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  • #841
  • Aug 12, 2015 12:04am Aug 12, 2015 12:04am
Ok, so when prices rise at Deutsche's platform because they just executed a large buy order for a client, it immediately rises on neutral platforms like Reuters which display the banks best bid/ask and then the other banks adjust to that as well. I have a few more questions, though.

1) How do we get the new value at Deutsche after the large order has been executed? For example, at exchange-traded products, the offers are getting hit until the order has been executed and price moves up accordingly. Does it work the same way in FX? Basically, Deutsche offers liquidity through those offers and the client will get filled based on that? Once the order has been filled, we settle at the new value and then the other platforms adjust to the new price?
2) Are professional ECNs like FXall and Hotspot seen as a threat to the banks or are they perhaps participating too in there?
3) Is it possible that a large order being executed at small broker could have an impact on the whole FX market? I know it's not very realistic, but let's say a wealthy retail trader buys 50 million AUD/USD during a-not-so-liquid trading time through a retail broker, would this at the end have an impact on the whole market?
  • #842
  • Edited 2:24am Aug 12, 2015 12:20am | Edited 2:24am
Quoting CaymanTrader
Ok, so when prices rise at Deutsche's platform because they just executed a large buy order for a client, it immediately rises on neutral platforms like Reuters which display the banks best bid/ask and then the other banks adjust to that as well. I have a few more questions, though. 1) How do we get the new value at Deutsche after the large order has been executed? For example, at exchange-traded products, the offers are getting hit until the order has been executed and price moves up accordingly. Does it work the same way in FX? Basically, Deutsche...
Price will move from one available best bid/offer (shown by any bank) to the next available best bid/offer (shown by any other bank), lets put it that way. Whether it moves up or down is inconsequential.

Quoting CaymanTrader
Basically, Deutsche offers liquidity through those offers and the client will get filled based on that? Once the order has been filled, we settle at the new value and then the other platforms adjust to the new price?
The Deutsche dealer is free to quote whatever he wants relative to what is market. For example, if he wants to be taken, he will improve his offer (relative to the market offer). If he wants to be given, he will improve his bid (relative to the market bid).

He won't, for example, improve his offer so much so that his offer is better than the market bid, because otherwise, whoever takes him at his offer can arbitrage by selling at the market bid for a profit..... UNLESS... he really DID intend to offer better than the market bid because he wanted to prompt the price to move lower and faster.

Subsequent to this, price will continue to chug along, moving from one available best bid/offer to the next.

It is THIS self-governing mechanism that forces prices to sync across all platforms, auto-magically as it may seem to the outsider.

Quoting CaymanTrader
2) Are professional ECNs like FXall and Hotspot seen as a threat to the banks or are they perhaps participating too in there?
A threat to what aspect of the banks' business model?

Quoting CaymanTrader
3) Is it possible that a large order being executed at small broker could have an impact on the whole FX market?
Not likely. A retail trader with deep enough pockets to "move" markets is not likely to execute via a "small" broker.

Quoting CaymanTrader
I know it's not very realistic, but let's say a wealthy retail trader buys 50 million AUD/USD during a-not-so-liquid trading time through a retail broker, would this at the end have an impact on the whole market?
50 mio in a busy session doesn't move anything. In a not-so-liquid session? Anything is possible, but still unlikely because as I mentioned in an earlier post, this order is on a retail broker's orderboard, and therefore is largely irrelevant. In any case, it would be foolhardy for a retail broker to accept a 50 mio order knowing full well it is operating in a mere "betting parlor" market.

In a not-so-liquid market, a retail broker that accepts the order would likely be taken to the cleaners by his LP.
I'm not trying to convince anyone. I'm not in the "convincing" business.
  • #843
  • Aug 12, 2015 1:08am Aug 12, 2015 1:08am
Quoting Forexia
I know there was a lot of discussions about that from the Alpari UK thread. Apparently you have to register yourself on some kind of claim portal which itself took a long time to be set up by KPMG........If what is posted in that Alpari thread was true and not trolling, the whole process was very chaotic and frustrating........
I didn't get past the first couple of pages of that thread, but having read the e-mails I received, your description of the process is accurate. Br0kers like FXCM and Alpari UK were smashed by the SNB announcement, and clients' accounts were instantly scuttled, some of whom (like me) didn't even have open positions at the time. Hence I escaped the possibility of being indebted beyond a margin call, something I admit I hadn't previously thought about. The episode caused me to rethink different types of risk: trade risk, account risk, br0ker risk etc. I play only with money that I can afford to lose. While the SNB announcement was arguably able to be predicted, many other potential black swans aren't.
  • #844
  • Aug 12, 2015 2:13am Aug 12, 2015 2:13am
@Forexia, if retail, it is the individual chooses to go long or short, it is the individual that need to calculate risk, as retail you are your own hedge fund, actuary, blah blah blah.
Say I long 0.01 GBP/USD @ 1.5579, if it goes to 0, I lose $(15579*.1) = $1557.9, highly unlikely, but not having 0 probability. Everyone in leveraged trades should know what's up, lots retail don't understand leverage, they should, then they will sweat when in trade, lol.
Due to the ignorance of some, people who were not even in trades end up paying for the fools. Same goes for life, as it is usually a small minority that make it shit for the majority.

On Stop losses, they are just not that reliable, what if noone is there @ S/L level? I use S/L but I know it may not get filled at the exact price, slippage, etc etc.

All the best
  • #845
  • Aug 12, 2015 2:18am Aug 12, 2015 2:18am
Quoting skenobi
{quote} Price will move from one available best bid/offer (shown by any bank) to the next available best bid/offer (shown by any other bank), lets put it that way. Whether it moves up or down is inconsequential....
Thanks a lot Skenobi! It seems it's all not so complicated as I thought it was.

Regarding the ECNs: I meant a threat to the e-platform business of the banks. For example, more clients choosing the professional ECNs for smaller trades that do not require calling up a dealer (< 10 million or so) instead of using the banks' platforms like DB Autobahn, UBS Neo etc.

And re: the example with the retail trader. I know it's unrealistic, but I was just curious whether it could have an impact in case it would happen. But you already answered my question there, so all good.
  • #846
  • Aug 12, 2015 2:36am Aug 12, 2015 2:36am
Quoting CaymanTrader
{quote} Thanks a lot Skenobi! It seems it's all not so complicated as I thought it was.
I hope so, coz that's the best example I could give.

Quoting CaymanTrader
Regarding the ECNs: I meant a threat to the e-platform business of the banks. For example, more clients choosing the professional ECNs for smaller trades that do not require calling up a dealer (< 10 million or so) instead of using the banks' platforms like DB Autobahn, UBS Neo etc.
AFAIK, DB's Autobahn, UBS Neo, Barclays' BARX platforms etc, are only available to institutional counterparties. Therefore the comparison to ECNs is not meaningful as they operate in wholly different universes. Consequently, I don't think ECN platforms are a threat to Banks' e-platforms, nor did they even set out to BE a threat.

But just as an FYI: clients can get equally competitive prices for smaller trades if they just stick with their Bank e-platforms without any need to use ECNs. If a client has access to both, I don't see how using ECNs affords the user any meaningful advantage over just sticking with the Banks' platforms; he might as well use the e-platforms.
I'm not trying to convince anyone. I'm not in the &quot;convincing&quot; business.
  • #847
  • Edited 2:32pm Aug 12, 2015 3:25am | Edited 2:32pm
Quoting hanover
{quote} I didn't get past the first couple of pages of that thread, but having read the e-mails I received, your description of the process is accurate. Br0kers like FXCM and Alpari UK were smashed by the SNB announcement, and clients' accounts were instantly scuttled, some of whom (like me) didn't even have open positions at the time. Hence I escaped the possibility of being indebted beyond a margin call, something I admit I hadn't previously thought about. The episode caused me to rethink different types of risk: trade risk, account risk, br0ker...
I know this SNB event has definitely opened my eyes to things that I have never thought of, that you can actually lose more than you have invested with the broker and you can be on the hook for it. And it doesn't matter how much you control your risk, set up prudent stop-loss, risk a certain small % of your account for each trade; all it comes down to the closing price of your trade. With the forex market being OTC, the price is supposed to be determined by negotiation by the buyer and the seller but because we retail traders have so small capital we are in no position to negotiate; we basically are price takers in that we take whatever price that's shoved down our throat. And since there is no central exchanges, the price is whatever set by the ultimate market makers which are the banks.

They decide whatever price they want to give it to you for closing your trades and when even as shown by this SNB event. They don't feel like trading and you can be forever stuck with your losses with no way to mitigate it. During the SNB event, they finally came back after 1 hour but what if they don't want to come back after another hour or 2 hours or 3 hours or whole morning? And when they did come back, they at least came back with a price of 1.04 from the pre-announcement price of 1.20, a diff. of 1,600 pips. But what's to stop them from coming back with an even lower price like below 1.00 to to 0.01 or even 0.0001 if they want? They can do whatever they want because they ARE the market and they decide whatever the price they want to charge or take and there is no rules or price limit regulations in the market whatsoever. And apparently it did. According to this article by FXCM, the lowest quote that FXCM received from all of its liquidity providers was 0.5696, a difference of 6304 pips!! And on EBS, the range of bid quotes from all the banks ranged from 0.95 from one second to 0.50 to another before finally settling down at 1.04. And your losses just balloons according to whatever price level they choose to finally fill your trades at.

http://ir.fxcm.com/releasedetail.cfm?ReleaseID=901193

So after this event, it REALLY made me re-examine trading in the forex market. I mean do I REALLY want to trade in a market where losses can be manipulated beyond my control even if I have done the utmost possible when there are so many other markets out there that have much better regulations and rules in place and lot more carefully monitored? Sure you can tell me I should just stay away from those "black swan events" but what is there to tell me there is not going to be another one? Potentially any event can be a black swan event. All they have to do is shut down the price feed and no liquidity, prices go into haywire, oh oops another black swan event! Do I REALLY want to trade in a market where everything is set by a group of institutions and they are free to do whatever they want with really nobody watching over them effectively? I dunno.
Make your losses in demo. Earn your profits live.
  • #848
  • Aug 12, 2015 12:57pm Aug 12, 2015 12:57pm
If anyone else is interested in the FX market structure, here are two good papers worth a read.
Attached File(s)
File Type: pdf A Week of FX Dealing.pdf   1.8 MB | 1,634 downloads
File Type: pdf FX Market Structure, Players and Evolution.pdf   844 KB | 1,700 downloads
  • #849
  • Aug 12, 2015 4:15pm Aug 12, 2015 4:15pm
Quoting NorthTrader
4. Regarding stock index futures, do institutions generally buy and sell the actual stock and arb the futures, or is it the other way around?
It depends on the fair value of the futures, if the futures are trading above the fair value, program trades enter the market to sell futures and buy the index and in case futures are below fair value arbitrageurs buy futures and sell the basket of stocks in the index.
Remember this is done by companies specializing in program trading investing hundreds of millions of dollars in equipment and software therefore these opportunities are arbed away extremely fast.
Hear the music before the song is over ...
  • #850
  • Aug 12, 2015 8:35pm Aug 12, 2015 8:35pm
No I am not an institutional trader. I learn all trading with my personal efforts. Not join any institute for forex trading and training. I see many videos and tutorials on internet to understand basics of forex. It take a lot of time to become a good trader, Make many losses many times then learn trading.
  • #851
  • Aug 12, 2015 9:28pm Aug 12, 2015 9:28pm
Quoting GlobalMacro
{quote} It depends on the fair value of the futures, if the futures are trading above the fair value, program trades enter the market to sell futures and buy the index and in case futures are below fair value arbitrageurs buy futures and sell the basket of stocks in the index. Remember this is done by companies specializing in program trading investing hundreds of millions of dollars in equipment and software therefore these opportunities are arbed away extremely fast.
Thanks GM, that's what I suspected. I suppose it doesn't really matter which way round it is, as Skenobi pointed out, but I was just curious. And I agree that retail traders have virtually no chance of taking advantage of these arbitrage opportunities.
You reap what you sow.
  • #852
  • Aug 13, 2015 2:33am Aug 13, 2015 2:33am
Quoting Forexia
Sure you can tell me I should just stay away from those "black swan events" but what is there to tell me there is not going to be another one? Potentially any event can be a black swan event. All they have to do is shut down the price feed and no liquidity, prices go into haywire, oh oops another black swan event! Do I REALLY want to trade in a market where everything is set by a group of institutions and they are free to do whatever they want with really nobody watching over them effectively? I dunno.
Agreed, everybody must ultimately decide whether they accept the way that markets operate, whether they will expose themselves to all of the possible types of risk involved, and the fact that 'black swans' (bank or government intervention, earthquakes, terrorist attacks, .....) can occur without warning at any time.
  • #853
  • Aug 13, 2015 2:52am Aug 13, 2015 2:52am
Quoting hanover
{quote} Agreed, everybody must ultimately decide whether they accept the way that markets operate, whether they will expose themselves to all of the possible types of risk involved, and the fact that 'black swans' (bank or government intervention, earthquakes, terrorist attacks, .....) can occur without warning at any time.
Especially that those "black swan" events are all man-made! If the liquidity providers had stayed there and maintained the market instead of shutting down the price feed and drying up the liquidity, the SNB event wouldn't have been THAT disastrous! It will still have large impact on the market I agree but wouldn't be to the magnitude that we saw.

What you mentioned in your comments, central bank interventions, tsunami, terrorist attacks, they could ALL potentially become "black swan events" but they NEVER did. The forex market still kept on operating during the Japanese Tsunami even the massive coordinated central bank intervention of the Japanese Yen to help Japan after the Tsunami didn't turn into a black swan event. WHY not? Because all of the liquidity providers were there still providing quotes, trading and maintaining the market. If you want, every single monthly NFP release could've been "black swan" events. Why that never happen?

Events can happen and will happen at any time without announcement. What matters is how we deal with them and how we deal with them determines the integrity of the market and the market players in it. That's my point.

Great talking to you hanover as usual! Good trading!
Make your losses in demo. Earn your profits live.
  • #854
  • Aug 13, 2015 4:01am Aug 13, 2015 4:01am
Quoting Forexia
{quote} Especially that those "black swan" events are all man-made! If the liquidity providers had stayed there and maintained the market instead of shutting down the price feed and drying up the liquidity, the SNB event wouldn't have been THAT disastrous! It will still have large impact on the market I agree but wouldn't be to the magnitude that we saw.
Forexia, don't blame the LPs. The price is determined by the supply and demand for the currencies. Imagine the positioning of the market participants before the SNB decision. SNB bids balanced the equation. Suddenly SNB withdraws the bids and the supply is much bigger than the demand causing a move lower for EURCHF. Stops were triggered adding to the supply increasing the disequilibrium. The market had to find a new equilibrium price much lower that the previous one. That's all.
Attached Image (click to enlarge)
Click to Enlarge Name: chf order flow.png Size: 9 KB
  • #855
  • Aug 13, 2015 2:13pm Aug 13, 2015 2:13pm
Quoting srmfx
{quote} Forexia, don't blame the LPs. The price is determined by the supply and demand for the currencies. Imagine the positioning of the market participants before the SNB decision. SNB bids balanced the equation. Suddenly SNB withdraws the bids and the supply is much bigger than the demand causing a move lower for EURCHF. Stops were triggered adding to the supply increasing the disequilibrium. The market had to find a new equilibrium price much lower that the previous one. That's all. {image}
Yes I understand the supply & demand forces that were in play that BUT they could've still adjusted the market in an more orderly fashion instead of just let it crash and burn all in one swoosh. Otherwise WHY do we need continuous quoting then? Why don't we wait until the end of the day, round up all of the supply and the demand and then just provide ONE quote per day to balance out all of the supply & demand in one shot instead of letting price gradually reflect the different levels of inventory. And shutting down price feed for one hour to the point that ordinary people can't even exchange their CHF money is NOT what I would call "gradually".

Other markets are able to operate in lot more orderly fashion during similar huge market-impacting events, WHY can't the spot forex market do it when they are perfectly capable of doing so? That's the big question. And so far, the only answer that has been given again and again and again is "They just don't want to because they don't have to. They can do whatever they want. C'est la vie." And that is NOT good enough.

The stock market in the 1920's used to operate like that, and people accepted that as "la vie" and that got changed. It's time that the spot forex steps into the 21st century and gets changed too.
Make your losses in demo. Earn your profits live.
  • #856
  • Aug 13, 2015 3:03pm Aug 13, 2015 3:03pm
The Swiss theoretically had the ability to sell their own currency ad infinitum.
Usually with these interventions a Central Bank starts on the back foot of defending a level by having to buy their relatively"unwanted" currency.
Coupled with the SNB's perceived reputation of backing up what they say generally, spot FX Traders mostly took their word at face value regarding the peg.
It boils down to size,say you are top trader at MegaBank Inc, your position limit in extremis 1 Billion dollars without supervision vs SNB---- unlimited dollars.
They essentially bullied the market to comply with the rhetoric till the losses,shareholders and potential russian involvement happened.
The bottom line CBanks lie alot.
  • #857
  • Aug 19, 2015 10:27am Aug 19, 2015 10:27am
Quoting skenobi
{quote} I hope so, coz that's the best example I could give. {quote} AFAIK, DB's Autobahn, UBS Neo, Barclays' BARX platforms etc, are only available to institutional counterparties. Therefore the comparison to ECNs is not meaningful as they operate in wholly different universes. Consequently, I don't think ECN platforms are a threat to Banks' e-platforms, nor did they even set out to BE a threat. But just as an FYI: clients can get equally competitive prices for smaller trades if they just stick with their Bank e-platforms without any need to...

add to this, bank's spread are typically lower than ECN's for same size since as they do real market making (and not like equities where they now mostly broker/execute). however single dealer platform model has some threats as FX moves more in equities direction and institutional investors start using execution algos to execute large orders instead of hitting banks in one go. Hence banks are now also offering aggregated market access and execution algos to clients (in addition to providing liquidity as a dealer).
Think : Trade : Live Life
  • #858
  • Aug 19, 2015 9:54pm Aug 19, 2015 9:54pm
Quoting stt
however single dealer platform model has some threats as FX moves more in equities direction and institutional investors start using execution algos to execute large orders instead of hitting banks in one go. Hence banks are now also offering aggregated market access and execution algos to clients (in addition to providing liquidity as a dealer).
Shoulda known one had somethin' to do with the other. You're probably right.
I'm not trying to convince anyone. I'm not in the &quot;convincing&quot; business.
  • #859
  • Aug 22, 2015 8:53pm Aug 22, 2015 8:53pm
I have another question for the ex-institutionals, if they don't mind. It's regarding the "notes to clients" that the banks publish from time to time and appear on the FF news feed, such as this one last week (containing EURUSD projections) from Morgan Stanley:

http://www.forexfactory.com/news.php?do=news&id=554270

I've noticed that a lot of retail traders dismiss these reports as dishonest: a means of tricking traders into following their projections so the banks can take the opposite (profitable) side. So this question is about the honesty of such reports. It is not about their accuracy, which is a different matter entirely!

As far as I can work out, it doesn't make much sense for the banks to be dishonest in these reports. Why?

1) Retail traders don't matter to banks, so they aren't doing it for them.

2) So if they are trying to trick people, then they must be after the other big traders, such as rival banks. However, the other banks also produce these reports and so must have a good idea of how honest they are. So why go to the trouble of producing them in the first place?

3) What's more, clients are presumably important to the bank because they help them make a profit, so why would the bank knowingly feed false information to their clients? Surely they wouldn't want to risk losing disgruntled clients by continually feeding them false information?

On the other hand, banks don't seem to be doing themselves any favours by revealing their long-term trading plans to the world. Even though the reports are designed for clients, it's inevitable that they'll be leaked to the general public.

So, to whittle it down, my basic question is: how honest are these reports?

Thanks and regards.
You reap what you sow.
  • #860
  • Aug 22, 2015 10:06pm Aug 22, 2015 10:06pm
Quoting NorthTrader
I have another question for the ex-institutionals, if they don't mind. It's regarding the "notes to clients" that the banks publish from time to time and appear on the FF news feed, such as this one last week (containing EURUSD projections) from Morgan Stanley: http://www.forexfactory.com/news.php?do=news&id=554270 I've noticed that a lot of retail traders dismiss these reports as dishonest: a means of tricking traders into following their projections so the banks can take the opposite (profitable) side. So this question is about the...
The reports are generally honest opinion of research analysts which in this age are not allowed to talk the bank's books. all banks are very careful now least regulator accuse them of publishing false reports knowingly. Research groups are generally separated from trading side.

These research reports are bank's way to generating trading business from clients - when clients like the reports (trade idea as well as the reasoning, they are likely to trade with the banks). big clients get research from everyone so if they start liking work of one bank's analysts they will give their flow to that bank as to reward them for the research ideas.

So in short, research reports are honest and also do not reduce bank's profit - rather help bank make more money by getting more client flow. Traders also do the same at banks - they give clients market color (strict guidelines these days about what traders can say in market color) which make the clients trade with that bank.
Think : Trade : Live Life
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