Who is the counterparty on Currenex, ECN, DMA broker platforms? | Forex Factory

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Who is the counterparty on Currenex, ECN, DMA broker platforms?

  • #1
  • First Post: Edited 9:33pm Jan 2, 2012 7:05pm | Edited 9:33pm
hello guys , who pay for our profit on this type of broker ? is it the bank ?

at market maker broker the broker obviously pay for our profit .

maybe some official from currenex , ecn , or dma broker can explain ? because you guys obviously know who pay when client is profit

or someone on financial industry care to share ?

thanks please reply
  • #2
  • Jan 3, 2012 4:50am Jan 3, 2012 4:50am
Quoting askingkalz
hello guys , who pay for our profit on this type of broker ? is it the bank ?

at market maker broker the broker obviously pay for our profit .

maybe some official from currenex , ecn , or dma broker can explain ? because you guys obviously know who pay when client is profit

or someone on financial industry care to share ?

thanks please reply
may be you might check this :

http://www.forexfactory.com/showthread.php?t=11323
Brokers are angels
  • #3
  • Jan 3, 2012 6:54pm Jan 3, 2012 6:54pm
Quoting fx13
may be you might check this :

http://www.forexfactory.com/showthread.php?t=11323

still not getting clear picture
  • #4
  • Jan 3, 2012 8:36pm Jan 3, 2012 8:36pm
On your standard ECN etc the counterparty is still almost always your broker. The first step that happens is that your broker tries to match any trades in house with a counterparty that is also a customer of him. That way the broker earns double spread + commissions since its basically a free trade for him since it does not get sent of to liquidty pools -> costs him nothing. If it doesn't find a counterparty in-house fast enough it looks how big your order is. If its below 100k-1mio it will get aggregated along with orders of others of his clients to one big order that is big enough to be sent off to liquidity pools aka the market. Your broker is your counterparty in that moment. Not what many would expect from ECN etc. Only if you could not be matched in house + your order is big enough is your chance good that your order will actually end up on the market / liqduity pools and your broker not being your counterparty. That inhouse matching + aggregation is why most even decently sized ECNs are still pretty slow when it comes to actual order fills. Bigger (order size) _is_ better in forex

Besides that of course your broker will apply QoS to all clients. Meaning certain clients will get prioritized handling of their orders. Adding / removing lag.
  • #5
  • Jan 3, 2012 8:44pm Jan 3, 2012 8:44pm
PS: DMA is a bit different in that you really end up on the market and not against your broker whatever - at least in theory. Don't be fooled by 90% of DMA advertisments. They are not DMA but standard ECN/STP. DMA is not what you will receive for your retail account. You have to lay down big for real DMA and most of the time pass several requirements.
  • #6
  • Jan 3, 2012 8:52pm Jan 3, 2012 8:52pm
Quoting askingkalz
hello guys , who pay for our profit on this type of broker ? is it the bank ?

at market maker broker the broker obviously pay for our profit .

maybe some official from currenex , ecn , or dma broker can explain ? because you guys obviously know who pay when client is profit

or someone on financial industry care to share ?

thanks please reply
Another person in the market and it could be the broker. This is obvious as it's a zero sum game.
Good judgement comes from experience. Experience comes from bad judgement.
  • #7
  • Jan 3, 2012 11:51pm Jan 3, 2012 11:51pm
Quoting askingkalz
at market maker broker the broker obviously pay for our profit .
This is not the way it works. A true market maker (not many left these days if you choose a big established broker, they are all going with NDD model (see below)) will match orders in house and aggregate excess liquidity and pass it through to their liquidity providers (LPs). The quotes you see are the quotes the broker is recieving from their LPs plus a bit of a buffer in the spread for their profit. They can choose to build positions also and not pass the excess on. They get cheap trades because they have the ability to buy the bid and sell the ask (actually a bit better because of the buffer they add to their spread) but all positions taken on mean risk and must be managed. So sometimes you may be trading directly against your broker but most of the time you are trading against their clients or their LPs.

Only scam brokers will be trading against their clients 100% of the time. This is extremely risky for the broker and is not a sustainable bussiness model so they will play all sorts of games to basically steal money from their clients (requotes, lots of slipage, skewed prices (stop hunts), won't let you withdraw etc, etc). Go with the big market makers to avoid this.

Most market makers these days have gone to the no dealing desk model (NDD). This is because of the conflict of interest the true market maker model creates and the growing public awareness of such conflict. These market makers no longer take on positions, they just match orders in house (where they earn the entire spread) and aggregate the excess and send it through to their LPs (where they earn the buffer they have included in the spread they quote you). OANDA, FXCM etc are examples of these type of brokers. You are never trading against your broker in this model and your broker is never the one to 'pay your profits'.

ECN

Don't know where unknown4x gets his info, but as far as I know he is wrong. A true ECN broker does not take on any positions ever and they never earn the spread (and no broker ever earns double the spread). They just provide a platform to match orders and then make deals with LPs to provide liquidity on their platform. Your orders are then placed on the platform and they earn the commision. You are trading against your brokers clients and their LPs in this model.

DMA/STP

I am not sure of the difference of these two models, maybe someone else will know. DMA/STP brokers do not have their own ECN platform. They instead pass your trades straight through to other ECN networks or their LPs. Currenex (CNX) is a good example. CNX is not a broker, they offer an ECN platform. If your broker offers CNX then they will aggregate their clients orders and place them on the CNX platform on your behalf. Not sure if these models also match inhouse, someone else will need to clear this up.

@askingkalz
You seem to be under the impression that one party pays for all your profits and earns all your loses but that is not how it works. There will be many different counterparties to your trades no matter which broker model/s you trade through. Even if you trade through a single bank they are constantly balancing their books so some of your liquidity will be passed on to a different counterparty, just under a different name.
  • #8
  • Jan 4, 2012 12:13am Jan 4, 2012 12:13am
Quoting Agro
DMA/STP

I am not sure of the difference of these two models, maybe someone else will know.
DMA is typically used in the exchange world (equities, futures). It means that you put your order directly into the exchange servers. You connect directly with the exchange servers, not through your broker. This also means that typically there is no risk control what so ever (so called naked access) - you can put an order to buy $10 billion MSFT, even if you only have $100K in your account. Bad things will happen afterwards, but the order won't be rejected. There is talk now about requiring mandatory risk management, but the HFT firms obviously oppose it (the checks slow trading down a little bit).
  • #9
  • Jan 4, 2012 1:31am Jan 4, 2012 1:31am
Quoting Agro
This is not the way it works. A true market maker (not many left these days if you choose a big established broker, they are all going with NDD model (see below)) will match orders in house and aggregate excess liquidity and pass it through to their liquidity providers (LPs). The quotes you see are the quotes the broker is recieving from their LPs plus a bit of a buffer in the spread for their profit. They can choose to build positions also and not pass the excess on. They get cheap trades because they have the ability to buy the bid and sell...
yeah because from what i read from the internet and big forum like forex factory and other , majority of them tell that market maker is to avoid because they take the other side of your trade , so there always be a conflict of interest with this kind of broker , thats why i need some information on ecn and dma broker , who are the counter party of the trade , thanks to you guys for the explanation
  • #10
  • Jan 4, 2012 1:35am Jan 4, 2012 1:35am
Quoting unknown4x
PS: DMA is a bit different in that you really end up on the market and not against your broker whatever - at least in theory. Don't be fooled by 90% of DMA advertisments. They are not DMA but standard ECN/STP. DMA is not what you will receive for your retail account. You have to lay down big for real DMA and most of the time pass several requirements.

but the one of the dma broker i have demoing the spread is really low 0 to 2 spread almost all of the pair but yeah still we dont know certain how they treat clients order matching each other on their network or straight to other lp or bank ..
  • #11
  • Jan 4, 2012 1:37am Jan 4, 2012 1:37am
Quoting Adal
DMA is typically used in the exchange world (equities, futures). It means that you put your order directly into the exchange servers. You connect directly with the exchange servers, not through your broker. This also means that typically there is no risk control what so ever (so called naked access) - you can put an order to buy $10 billion MSFT, even if you only have $100K in your account. Bad things will happen afterwards, but the order won't be rejected. There is talk now about requiring mandatory risk management, but the HFT firms obviously...
what do you mean by bad things will happen afterwards ?
  • #12
  • Edited 2:02am Jan 4, 2012 1:47am | Edited 2:02am
Quoting askingkalz
yeah because from what i read from the internet and big forum like forex factory and other , majority of them tell that market maker is to avoid because they take the other side of your trade , so there always be a conflict of interest with this kind of broker , thats why i need some information on ecn and dma broker , who are the counter party of the trade , thanks to you guys for the explanation
As I wrote in my last post, most market makers use NDD models so no conflict of interest exists. Don't believe everthing you read. I have tried many different brokers and researched most of the ones out there and I have never found a broker offering a better deal than oanda unless you have 50-100k to deposit. CFH for example is often a better deal, but even then it is only marginal and for EUR/USD oanda normally beat even CFH (the exeption is if you trade around major news releases). Don't rule out an entire section of brokers just because there are half wits running around, with no understanding of how this market works, flaming market makers.
  • #13
  • Jan 4, 2012 5:04am Jan 4, 2012 5:04am
Agro: Check any ECNs policy and show me one that does _not_ reserve the right to act as a market maker (counterparty). I am not talking about that the good ones do it to screw you no... they have to technically. They cannot match micro mini whatever lots with their LPs. Once they aggregate - and they all do that - they have to act as the counter.

And of course ECNs/DMAs bill you spread in addition to commission. They all do. If you find one that does not bill you flexible spread or bills you a fixed one run away. That's how the market works. If they don't they either overbill you with commissions or screw you somewhere else. Only if you serve as a liquidty provider for them will they make arragements with you concerning spread.
  • #14
  • Jan 4, 2012 5:52am Jan 4, 2012 5:52am
Quoting unknown4x
And of course ECNs/DMAs bill you spread in addition to commission. They all do. If you find one that does not bill you flexible spread or bills you a fixed one run away. That's how the market works. If they don't they either overbill you with commissions or screw you somewhere else. Only if you serve as a liquidty provider for them will they make arragements with you concerning spread.
Hey mate

As far as billing you the spread goes in a DMA model, do you mean they earn the spread. Lets take CFH markets as an example as they are a well respected, well regulated DMA broker. The quotes you see are provided by their 6 liquidity providers. You place an order and it goes straight through to the LPs. Of course if you use market orders you will have to 'pay' a spread, but CFH will not profit from that spread. Their LPs and their customers using limit orders profit from the spread. The only profit CFH recieve is from commissions.

Regarding ECNs, a true ecn such as currenex or routers (note that these are not brokers, just ECN creators) will not earn the spread either. They simpily own the software that matches orders and only recieve commissions for their troubles.
  • #15
  • Jan 4, 2012 7:00am Jan 4, 2012 7:00am
Quoting Agro
Hey mate

As far as billing you the spread goes in a DMA model, do you mean they earn the spread. Lets take CFH markets as an example as they are a well respected, well regulated DMA broker. The quotes you see are provided by their 6 liquidity providers. You place an order and it goes straight through to the LPs. Of course if you use market orders you will have to 'pay' a spread, but CFH will not profit from that spread. Their LPs and their customers using limit orders profit from the spread. The only profit CFH recieve is from commissions.

Regarding...
I see we misunderstood each other there. Their effective income should be through commission yes. Talking about spread i was saying no matter if you pay to your broker or to the LP you pay it. So we actually agree there i think

Regarding counterparty. Almost no ECN (retail) functions as a pure ECN in regards to not being a counter party and just processing / matching orders. E.g. vcap will not take an order against you. They don't need to since the minimum requirements of lotsizes and turnover automatically make the orders fit for counter matching.
  • #16
  • Jan 4, 2012 7:27am Jan 4, 2012 7:27am
Quoting unknown4x
I see we misunderstood each other there. Their effective income should be through commission yes. Talking about spread i was saying no matter if you pay to your broker or to the LP you pay it. So we actually agree there i think

Regarding counterparty. Almost no ECN (retail) functions as a pure ECN in regards to not being a counter party and just processing / matching orders. E.g. vcap will not take an order against you. They don't need to since the minimum requirements of lotsizes and turnover automatically make the orders fit for counter...
Yeah, I had a feeling we were on the same page and it was just miscommunication. Nice Money Flow thread by the way, it is a great read
  • #17
  • Apr 11, 2012 6:52pm Apr 11, 2012 6:52pm
Ive been trading on currenex for a year or so now and am happy with the spreads fills speed etc etc However i find the fact that my broker tells me the reason i cannot see a counterparty name in the market depth box is because the liquidity provider wishes to remain anonymous. Really?

I reckon and its just my thought that with brokers springing up everywhere now offering access to currenex that currenex for the retail trader is no more than a white label trading platform providing a price feed that the broker may or may not widen but is not actually connected to the interbank market/ECN whatever and the old game is in play where its in the brokers interest for the client to lose money which according to stats is over 90% of retail traders so all the broker has to do is offset the book and act like a casino collecting and keeping clients lost funds. This is in my mind is NOT what i thought i was doing when i started to trade on a transparent ECN.

Can anyone comment or put me right on this. thanks
  • #18
  • Oct 24, 2014 2:12pm Oct 24, 2014 2:12pm
I have a question. when you look at real time spread comparison websites it show ecn brokers having different spreads. how is this possible. i thought an ecn market is just one big market and thus all forex brokers should show the same spread. somebody hep me understand
  • #19
  • Last Post: Oct 26, 2014 3:46am Oct 26, 2014 3:46am
Quoting ericnyamu
I have a question. when you look at real time spread comparison websites it show ecn brokers having different spreads. how is this possible. i thought an ecn market is just one big market and thus all forex brokers should show the same spread. somebody hep me understand
It depends which and how many banks are providing prices to your broker.
It also depends of the deal you have with your prime broker.
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