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Brokers and Banks as an Institutional Trader 4 replies

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Is anyone here an institutional trader?

Quoting Binyamin
{quote} Because according to some of them in PIE thread these patterns are intently made by IT, ways to trick retailers into giving them liquidity.... So showing an example of how supposedly IT manipulate the market, I just want to know if any of your IT can confirm if it is true or rubbish.
Institutional traders get their liquidity from each other, not from retail traders. Whether the manipulation story is true or rubbish, if you had read this thread, you would find there are still opposite camps of belief, neither one of which contribute anything to a trader's bottomline.

Let's just say for argument's sake, I answer your question and I say it's "true".

My question to you is, "Does my answer help you make money?"
I'm not trying to convince anyone. I'm not in the "convincing" business.
Quoting Binyamin
Sorry deleted that post here is the link to the example http://www.forexfactory.com/showthre...35#post8188635 Btw I am not the only one that observe this particular pattern, it is taught openly in that thread... I just want to know if it is really created by IT....
Already answered. If it's an observable pattern, just trade it and see how it works out. Does it really matter if it's "created" by bank trading?
I'm not trying to convince anyone. I'm not in the "convincing" business.
Well almost every "guru" in the PIE thread as well as RTM seems to believe that retailers are the goldmine in the FX market. That the ITs of the world seems to collaborate and coordinate and act in unison to move price to slaughter the retailers.

They have spotted patterns that frequently repeat but their explanation of why those patterns occur seems to center around IT specifically targeting and slaughtering retailers. So from your point of view retailers are too small to care and the FX market is a war zone between ITs.

Ok case close
Riding the order flow
Quoting Binyamin
Well almost every "guru" in the PIE thread as well as RTM seems to believe that retailers are the goldmine in the FX market. That the ITs of the world seems to collaborate and coordinate and act in unison to move price to slaughter the retailers. They have spotted patterns that frequently repeat but their explanation of why those patterns occur seems to center around IT specifically targeting and slaughtering retailers. So from your point of view retailers are too small to care and the FX market is a war zone between ITs. Ok case close
Just to add, you have to remember it is not a zero sum game for banks traders only. Bank traders provide liquidity to corporate clients, real money, HFs etc and charge spread. they are not trying to win from other bank traders.

In fact there is mid market where banks trade with each other at mids and make no money from trades from each other (i.e. give back any pnl at end of month). So banks model is to charge spread from clients and hedge the risk via OTC markets (EBS, reuters etc) and via laying off some risk to other banks.
Think : Trade : Live Life
Quoting Binyamin
the FX market is a war zone between ITs.
The Force is strong with this one.
I'm not trying to convince anyone. I'm not in the "convincing" business.
I didn't understand something. If these retail brokers trade against their costumers, as the counterpart on each trade, does that mean that when they take the other side of the trade, if a client is constantly making money through trades, it would actually be bad for them?

I mean, doesn't ecn retail brokers profit from the comissions of trades? They send the trades directly to the market (fake market, since interbank is the true market) and isn't in the other side of the trade so that regardless if my trade is a profitable one or not, they make money from the commission?
Quoting fosterlince
I didn't understand something. If these retail brokers trade against their costumers, as the counterpart on each trade, does that mean that when they take the other side of the trade, if a client is constantly making money through trades, it would actually be bad for them?
For retail brokers that DO trade against their customers (i.e. not true ECNs), if a client is constantly making money through trades (your words), yes it would be bad for these brokers. For the following reasons only:
1. if the client is the only client in the world.
2. if the broker has no one else (i.e. liquidity providers) that he can lay off the risk against i.e. there is zero liquidity.
3. if the broker is still stupid enough to continue being a retail broker when he doesn't have any liquidity in which to lay off his risk.
4. (there may be other reasons, you can fill in the blanks).

Happily in real life for these nefarious brokers, there are the following things that help tide them over on occasions where their clients are making money:
1. clients who are NOT making money.
2. bid/offer spreads

Clients in general should not think they are the centre of the universe. They are not.

Don't worry about the brokers, mate. Worry about your own edge.

Quoting fosterlince
I mean, doesn't ecn retail brokers profit from the comissions of trades?
In theory, yes.

Quoting fosterlince
They send the trades directly to the market (fake market, since interbank is the true market) and isn't in the other side of the trade so that regardless if my trade is a profitable one or not, they make money from the commission?
In theory, yes.
I'm not trying to convince anyone. I'm not in the "convincing" business.
Quoting skenobi
{quote} Already answered. If it's an observable pattern, just trade it and see how it works out. Does it really matter if it's "created" by bank trading?
Awesome answer, we don't need to know the real reason behind a pattern, if you are able to observe a certain pattern happening again and again - you have your edge and trade it.; a skill not many have
Quoting skenobi
{quote} I tend to discourage understanding macro if all it does is distract the trader from what's happening right now, or needlessly second-guess the trader from pulling the trigger on a short-term trade. Having said that, by all means please continue your study of economics. There's nothing wrong with having fundamental subtext in the back of your mind when trading short-term views. Just be aware that the only types of traders who actually USE economics to form the basis of trading decisions are macro-based hedge funds, institutional traders on...

so what happens if you donot meet that quota?
Hi skenobi,

1) Are any of instituional traders using candlestick patterns (pinbars, engulfings) in their analysis?

2) Because of very strong correlation between pairs it seems that minors and exotics are almost completely driven by majors, for example, eur/cad is mostly not moving on it's own, it is "synthetic" pair and mostly just represents the movements of eur/usd and usd/cad. And the same for other unpopular pairs with low volumes. Is my assumption correct, so are all S/R levels on minor and exotic pairs random/useless?

3) How big is the difference between forex market and futures market? There are softwares that show real-time futures market volumes, can such information help to determine the direction of price movement on forex?
Quoting Talvinen
Hi skenobi, 1) Are any of instituional traders using candlestick patterns (pinbars, engulfings) in their analysis?
Only the ones that do. The ones that don't, don't.

Quoting Talvinen
2) Because of very strong correlation between pairs it seems that minors and exotics are almost completely driven by majors, for example, eur/cad is mostly not moving on it's own, it is "synthetic" pair and mostly just represents the movements of eur/usd and usd/cad. And the same for other unpopular pairs with low volumes.
Categorizing pairs as "synthetic" is pointless because, if you really think about it, you can even call EURUSD a synthesis between USDJPY and EURJPY.

Quoting Talvinen
so are all S/R levels on minor and exotic pairs random/useless?
No. And that's just my opinion; I don't care if I'm wrong.


Quoting Talvinen
3) How big is the difference between forex market and futures market?
Interbank spot forex > futures market

Quoting Talvinen
There are softwares that show real-time futures market volumes, can such information help to determine the direction of price movement on forex?
No.
I'm not trying to convince anyone. I'm not in the "convincing" business.
Quoting skenobi
{quote} Only the ones that do. The ones that don't, don't. {quote} Categorizing pairs as "synthetic" is pointless because, if you really think about it, you can even call EURUSD a synthesis between USDJPY and EURJPY. {quote} No. And that's just my opinion; I don't care if I'm wrong. {quote} Interbank spot forex > futures market {quote} No.
Very good series of questions by the poster. And a very good sequence of answers.

I have never worked at a bank, but I can support myself with FX if I needed to, and some of these answers skenobi has given are so very relevant to every trader.

Retailers, for whatever reason, try to over think this business. I think that's why most traders get beat.
If you are good at something, never do it for free--Joker
Quoting skenobi
{quote} It suffices to say that my methods are not amenable to back-testing.
Hello, Skenobi.
In order to trade a "mechanical" system, all one needs is to be disciplined about taking the trade every time the indicators align.
My methods involve drawing lines and boxes in a judicious manner as well, so, just like with you, my methods can't be back-tested.
Relative to a "mechanical" trading system, the downside to such methods is that they are open to misinterpretation.
I should think that one cannot misinterpret a "mechanical system".
Question: Therefore, is it possible to develop the "mechanical" attitude to trading, promoted by psychology, with "open methods" such as ours? If so, I would me much obliged with any advice that you could provide.
I have taken great trades so I know I can read the charts correctly every now and then, but mostly when it's blatantly obvious, which is the minority of cases. Due to fear of being wrong, I have developed a fear of pressing the button and am getting frustrated by watching price move in my intended direction without me.
I would think that such fear is a different kind of fear that results from trading "mechanical systems", no? Because I can't include in my trading plan every possible scenario.
What are your thoughts?
Thanks in advance
Quoting Thaddeus
Question: Therefore, is it possible to develop the "mechanical" attitude to trading, promoted by psychology, with "open methods" such as ours?
No. By the way, for such "open methods" as you say, I don't think psychology and discipline is even enough. Experience counts for a lot. And by experience, I mean a lot of screen time and learning from rightly-taken losses and wrongly-taken mistakes. (and no, I will not explain this further; you'll just have to take it as it is.)

Quoting Thaddeus
I have taken great trades so I know I can read the charts correctly every now and then, but mostly when it's blatantly obvious, which is the minority of cases. Due to fear of being wrong, I have developed a fear of pressing the button and am getting frustrated by watching price move in my intended direction without me. I would think that such fear is a different kind of fear that results from trading "mechanical systems", no?
I have no idea. To be frank, when I first read your post, I didn't know what you're talking about. Too much over-interpretation and wordiness. Maybe that's the root of your problem? I wouldn't know. You'd know yourself best. For me, trading is simple and uncomplicated by needless philosophy and debates that don't add anything to my bottomline.

Quoting Thaddeus
Because I can't include in my trading plan every possible scenario. What are your thoughts? Thanks in advance
There's only two scenarios for me, mate: Making more money, and losing less money. And both are positive outcomes.

When you say "can't" I think it implies helplessness. In my case, I would say I DON'T include every possible scenario, and that's my decision. I don't have anything more to say on this, so I wish you all the best.

[Anthony Robbins Mode off]
I'm not trying to convince anyone. I'm not in the "convincing" business.
Dear Skenobi

Would you say that Psychological levels have any bearing on price direction?

Kind regards
Robert
Quoting RobertBazil
Dear Skenobi Would you say that Psychological levels have any bearing on price direction? Kind regards Robert
Dunno. I thought markets set price direction, not "levels". Oh well....

Anyways, I've never thought to ask that question before, and probably never will ask it.
I'm not trying to convince anyone. I'm not in the "convincing" business.
Quoting skenobi
{quote} Dunno. I thought markets set price direction, not "levels". Oh well.... Anyways, I've never thought to ask that question before, and probably never will ask it.
Dear Skenobi

I'm sorry but I can see why my question made no real sense.

What I meant was, are Psychological levels effective S+R levels?

Many thanks
Kind regards
Robert
Quoting RobertBazil
{quote} Dear Skenobi I'm sorry but I can see why my question made no real sense. What I meant was, are Psychological levels effective S+R levels? Many thanks Kind regards Robert
Your latest question is not that much better, I'm afraid.

"Psychological" levels (however it is you define them) are S/R levels. As to whether they are "effective" or not, "effective" at doing WHAT?

"Effective" at AFFECTING price direction?

Who knows? I know I don't know.

In the end, it depends on the willpower and firepower of the Banks who have orders and standing instructions at those levels.
I'm not trying to convince anyone. I'm not in the "convincing" business.
Quoting skenobi
{quote} Your latest question is not that much better, I'm afraid. "Psychological" levels (however it is you define them) are S/R levels. As to whether they are "effective" or not, "effective" at doing WHAT? "Effective" at AFFECTING price direction? Who knows? I know I don't know. In the end, it depends on the willpower and firepower of the Banks who have orders and standing instructions at those levels.
Dear Skenobi

Thank you. Interestingly, that does actually answer my question, however ineffective I was at putting it.

Kind regards
Robert
Quoting stt
{quote} Just to add, you have to remember it is not a zero sum game for banks traders only. Bank traders provide liquidity to corporate clients, real money, HFs etc and charge spread. they are not trying to win from other bank traders. In fact there is mid market where banks trade with each other at mids and make no money from trades from each other (i.e. give back any pnl at end of month). So banks model is to charge spread from clients and hedge the risk via OTC markets (EBS, reuters etc) and via laying off some risk to other banks.
Really? have never heard or seem anything like that.

I know today is everyday more a software market for many guys, not sure if ITs could be going all out on the retail FX customer many of those retail orders never get to a Bank or PB actually since many brokers take the risk on their book.

There are tons of algos for many diferent types of "financial institutions" we are getting at a pretty crazy point now.
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