a loss and one for the those making a profit, the trades...
Let me try to understand:

So as a quoter you bet on the fact that most retailers lose? (99% may be exaggerated.. its that high due to broker manipulation which isn't factored in here. IE Oanda clients trade against themselves and have some kind of interest on balance which makes the percentage of winning retailers go up 10's of percentage points.

As a retailers you benefit from the set spread which is lower than what the brokers offer to drive in traders. There is no slippage because it is based on intent understanding and honor of an agreement which is backed by your reputable status on a online community.

This is where you will have problems.. there is no objective way to control this environment to ensure that the whole platform would be a pleasant one for both sides. Sounds good in theory but in practice who will respect a status to FF ahead of money itself? Its the reason we are here in the first place. I'm sure many ppl will sacrifice their accounts for a poker style bluff, make new FF accounts and hack others with good rating to do the same.

Also you have not factored in paypal/escrow fees which are a bitch especially if you have to convert the paypal balance back to your accout.

I would stay away from paypal in general they slap on a huge conversion fee (more than the 2.5% they broadcast)... these hidden fees add insult to injury with the already tarnished reputation of paypal.

I called them and the person could not understand the basics of foreign exchange rates (they outsource their support to the philipines). He could not figure out why there was a big difference and said someone would call me to answer the same or next day. Ofcourse noone has called and I get screwed by paypal for the nth time. Done with them. I'd try moneybookers instead.

Jag
  • #5
  • Apr 9, 2011 11:21pm Apr 9, 2011 11:21pm
Quoting StephanusR
Take www.fxpro.com demo platform. I will trade virtual funds the whole day trying to make lets say $50 using minilots. If I make say $45 the counter party will pay me $45 via paypal.

If though i loose $45 on demo i will pay the counter party $45 via paypal. the counter party in essence becomes a simulate fxpro.com dealer to me for only that small or agreed on amount. It is a way of taking out a binary option on a traders performance. The counter party becomes a simulated broker , liable only for the $50 we agreed...
But then isn't the counterparty just gambling?
you might be taking trading decisions based on analysis, etc.. but what is the basis for the counterparty's decision to counter your trades?
If the answer to this question is that the counterparty also goes into the trade based on his own analysis which happen to tell him to enter in an opposite direction from you, then you have a problem with the number of traders in the system. By that I mean you need a very large number of traders in this system in order to always have a counterparty available who is willing to take the opposite trade. For example, let's say you only have 100 traders in this system and at a given point (say after an nfp announcement), 80 of them want to go long, that leaves you with only 20 who want to go short. Assuming they are all entering similar position sizes, 60 traders out of the 100 won't have a counterparty and won't be able to trade. Therefore, this system can only work if you have a large number of traders who are willing to participate. A large number of traders will to some extent neutralize this problem.
My last question to you is what's the guarantee that the losing trader will pay up?
  • #6
  • Apr 10, 2011 12:08am Apr 10, 2011 12:08am
This is the most retarded thing I have ever read on the internet about trading, hands down.
  • #7
  • Apr 10, 2011 6:25am Apr 10, 2011 6:25am
Quoting akhtergroup
This is the most retarded thing I have ever read on the internet about trading, hands down.
Haha LOL
  • #8
  • Edited 7:56am Apr 10, 2011 7:35am | Edited 7:56am
Quoting stockey
But then isn't the counterparty just gambling?
you might be taking trading decisions based on analysis, etc.. but what is the basis for the counterparty's decision to counter your trades?
If the answer to this question is that the counterparty also goes into the trade based on his own analysis which happen to tell him to enter in an opposite direction from you, then you have a problem with the number of traders in the system. By that I mean you need a very large number of traders in this system in order to always have a counterparty available...
Nobody seems to understand what I propose: as a quoter you take on the role of fxpro.com for that day. Instead of fxpro.com not hedging all your trades up to a max profit/loss of $50 I will gladly do it , once I have seen you myfxbook.com account to see if you actually can trade or not.

as a trader you trade a DEMO fxpro.com mt4 account executing any number of trades with a least a 30sec delay between opening and closing for that day instead of your real fxpro account. If you make a demo profit i will pay you your profits, if you make a demo loss you pay me the loss.

Instead of the loss of $50 being deducted from your real $10000 fxpro account , it is now deducted from your paypal account. $50 stays $50 whether at fxpro or paypal.

Instead of fxpro.com now getting the loss on your losing trades which they in any case did not hedge I get your loss. It allows any person to become a simulated forex broker for any amount under any terms.

fxpro is fully exposed to your losses/wins because they don't hedge your trades since their math analyst tells them that 99% of their clients will blow their respective $10000.

they do hedge the 1% making a profit yes, using prob. analysis they know who those people will be based on their accounts adverse excursion ratio or draw-down per trade. If you make 10 pips and your drawdown is 10 pips you are forex wonderwomen, if not you are forex dodo (or soon will be)

You wrote "....But then isn't the counterparty just gambling?..."

Well isn't fxpro.com just gambling when then let you trade $10000 without hedging a single trade?

I am just as much gambling you will blow your account as fxpro is. Put it this way after many years fxpro, fxcm are still in business and going strong, but the forex traders thinking they know better than buffet from 5 years ago....where are they today.
  • #9
  • Apr 10, 2011 8:54am Apr 10, 2011 8:54am
Quoting StephanusR
Nobody seems to understand what I propose: as a quoter you take on the role of fxpro.com for that day....
I will be the trader and trade my real account in addition to the demo account. Thus the risk of non-payout is mine. If I don't get my $50 from you it does not really matter since I made money on my real account.

If you pay me the profits from the demo account which gets mirrored from my real account, then all it means in effect is that I risked double for that day.

Obviously you would first want to see how I trade to determine the risk.
  • #10
  • Apr 10, 2011 9:10am Apr 10, 2011 9:10am
Quoting StephanusR
The advantage for the trader is that he will suffer no slippage and requotes.
Stopped reading after that.
  • #11
  • Apr 10, 2011 9:34am Apr 10, 2011 9:34am
Quoting StephanusR
Nobody seems to understand what I propose: as a quoter you take on the role of fxpro.com for that day....
I still don't see the benefit. Why would I want to become the one quoting?
And I think a single person can't just start acting as a broker. Don't you need a couple of licenses, registration with the NFA or similar organizations and documents like passport and so on from your clients?
Also aren't charges from paypal insane? If I had to pay such charges on each trade, then I would definitely not trade in the first place.

Also will you pay me the positive rollover, if I keep my trade long-term?
  • #12
  • Apr 10, 2011 10:16am Apr 10, 2011 10:16am
Quoting Custos
I still don't see the benefit. Why would I want to become the one quoting?
And I think a single person can't just start acting as a broker. Don't you need a couple of licenses, registration with the NFA or similar organizations and documents like passport and so on from your clients?
Also aren't charges from paypal insane? If I had to pay such charges on each trade, then I would definitely not trade in the first place.

Also will you pay me the positive rollover, if I keep my trade long-term?
I think it's just a bad idea. Period!

What he seems to be missing is that big brokers like fxpro can afford in the long term not to hedge trades (assuming that they don't which I don't how he is so sure about). And that due to the large number of traders, their overall exposure remains relatively low since the order distribution between the traders is essentially random (ie. no net position long or short). So in total, fxpro's positions are actually hedged but between the traders just on their database, hence they don't need to hedge with an outside bank.
  • #13
  • Apr 10, 2011 12:28pm Apr 10, 2011 12:28pm
Quoting stockey
I think it's just a bad idea. Period!

What he seems to be missing is that big brokers like fxpro can afford in the long term not to hedge trades (assuming that they don't which I don't how he is so sure about). And that due to the large number of traders, their overall exposure remains relatively low since the order distribution between the traders is essentially random (ie. no net position long or short). So in total, fxpro's positions are actually hedged but between the traders just on their database, hence they don't need to hedge with an...
you are correct but it is irrelevant, from me as potential quoter to you , perspective. I need to find a trader that is actively trading , running at a loss and don't understand Popper's principle of falsifiability. In other words I know exactly what a loosing trader is by asking him a few questions, running his trades through a python script to determine the average excursion ratio per trade. For example a dead give-away is a trader drawing imaginary halucination lines on a chart , calling it support or resistance, or somebody who sees a MACD divergence, pivots, RSI or stochastic nonsense etc.

Would you be willing to show my your myfxbook.com account on forex trading? Just a few glances through your history would tell me whether you will make it or not. The more likely you won't make it , the more likely I would be willing to become a quoter to you via paypal. You could choose any demo platform you wish as long as your trades are open for 30 seconds or more.

the long term is irrelevant because all losses/winnings are marked-to-market on a daily basis and settled via paypal, you thus won't run the risk of not being paid after say a 10 day winning streak from your trading activities.
  • #14
  • Apr 10, 2011 1:01pm Apr 10, 2011 1:01pm
Quoting StephanusR
you are correct but it is irrelevant, from me as potential...
As a trader, why would I want to have you as my quoter? what's in it for me?
Also after a while, the method of selecting new traders will become too obvious which will backfire and you will have a hard time getting new traders.

Finally, What's the point of all this? If you want to be a quoter, why don't you just start your own brokerage?
  • #15
  • Sep 8, 2011 3:17am Sep 8, 2011 3:17am
There is even a broker that charges no spread at all, just a % of your profit if you win. And I dont see anyone running to that guy. I think Forex needs to just tighten their spreads like equities did when they went from fractions to decimals. I still dont believe even a 1 pip spread is tolerated. It gives scalpers a zero chance to win. Show me one scalper that can give 2 pips away every time he makes even a whopping 20 pips which is huge. Thats 10% every mouse click. No person on earth can beat that. I am trying to hold for hours at a time and even overnight or a few days so I dont get ground out. Thats the main thing. And dont worry, there will be another refco before too long. This is just too unregulated. I cant wait to see the gimmicks people will come up with. They say this is a 3 trillion dollars a day market. Do they mention 95% of that is bank to bank with probabably 1/4 point spread. Id bet on it and we never see those quotes inside the bid and ask as who is providing the transparency and enforcing it?
  • #16
  • Last Post: Sep 9, 2011 10:21am Sep 9, 2011 10:21am
I agree with Stockey,

If you want to quote, you can place bids and offers in an ECN and they will appear in the market depth. If you quote the higher bid, then someone will take it...

If you want to become a market maker, just open your brokerage firm and don't hedge your clients trades on the market.

If you want to quote over the phone, you'll have to consider that giving a quote is never easy as you will have an exposure and you need to be able to cover it with a limited risk.
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