Foreign Exchange Ecosystem | Forex Factory

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Foreign Exchange Ecosystem

  • #1
  • First Post: Oct 23, 2012 8:54pm Oct 23, 2012 8:54pm
This is a very interesting post on a poker forum I visit. The thread is about how poker rooms are making poker... not poker. (taking away high-stakes, taking away big tables, taking away things that makes poker players play and turning their room into Bingo Night)

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It's not a logic of revenues. It's now an issue of the eco-system itself.
How do you produce rake? Rake is created from deposits (yes it doesn't appear magically).

Who makes deposits in order to sustain enough liquidity of money to have a viable system? Fishes because they go broke and then deposit. Repeat and rince.

If you have a network that has a ratio regs/grinders > fishes, your model will collapse at one point. So you need enough fresh deposits every month in order to cover the amount of rake produced. Simple example on small sample:
Let's say your network has a total of 10 players with 5 grinders and 5 fishes. All have the same BR of 1k€ each.
Grinders never deposit again because they never go broke/get bonuses from VIP plan to at least breakeven and only the 5 fishes deposit 200€ per month. Total deposit per month: 200*5=1000€
Grinders rake each 200€ per month and fishes rake each 50€ per month. That's a monthly total rake of 1250€.

Knowing that you have 1250€ rake produced from money of players and 1000€ deposited each month it means that in the space of 40 months, there is 0€ money left on any account of the 10 players or simply Regs/grinders stop giving each other action or they reduce the volume played?

I'm not saying regs are better than fishes for the rooms but I'm saying that they have more interest in "protecting" their fishes with more bonuses or limit the stakes they can play (reason why highstakes are being removed on Party) so they don't lose their money too fast etc... Also that's why you don't see rooms offering high RB % or rake races anymore (way less than years ago). And also reason why they limit action regs/grinders can have (by limiting # tables etc...) so they don't eat too fast the liquidity of money of the network by either turning it into rake or profit because once it's profit, regs don't give it back to the network liquidity....
I've been trying to put this into a trader's perspective. If there are sharks and fish, who are they? First, I need to find out who the market participants are.

The market participants range from central banks, interbanks, companies, hedge funds, to retail.

A central bank manages a state's currency, interest rates, and money supply. Their actions are usually referred to as an "intervention".
Banks such as the Deutsche Bank, UBS, and Barclays provide services for corporate and institutional clients.
Companies hedge against potential rising cost.
Hedge funds speculate to profit, are considered institutional.
Retail includes the retail broker and retail trader.

All together, on average, they turn out about five trillion dollars in daily volume. (2011) Retail accounts for about 217 billion dollars. (2011) That's about 4% of daily volume. This includes the broker facilitating the trade for the retail trader. So, one could say that the retail trader volume is only 2%. People like to say that the "big boys" do things like stop hunts. Surely, they wouldn't be profiting by hunting the retail traders, would they? I don't think they would be able to. With this, it seems retail has it's own ecosystem. The retail trader is the most numerous amongst the participants, though are only alive because the retail broker allows them to live. This is like a jellyfish that grows algae in itself.

Interbanks provide the liquidity for hedge funds and companies. The funds are looking to profit, while the companies are looking to minimize their loss. A fund can easily be seen as a shark, but what about a company? Is it a whale or a fish? Is it something else? What about the interbanks?

The central banks work hand-in-hand with their governments. This brings the idea of economic warfare. To prevent Iran from getting nuclear capability, there has been numerous sanctions placed on the nation. It's currency has dropped 80%. If the enemy can't buy any guns or bullets, how can they fight?

I've used google, wiki, and this site for some sources. Though, I would like to know what others think. I am sure I am not completely correct in my information; if I am wrong, please, let me know.
Play the players, not the cards.
  • #2
  • Oct 28, 2012 1:29pm Oct 28, 2012 1:29pm
I have been looking into the effects of the reduced leverage in America but I can't really find anything right now. I'll keep looking, though. The reason I'm looking into that is because it would seem that with reduced leverage, less people would want to play in such a market; they would rather seek higher leverage.

The U.K. will allow 1:500 while America will only allow 1:50. If you're looking to make money, where would you go? I don't think investment banks would simply leave town, or that institutional traders would either. Though, some probably did. Not only that, but the 1:500 seems like it would attract new institutional players and investment banks.

This, in turn, reduces the taxes the 1:50 state collects and increases in the 1:500. (I assume.) Now, if we look at tax rates, the American corporate tax rates range from 15%-35% while the U.K. seems to be under 25%. (I can't find solid information right now.) I think the 35% scares some players.

So, it seems the U.K. is rather favorable over America in the ecosystem. I'm only a retail trader, so my knowledge is limited and my thoughts shouldn't be taken as concrete.
Play the players, not the cards.
  • #3
  • Oct 30, 2012 1:07am Oct 30, 2012 1:07am
I consider this post to be relevant to the ecosystem, simply because it tries to defines why who does what. I'm on the idea of something like a ratio of institutional traders to investment banks, or maybe I should look at the ratio of institutional traders to commercial traders... There's also retail brokers to retail clients, which then can be looked in even more as micro traders to standard or something like that. But enough of that, more on what you will watch. (Hopefully)

Inserted Video


I would assume that a lot of retail traders, or at least, those who literally have no fucking idea what they are doing, might find the fib numbers astounding or complete bullshit. If they find it astounding, sure enough, they'll go and try to trade with it. Maybe they'll get lucky nabbing a few pips or having the idea of using it as a tool amongst a kit. However, they may never look into why such patterns actually exist.

I mean, sure, you can say that, "If plants do it, and you can see it in human behavior, well I'm going to be a fucking idiot!" But, you probably don't actually want to do that.

If you can't actually watch the video, I'm kind of explaining it, though you should all watch the videos in the short series. Basically, leaves on a plant grow as far as possible from the previous one. Though, the first one just grow where the closest and largest amount of growth hormones are at. Sometimes, the leaves will not always grow phi amount away from each other. Sometimes, the second or third leaf may mess things up. This will change everything, kind of like the butterfly effect. So, even though it may seem unstable to fuck up, there's other patterns like lucas numbers and a series of numbers that mimic fib. (fib = 1,1,2,3,5,8 you could end up with 1,1,2,2,4,6,10)

Understanding why plants grow in such a way may help to clue us in in whether or not such patterns are even useful for being profitable in trading. First, we have to see the "growth of an entirely new plant", or the "growth of the first leaf". It's a good thing we can actually go back in the price chart, though, does this really allow us to see "why"? Maybe, we should look at the obvious waves in the chart. Maybe, they form as far away as possible from the previous? Is there "growth hormones" in trading? Or, could it be extreme supply/demand imbalances we should be looking at?

I won't be answering all the questions on here, because I encourage you guys to do your own research. The questions may be limitless, but we still try to find the last digit of pi. (Maybe, there's something similar about pi, fib, lucas, and other things?) (Fuck, so many questions.)
Play the players, not the cards.
  • #4
  • Last Post: Dec 17, 2012 5:49pm Dec 17, 2012 5:49pm
Quoting GnarlyPips
I have been looking into the effects of the reduced leverage in America but I can't really find anything right now. I'll keep looking, though. The reason I'm looking into that is because it would seem that with reduced leverage, less people would want to play in such a market; they would rather seek higher leverage.
Definately they want higher leverage. They can get around the FIFO rule with multiple accounts, but the only way for Americans to get higher leverage is by going offshore... that is, become incorporated in another jurisdiction... BVI, Belize, Seychelles etc, although it's not as simple as that... I know plenty of American traders who do do this. It's a simple matter of economics.

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The U.K. will allow 1:500 while America will only allow 1:50. If you're looking to make money, where would you go? I don't think investment banks would simply leave town, or that institutional traders would either. Though, some probably did. Not only that, but the 1:500 seems like it would attract new institutional players and investment banks.
You can get leverage up to 2,000:1 on small accounts in some countries, I have a 2,000:1 account that works on balance up to $500, then leverage drops to 1,000:1 up to $1,000. Great for scalping ... start a $100 account with 2,000:1 and have a sub account to regularly transfer profits out to as the balance reaches $500.

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This, in turn, reduces the taxes the 1:50 state collects and increases in the 1:500. (I assume.) Now, if we look at tax rates, the American corporate tax rates range from 15%-35% while the U.K. seems to be under 25%. (I can't find solid information right now.) I think the 35% scares some players.
Go offshore and reduce your corporate taxes to virtually zero... that's as good as making up to 35% a year profit in your trading.

Costs of securely structuring offshore are in the vicinity of $10,000, and it is 100% legal.

If Google and thousands of other American corporations etc are structured offshore, and your figures say you should do it, well... why not do it?

Where an offshore structure can get a person in trouble is if they don't declare their taxable income in their own country, however if you don't personally make an offshore income, there is nothing to declare.
In the days of old when sailors were bold, and seldom if ever contented.
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