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  • #121
  • Jan 17, 2015 2:34pm Jan 17, 2015 2:34pm
Quoting stoplossmatt
stop loss matters as a regular contract. otherwise there will be no risk management possible and everything will loose sense. who will guarantee you tomorrow that you are protected at any time and at any position?stop loss must matters same as a trading order. regulators need to make all operators to respect and obey their clients stop loss orders or it will be a huge neglect on clients account. only with stop loss risk-management is possible by anyone. so at the end of the line if there is not a market maker that takes a stop-loss order operators...
Complete Nonsense.

The market is designed in a way that your winnings are limited, but your losses are not.

Think about it in this way: A Slot Machine Manufacturer is designing a new Slot Machine.

The Slot Machine Manufacturer of course designs the Slotmachine in a way that the odds are beneficiary to the Casino, not to the Gambler.

Now what you basically say is "Regulators should force Slot Machine Manufacturers to build only machines with better odds to the Gambler than to the casino". That's just not gonna happen mate.
Forex is a losers game.
  • #122
  • Edited 3:02pm Jan 17, 2015 2:36pm | Edited 3:02pm
Understanding how FXCM got margin called.

Forex brokers belong to basically 2 models.

Market Makers and ECNs

FXCM used to be a MM. Than they became a hybrid MM/ECN and lately with their NDD they were in process of becoming a 100% ECN broker.

FXCM act just like a big institution operating in the interbank market.

Their NDD algorithms sort out each order from their thousands clients in blocks or "bunched orders" as the NFA describes it.

So as an example, all the EUR/USD orders are sorted on the basis of how many dollars are available to buy how many euros. And vice-versa.

Than FXCMs NDD algorithms, scans their LP quotes. Finds the best deal, and act as a big buyer (or seller) of the aggregated amount of their customers orders for each currency.

According to CFTC regulations, Forex brokers have to have a minimum of 20M just to start operations.

Than they have to keep a percentage as margin for each currency which is 2% for majors and 5% for other currencies.

They also have to have 100% or more collateral ( in money) available all the time to make their customers whole.

FXCMs computers are programed to close a position way before it becomes negative which is known as margin call.

In normal market conditions, If you are long the EUR/USD (meaning you earlier exchanged your dollars for euros) and the pair is falling at a certain point while your account is still positive the computer will automatically generate a order to exchange your euros back to dollars.

NDD algos will scan quotes, find the best deal, and execute the exchange.

Of corse you will end up with a lot less dollars that you started with but never "owing dollars" NEVER WITH A NEGATIVE BALANCE. Thats the anatomy of a margin call

Thursday something very rare happened.

During a certain period of time there was no quotes for FXCM NDD algos to execute any trade.

The SBN announcement was so unexpected that everybody went to the exit door at the same time.

Banks which provide liquidity to FXCM got jammed with order which triggered their panic breakers so nobody was quoting.

For a period of time there was no market.

Forex ceased to exist for a few minutes.

When LP started to quote again the first quote on certain pairs was hundreds if not thousands of pips below NDDs point of automatic liquidation.

So at those prices several accounts needed more money than what they have to exchange back. A lot of them massively in red.

After FXCM reviewed their books they got to the conclusion they did not have 100% of the money compared to liabilities.

They found out that to make all their clients whole, respect percentages and the 20M required by law, they would have to come up with 300M.

They were insolvent according to current laws.

FXCM market cap on Wednesday was 600M.

So they found a loan shark to lend them 300M and VOILA!! They suddenly became legal again


Understanding Market Maker brokers

A MM model broker will never face the kind of problem FXCM experienced in the same situation.

Market Makers never ( or should I say rarely) send any orders to the interbank market.

All orders from their clients are offset internally inside their database.

Thats why they are called Market Makers because if you trade with them, THEY ARE THE MARKET.

So lets say they have 2000 clients short EUR/USD and 2500 long and the market is going down and the majority is losing.

If their clients close their positions and the balance is negative, meaning more people lost than gained the MM pockets the difference.

A day like Thursday with massive margin calls is the MM wildest dreams fulfilled.

A MM also have to have 100% of money to make their clients whole all the time, so their only problem is when the majority of their customers are in the right side of the market.

In this case they have to go to the interbank market and offset the difference in order to stay legal.

Thursday's event showed exactly who are the MMs and who are(were) the ECNs.
So, you think you have rights? LOL
  • #123
  • Jan 17, 2015 3:14pm Jan 17, 2015 3:14pm
Bodies already starting to float......

http://www.bloomberg.com/news/2015-0...main-fund.html
So, you think you have rights? LOL
  • #124
  • Jan 17, 2015 3:59pm Jan 17, 2015 3:59pm
Quoting ForexOracle
Understanding how FXCM got margin called. Forex brokers belong to basically 2 models. Market Makers and ECNs FXCM used to be a MM. Than they became a hybrid MM/ECN and lately with their NDD they were in process of becoming a 100% ECN broker. FXCM act just like a big institution operating in the interbank market. Their NDD algorithms sort out each order from their thousands clients in blocks or "bunched orders" as the NFA describes it. So as an example, all the EUR/USD orders are sorted on the basis of how many dollars are available to buy how many...
Thanks for this clear information. Much appreciated.
  • #125
  • Jan 17, 2015 4:08pm Jan 17, 2015 4:08pm
Some under-capitalized firms and apparently some funds as well went bust. Well, the Swiss Event is just the free market flushing out weak hands. Look at it this way, most new businesses don't survive. Why should funds or forex brokers/market makers be any different? Laissez faire and all that....
  • #126
  • Jan 17, 2015 4:17pm Jan 17, 2015 4:17pm
FXCM stock last traded $4.32, looking like it will go to $0. Or will it bounce? Options are illiquid but they're there.
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #127
  • Jan 17, 2015 4:27pm Jan 17, 2015 4:27pm
Quoting The Fool
FXCM stock last traded $4.32, looking like it will go to $0. Or will it bounce? Options are illiquid but they're there. {image}
The company will be re-priced as price discovery goes on.

They are still the same company,same management but new ownership.

It almost feels like a hostile takeover. Even if technically it isn't.

I bet their price model will change.
So, you think you have rights? LOL
  • #128
  • Jan 17, 2015 6:22pm Jan 17, 2015 6:22pm
Yeah. Change forever
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Belive & Achieve
  • #129
  • Jan 17, 2015 6:32pm Jan 17, 2015 6:32pm
Bragging about your successes with market makers lets me know right off the bat that you are marginally successful or you're using a relatively small deal size. They are not obligated to continue allowing you to trade. If you begin to cost them an above average amount of money, they will quietly ask you to leave or will come up with a creative excuse for why your account has been terminated. What they are looking for are 1/3 profitable (but not too profitable) traders and 2/3rds cannon fodder. In all fairness, Gain paid me every penny they owed me, and it's smart business to get rid of traders who are costing your company large amounts of money, but I am persona non grata at Gain and I do not trust non-US based market makers. I have no option but to use ECN brokers. This has been my career for the larger part of a decade and I am not going to intentionally lose trades or use small deal sizes in order to conform to a canned profit model or to keep my head low. I find it extremely disturbing that serious flaws in the NDD model were exposed this week. It seems that many of you have a rather cavalier attitude about Thursday's unprecedented event. Prior to Thursday, an intelligent person could start a micro account and with plenty of hard work could grow a $100 investment into millions in a matter of years by steadily increasing the amount of leverage per deal and maintaining a consistent win rate. That dream was taken away from you on Thursday. Make no mistake. And please have the good sense not to mention market makers as an alternative to ECN brokers. Your ultimate growth is determined by them, not you.
  • #130
  • Jan 17, 2015 6:48pm Jan 17, 2015 6:48pm
Brokers should work out a reward model with regulators.

The longer you stay in the game the more leverage you are allowed.

You start with 5:1 leverage if you can't prove prior experience as a trader.

As years go by you can reach the 50:1 limit.
So, you think you have rights? LOL
  • #131
  • Edited 7:44pm Jan 17, 2015 7:15pm | Edited 7:44pm
Just had a quick chat with my broker..... nothing really ground breaking here

Cindy: Hello Tom,
Tom: hello
Are you able to inform me of Weltrade's exposure to the SNB removal of the peg?
ie has weltrade suffered any significant losses?
Cindy: Our company operates in the standard mode as usually. But please note the news ''CHF crosses are placed in the mode "Close only"
11:43 am http://www.weltrade.…company/news/?ELEMENT_ID=49853
Tom: yes i see this
are you able to inform me of any losses weltrade suffered as a result the SNB decision?
Cindy: We did not suffer losses because all client orders are hedged by MIG Bank, TopFX, LMAX Exchange liquidity providers.
Thus the company does not undertake any foreign exchange risk that distinguishes us from other brokers.
Tom: ok thankyou
Cindy: You are welcome!
"Don't get caught trading wheat in the corn pit"
  • #132
  • Jan 17, 2015 8:14pm Jan 17, 2015 8:14pm

  1. I trade with 500:1 leverage broker. People who do not know how to use leverage simply shouldn't trade. For those that do, the leverage restriction impeeds our ability to make money. I have a $10,000 forex account of which $9,000 is kept in my FDIC insured bank account. I open positions with about 7:1 and as trade goes in my favor, I scale in to the point where sometimes I am at 200:1 with stops at break even. This week I risked $20 on a euraud short and my profit on the trade was $844. Explain to me how I could do this with these regulations that are protecting us. First of all, I would have to put up 10 times the margin to execute the same size trade and I have to put that amount up with a broker who does absolutely nothing to protect my funds. Nobody stops anyone from walking into a casino and betting any amount they want, why are they so worried about what we risk on forex. Go police the casinos! If you want to help, make segregated accounts mandatory.

  • #133
  • Jan 18, 2015 12:58am Jan 18, 2015 12:58am
You think because you can manage leverage this wouldn't have affected you? Unfortunately I have nothing to do with knowing how to use leverage. You could have lost much more than you could imagine.

Quoting Profit Daily
I trade with 500:1 leverage broker. People who do not know how to use leverage simply shouldn't trade. For those that do, the leverage restriction impeeds our ability to make money. I have a $10,000 forex account of which $9,000 is kept in my FDIC insured bank account. I open positions with about 7:1 and as trade goes in my favor, I scale in to the point where sometimes I am at 200:1 with stops at break even. This week I risked $20 on a euraud short and my profit on the trade was $844. Explain to me how I could do this with these regulations that...
  • #134
  • Jan 18, 2015 1:04am Jan 18, 2015 1:04am
Quoting trader121
{quote} Complete Nonsense. The market is designed in a way that your winnings are limited, but your losses are not. Think about it in this way: A Slot Machine Manufacturer is designing a new Slot Machine. The Slot Machine Manufacturer of course designs the Slotmachine in a way that the odds are beneficiary to the Casino, not to the Gambler. Now what you basically say is "Regulators should force Slot Machine Manufacturers to build only machines with better odds to the Gambler than to the casino". That's just not gonna happen mate.
if stop losses on 15/1/15 are not to be revised and repaid to the clients there will be no more Forex from tomorow and beyond,,without having a SL i advise anyone having JPY pairs be caution from Japanese central bank QE being stopped anytime, then you have a risk of EUR QE next week, then you have a possibility of Greece leaving the EU, tyen you have a risk of RBNZ devaluating their currency since they mentioned couple of months they see NZD arounf 0,58..0,65...so who will keep any position even with leverage 1:5 with all this Black Swan non-senses from Monday and beyond....in some part you are right after this people better go to Casino then trading Forex..you can only loose your coin
  • #135
  • Jan 18, 2015 1:08am Jan 18, 2015 1:08am
Quoting The Fool
{quote} This is the crux and it applies not just to trading but in all areas of people's lives wherein the State (or the King or the Church, etc) may attempt to intervene in people's affairs for their own "good". If I don't want or feel I need medical insurance, why should I submit to the US government's requirement that I enroll in ObamaCare? Some will say that if I don't, the rest of society that does so will be subsidizing my uncontrolled medical expenses, should I incur any. They will suggest that enforced participation in ObamaCare is necessary...
my sentiments exactly !

i received an email from my stock broker this week that says that the political party that currently governs my country, South Africa, has signed agreements with the IRS of the USA to share client information...wtf ???
the most powerful organ in the world the IRS of USA ??? Yes it is.
in addition, they want to know if i have any 2nd passport or passports...WHAT ???

there are three "rogue" countries outstanding that refuse to bow down to IRS enslavement and they are, no prizes or surprises here...
they are...???...hint...who has USA engineered sanctions against them ???
Russia, Iran and China. currently the Slave Masters are trying to subdue, breakdown, breakup and destroy Iran and Russia and they won't stop until they succeed or are repulsed convincingly and terribly. China is next on their destruction list.

my point ?
i don't need politicians to tell me what i can eat and what i can't...how much leverage is safe for me or not...who i can be my friends and who can't be...are we as citizens such a threat to our government that they want to know how many legitimate passports i have ?
the police state is now global.

i have 40 years 1st hand experience of a police state here in my country South Africa, and now the Police State is firmly entranced in the USA.
  • #136
  • Jan 18, 2015 1:25am Jan 18, 2015 1:25am
Quoting Pippy5000
Bragging about your successes with market makers lets me know right off the bat that you are marginally successful or you're using a relatively small deal size. They are not obligated to continue allowing you to trade. If you begin to cost them an above average amount of money, they will quietly ask you to leave or will come up with a creative excuse for why your account has been terminated. What they are looking for are 1/3 profitable (but not too profitable) traders and 2/3rds cannon fodder. In all fairness, Gain paid me every penny they owed...
yes many cavalliers on this forum..like they are happy what happened:?!!!...i have spent 15 months learning Forex day and night..demo trading it..with small children and wife complaining what am i doing in the middle of the night and early morning... i have started live trading 5 months ago made 20% profit, started to see a brighter future ahead of me, opened a small eur/chf position with -1% loss protection with SL and now i am 25% negative on my account...so 2 years of hard work gone down the drain..now i should spend next 6 to 12 months just to reverse my thursday losses..and come again a new Black Swan can happen at any time in the future and at any moment...Forex market is dead after this if things are not straighten up and the one who should take the blame be brought to justice..starting from central bankers and beyond
  • #137
  • Jan 18, 2015 1:43am Jan 18, 2015 1:43am
I could be wrong here but it seems the brokers themselves are to blame. There was no gap. AS opposed to a standard mt4 broker chart I took a look at an IB chart because there you have actual trades regardless of whether the broker was accepting trades. This is important because then you know what was going on in the market and not what was happening at the broker. On my 30 second chart there was a huuuge move just like everyone saw but there was no gap. This is really important in my eyes because it meant that there were trades taking place even if your broker was closed. On my standard mt4 broker I saw a gap but that gap never happened. It just seemed that way because they were closed. Now I am sure liquidity did come into play but any account that was short the franc (i.e. long eurchf, usdchf, etc) should have been able to have their positions liquidated without going below 0.

The reason why they weren't closed out in time was because of the huge allowed leverage. Let's examine for a second an example. A typical trade would look like this in an extreme example. 3% risk with a 20 pip stop loss on a 10k USD account. So he wants to risk 300 USD so he needs 1.5 standard lots. 1.5 lots * 10 USD per pip * 20 pip stop loss = 300 USD risk. Mind you that most stop losses are more than 20 pips and most people are risking 1-2% per trade but I just wanted to present a more extreme example and yes there are more extreme examples. This trade only requires 15:1 leverage. That is to say 1.5 lots is 150k. 150 / 10k = 15:1 leverage. Now obviously the trade needs to account for the actual stop loss which adds another 300 USD which is really nothing. US brokers allow for 50:1 leverage by law which would allow someone to accept a much larger loss but still acceptable. Additionally, I believe most are allowing about 25% of the margin requirement for maintenance margin.

Let's see how that might play out. This trader had 1.5 lots on. His margin requirement was 3k and 25% of 3k is 750 for his maintenance requirement so he should have received a margin call (in forex this means immediate closure of your positions) when he had 9,250 USD in losses or when is equity was 3000 USD. At that point our trader would have been at a loss of 616 pips (hopefully he would have had a sl and his position would have been closed) however the broker still has 50 pips to close out his trade before he has negative equity and therefore even on this that was still probably enough time.

The problem arises with the higher leverage brokers. If you look at alpari they were offering 500:1 leverage. If you look at the same trade with the same risk profile the required margin was only 300 USD and the requirement was only 20% so he only needed 60 USD to keep his positions open. His position would have been at a loss of 662 pips which isn't that much more but the risk is on the broker because with only 60 USD in equity the broker had no chance to keep this account above 0 since 4 pips was unrealistic slippage.

I think 50:1 is fine. What needs to change is the maintenance requirement. The maintenance requirement needs to be at least 50%. So in the first example, the closeout would have taken place with 1500 USD in equity thus giving the broker a 100 pip cushion. You might say that there was no liquidity but I propose that had there been only 50:1 leverage, there would have been more liquidity and combined with the increased cushion we would be in a much better situation today.
  • #138
  • Jan 18, 2015 1:45am Jan 18, 2015 1:45am
Quoting stoplossmatt
{quote} yes many cavalliers on this forum..like they are happy what happened:?!!!...i have spent 15 months learning Forex day and night..demo trading it..with small children and wife complaining what am i doing in the middle of the night and early morning... i have started live trading 5 months ago made 20% profit, started to see a brighter future ahead of me, opened a small eur/chf position with -1% loss protection with SL and now i am 25% negative on my account...so 2 years of hard work gone down the drain..now i should spend next 6 to 12 months...

Matt, this event was foreseeable. It really was not as much a blackswan event as the crash of 1987, because the EUR/CHF was essentially not allowed to float freely. The entire market context was broken from the beginning. Pegs can be maintained, but not forever. Looking at the currency reserves/GDP ratio it was clear that the SNB would run out of CHF to keep supporting the EUR. The swiss were essentially applying currency controls in an approach similar to Venezuela and other socialist counties. In the end market forces always win out over these manipulations and controls. ALWAYS.

This was not just a volatile news event within the context of the market but an event that redefined the context itself.

The lesson, stay away from pegged currencies.
  • #139
  • Jan 18, 2015 3:30am Jan 18, 2015 3:30am
no it was a wrong move completely. if you ask me on 15/1/15 SNB should have lowered interest rate to 0,75, as they did and rise the peg to 1,25 and signal in the statement that it is willing to do further risings if necessary to protect overvaluation of CHF..as it was normal and all normal traders expected after their last meeting 1 month ago...by doing so they would have punished those who purchased CHF and made a pressure on themselves to protect their economy and reserves...by doing what they did they have rewarded those who made a pressure on CHF and their efforts to protect economy...now those rewarded ended up with huge profits, while their own citizens and companies especially will have to fight with competitiveness....swiss producers now suffer the risk that their product at cost of 1000 chf will be more expensive from EU products costing 10000 eur....this SNB move is totally juvenile and uncompetetnt if you ask me
  • #140
  • Jan 18, 2015 3:38am Jan 18, 2015 3:38am
Quoting stoplossmatt
no it was a wrong move completely. if you ask me on 15/1/15 SNB should have lowered interest rate to 0,75, as they did and rise the peg to 1,25 and signal in the statement that it is willing to do further risings if necessary to protect overvaluation of CHF..as it was normal and all normal traders expected after their last meeting 1 month ago...by doing so they would have punished those who purchased CHF and made a pressure on themselves to protect their economy and reserves...by doing what they did they have rewarded those who made a pressure on...
It may have been the wrong move, but how does that help you as a trader? The market is always right. Never forget that!
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