How to become a liquidity provider? | Forex Factory

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How to become a liquidity provider?

  • #1
  • First Post: Aug 13, 2012 12:01pm Aug 13, 2012 12:01pm
Hi, i am a pro algo trader. I have spent 2 years to develop my algo that after looking at its parameters i realized that it can play LP easily.

I am exploring some ideas now:
1- open brokerage and provide my own customers with liquidity
2- provide others with liquidity

If you have relevant opinion or info , please share.

Thanks
Skype: tlcodelearncircle
  • #2
  • Aug 13, 2012 2:15pm Aug 13, 2012 2:15pm
I don't understand, please explain: are you a liquidity taker or provider? And if you provide liquidity who is/will be your PB/will you setup clearing via CLS?

You could use Currenex's credit lines and provide liquidity on their FXTrades none bank/undisclosed liquidity pool. Or, you could setup a PB relationship with Rabo (currently set at 500k), and have a FIX plugin to CNX too. There are of course many other options. Depends really what you want. I am not quite sure.
  • #3
  • Aug 14, 2012 1:16am Aug 14, 2012 1:16am
Quoting QuantHFTer
Hi, i am a pro algo trader. I have spent 2 years to develop my algo that after looking at its parameters i realized that it can play LP easily.

I am exploring some ideas now:
1- open brokerage and provide my own customers with liquidity
2- provide others with liquidity

If you have relevant opinion or info , please share.

Thanks
http://actforex.com/
  • #4
  • Aug 14, 2012 11:10am Aug 14, 2012 11:10am
Quoting Roughneck
I don't understand, please explain: are you a liquidity taker or provider? And if you provide liquidity who is/will be your PB/will you setup clearing via CLS?

You could use Currenex's credit lines and provide liquidity on their FXTrades none bank/undisclosed liquidity pool. Or, you could setup a PB relationship with Rabo (currently set at 500k), and have a FIX plugin to CNX too. There are of course many other options. Depends really what you want. I am not quite sure.
Thank you

My algo is AMM and liquidity provider.

I am still novice one how to do liquidity provision with max profits. I have started exploring this business with many exchanges such as LMAX after i noticed the parameters of my ATS. However, much of this business is not published so i have to rely on personal contacts.

My current thinking is to start my own brokerage and provide partially liquidity to my clients. I should creat some bias towards my algo so it could peek on order book and decide which orders to match and pass other unmatched orders to external LPs.

I am expecting with time, i can totally provide liquidity 100% to my clients and make the whole market. Sometimes, my algo has to seek liquidity from external LPs to provide my algo and also my clients. so, it will include smart routing.

I am thinking to get M4 platform of modulus and use it as my brokerage platform.

plz, PM or post here for your convenience.

Thanks for all
Skype: tlcodelearncircle
  • #5
  • Aug 14, 2012 11:12am Aug 14, 2012 11:12am
Quoting PoundTrader
http://actforex.com/
Thanks but what makes this platform more advantageous over M4 modulus or even unitrader.

plz share
Skype: tlcodelearncircle
  • #6
  • Aug 14, 2012 11:37am Aug 14, 2012 11:37am
Some initial thoughts...

As a broker you need to be at or very close to the current market, how will you have an edge?

All brokers that act as a market maker already have a very good liquidity providing system. They buy when the client sells and sells when the client buys. Given the % of losing clients it is self fulfilling.

Cost of, personal understanding of, knowing trustworthy people with experience in regulatory issues, cap requirements, compliance etc.

VS
Trading your own acct.



Quoting QuantHFTer
Thank you

My algo is AMM and liquidity provider.

I am still novice one how to do liquidity provision with max profits. I have started exploring this business with many exchanges such as LMAX after i noticed the parameters of my ATS. However, much of this business is not published so i have to rely on personal contacts.

My current thinking is to start my own brokerage and provide partially liquidity to my clients. I should creat some bias towards my algo so it could peek on order book and decide which orders to match and pass other unmatched...
  • #7
  • Aug 14, 2012 11:44am Aug 14, 2012 11:44am
The idea is not hedging my clients because i know 99% will lose. So their loss is my profit. The idea is that i will trade and i will provide liquidity to them. At the same time i will provide partially liquidity to my algo by my clients. So, my algo is trading actually and providing liquidity is part of the game and not the whole game.
Skype: tlcodelearncircle
  • #8
  • Aug 14, 2012 11:52am Aug 14, 2012 11:52am
Quoting Big1red9
Some initial thoughts...

As a broker you need to be at or very close to the current market, how will you have an edge?

A
Let us say, my AMM could play up to 1-2 yards per month using 100% pending orders. So, my edge is not only based on the liquidity provision but based on a trading logic. Providing liquidity will maximize my profits and lower my risks. I am looking for a win/win situation to myself and my clients. So, i believe i could provide a real service to my clients because my profits will partially will be cutted out from potential LPs.

So, if there is a STP broker that have for example average 1.5 pips spread for clients and the cost was 1.2 has to paid to LPs. So, its profit will be .3 or 30/m, my model will be something similar to the following:

I will first play as a partial market maker " with hybrid model and later will be full market makert" that provide 1 -1.2 average spread to my clients and the cost will be only .8. Because i am going to take the risk and hedge in-house. Later, by making the whole market, i can go down with the spread to 0.8 to my clients which will be totally my profit.

Also, being making the market, the latency and execution for clients will improve. I will depend mostly on post-trade risk calculation not on pre-trade risk calculation. This will save some precious ms
Skype: tlcodelearncircle
  • #9
  • Aug 14, 2012 8:29pm Aug 14, 2012 8:29pm
I think you're overestimating interbank spreads. The larger retail brokers have pools of liquidity giving them the ability to hedge at almost no cost. Some HF firms are even paying for retail flow.

If you're really considering starting a brokerage, I would take another look at the trends in regulation and profitability. Smaller brokers don't have a chance and are either closing or being bought up.
  • #10
  • Aug 17, 2012 4:52pm Aug 17, 2012 4:52pm
Can someone knowledgeable about this please explain to me what exactly an "algorithm" is?
  • #11
  • Aug 19, 2012 5:37am Aug 19, 2012 5:37am
Quoting dice action
Can someone knowledgeable about this please explain to me what exactly an "algorithm" is?
an algorithm is like an alligator, only a little bit better at dancing.

http://en.wikipedia.org/wiki/Algorithm
  • #12
  • Aug 19, 2012 6:11am Aug 19, 2012 6:11am
Start Trading
H.D
  • #13
  • Aug 19, 2012 8:52am Aug 19, 2012 8:52am
Quoting mlewis
an algorithm is like an alligator, only a little bit better at dancing.

http://en.wikipedia.org/wiki/Algorithm
I had already seen that article, and didnt feel much wiser from it.
I guess what I want to understand is what an algorithm means as it pertains to FOREX.

If I have a trading system, can I call that an algorithm?
If so why not?
So what IS an algorithm?
  • #14
  • Aug 19, 2012 12:09pm Aug 19, 2012 12:09pm
Quoting QuantHFTer
Let us say, my AMM could play up to 1-2 yards per month using 100% pending orders. So, my edge is not only based on the liquidity provision but based on a trading logic. Providing liquidity will maximize my profits and lower my risks. I am looking for a win/win situation to myself and my clients. So, i believe i could provide a real service to my clients because my profits will partially will be cutted out from potential LPs.

So, if there is a STP broker that have for example average 1.5 pips spread for clients and the cost was 1.2 has to paid...
@QuantHFTer: I don't see your point becuase what you want to do is excactly what market makers are doing. So why not open your own Brokerage?
Forex is a losers game.
  • #15
  • Aug 19, 2012 12:44pm Aug 19, 2012 12:44pm
@dice action - an algorithm is in very simple terms just a formula. You getting into computer science which I suspect from your post is not your strong point.
  • #16
  • Aug 20, 2012 2:33pm Aug 20, 2012 2:33pm
While you are right that many retail traders are losers, you have to consider that you cannot simply take the other side ALL the time. When there is a strong move in one direction, even the dumb money will jump after it and you will be in the end trying to catch the bottom/top. You have to hedge in such scenarios.

I think you simply things way too much, it isn't easy at all. Beside that, what capital do you have in mind to start this business?
  • #17
  • Aug 20, 2012 6:20pm Aug 20, 2012 6:20pm
Quoting C345
@dice action - an algorithm is in very simple terms just a formula. You getting into computer science which I suspect from your post is not your strong point.
Can you provide an example of an FX algorithm then?

A formula, what is that.. How would you make a formula for fx.
I just dont see it, or how I could go about making an fx algorithm myself, so perhaps you could provide an example? What software.. etc Just to give me an idea
  • #18
  • Aug 20, 2012 6:36pm Aug 20, 2012 6:36pm
Quoting CaymanTrader
1-you cannot simply take the other side ALL the time.

2- what capital do you have in mind to start this business?
1- I previously said in post # 5 that i am going to PARTIALLY provide liquidity to clients.

2- What is the least capital needed " if you have an answer based on real data, Please share it "
Skype: tlcodelearncircle
  • #19
  • Aug 20, 2012 6:38pm Aug 20, 2012 6:38pm
Quoting trader121
@QuantHFTer: I don't see your point becuase what you want to do is excactly what market makers are doing. So why not open your own Brokerage?
You are right and that is exactly what i am asking for more info about
Skype: tlcodelearncircle
  • #20
  • Last Post: Aug 29, 2012 3:26am Aug 29, 2012 3:26am
Quoting QuantHFTer
1- I previously said in post # 5 that i am going to PARTIALLY provide liquidity to clients.

2- What is the least capital needed " if you have an answer based on real data, Please share it "
So do you want to

1. start with an existing B book implementation and supplement it by providing you own prices when you feel you can do better and leaving the B book to deal with the rest?

2. do you want to provide your own position management of an existing B book implementation

1. Is active , synchnronised with the trades taken from the clients - and the price feed you send is supplemented by you
2. Is passive, you use the 'regular' B book implementation feed, take trades, acquire an aggregate position - and you trade out of it yourself with your algo


No answer am afraid - i just wanted to clarify the requirement. I don't have sufficient product knowledge but i would be interested in a solution that offered both of the above
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