Help!!! US Traders, We Must Stand Up and Fight

Nobody because trading isn't their business. Their business is more often than not marketing and selling get-rich-quick courses, seminars and the ubiquitous 'mentoring' services all backed up with the chant of 'I'm a millionaire FX trader' alongside a Ferrari and/or laptop by the pool.

Precious metals and the stock indices in the spot market. I don't care about the writing being on the wall, it is still about having the same freedoms as everyone else. You, my friend, are the one missing the point. This country over regulates everything. From 2005-2008, I was earning $75/hour playing online poker, 6 tables at a time. They took that freedom away as well. This country is all about keeping the little guy down. Sure, you can trade forex wherever you wish, you only need $10 million.

Why do you insist on trading an otc market? What is your aversion to trading through an exchange? There are vastly more instruments to trade through the stock, futures, and options exchanges than are available through your spot brokers. Why not trade them?

In my opinion, there is way more money to be made in spot. This is why everyone went to spot in the first place. Now they have put regulations in place whose sole purpose is to bring that business back to futures. I also trade crosses exclusively, GBPAUD and EURAUD are my bread and butter, here is no liquidity in these pairs in the futures market.

there's not more money to be made in retail spot when it is being drummed out of existence, allowable leverage decreased, etc, etc - not just in the US but in all corners. You don't care about the handwriting on the wall? Maybe you should. You can't substantiate your assertion that there is "more money to be made" trading spot vs. trading futures or options since you don't know anything about the latter. If spot forex is such a lucrative business, why have the brokers been going tits up? Excessive regulations? Please - there's more regulations on the exchange-based brokers. How come they can keep going strong? When life gives you lemons, you make lemonade. Or keep whining. Your choice.

Can you point me in the direction of liquidity for EURAUD and GBPAUD? Or once again, as in online poker, I should just give up my income to over regulation? I have a family of six and the extra money I earn in forex and used to make in online poker sure does go a long way. Another case in point as to the ridiculous regulation in this country, you can play online poker in just about every other country in the world. The benefits of living in the US no longer outweigh the downside, plain and simple. So many countries are ahead of us in so many areas, we are brainwashed to believe this is the best country on earth. Land of the free? Nothing could be further from the truth. As far as more money in spot, why did everyone gravitate over to spot FROM futures if this is not a fact?

you go where the liquidity is or cry in your beer

At this very moment, I am short one full lot of EURAUD. You know how much margin I'm using? $134.40. I'm up $510. Show me how I can do this in the way you are suggesting and I'm all in.

So where is the liquidity in THE PAIRS I TRADE, not what you trade.

I'm about out of time pipmaster. Despite how it may seem, I have been trying to offer constructive input, by suggesting that there are all kinds of trading opportunities available to you. When you get down to it, it's all one market. The influences that cause one side of your cross to move against the other on a given day can likely be found causing moves in instruments across the whole markets. if liquidity dries up in one place, it may increase somewhere else. Any trader owes it to himself to learn to trade the markets, using a variety of methods and instruments.

Closing now for over $800 profit. Once again, I used $134.40 in margin. I would have needed approx. $2,000 in margin with a US broker. Folks, once again, we are being completely screwed by our government. What I am doing can be done with a regulated broker with your funds protected in about 85% of the free world.

So the point here is, let's say I didn't have $2,000 laying around for margin, my family would be out $800 in income. Anyone else think that may impact a family of six? What % of families that size do you think have $2,000 in disposable income to put with a broker who doesn't protect your money and More likely than not is going to cheat you? I know the argument is well than you shouldn't be trading. Why not? I'm good at it and it helps provides for a large family. The land of the free doesn't like that though because the money isn't going to the people who already control most of it.

curious pipmaster, what broker do you use?

Great discussion, PM!

While there seems to be some pessimism here about the options that remain for US forex traders, there are reasons to be encouraged. We have seen spreads industrywide come down dramatically, and where dealing desk execution was the only option before, there are now alternatives like No Dealing Desk (NDD) forex execution.

Sharing my perspective as both a retail forex broker and a retail forex trader, I believe it's important we as members of the US retail forex community work together instead of in opposition. This has yielded fruits in the past. For example, when the CFTC and NFA were considering reducing FX leverage to 10:1, retail traders had significant influence by submitting over 10,000 comments (if I remember the approximate figure correctly).

While we might not yet have all the items on our wish list for retail forex in the US, such as segregated accounts status for client funds, which the US government and regulators have chosen to give as an advantage to futures, I am optimistic there is much we can still achieve to build on the progress that has already been made.

You say that as if it's a bad thing.

There's a significant difference in the trading environment at the institutional level compared to the retail level (particularly at FXCM with our NDD execution). Trading activity in institutional venues like the CME (FX futures), EBS and Reuters, is primarily dominated by high frequency traders (HFTs) and similar highly sophisticated market makers who can act as both price makers and price takers. This means that one super-fast HFT can take prices from another super-fast HFT. Because you have these highly sophisticated participants interacting with each other, the trading environment has become one focused on trading speed.

Why is there an extreme focus on speed of trading? You can think of a trade involving 3 steps: receiving market data, making a trading decision, and transmitting the order to the exchange or trading venue. An institutional participant spends millions of dollars on fast access to market data, super fast computing such as FPGA chips, and order transmission such as collocation with the exchange servers. The speed in which they are trading is measured in milliseconds if not nanoseconds. Virtu, one of the top market makers in the financial markets, spent $68 million last year (according to their 10k) on communication and data processing which includes co-location and connectivity to data centers and exchanges, market data, etc.

In a trading venue filled with these super‐fast traders, the slowest person loses the race to be the first to trade. Therefore, a safer route for institutional liquidity providers to take is to quote smaller sizes at wider prices to minimize margin of error of being picked off. Mistakes are very costly. If your algorithm is wrong, its better to be wrong at a smaller amount and wider price. The risks involved turn market making into a fishing expedition based on speed where quality pricing and liquidity could be punished. The competition in the highly sophisticated institutional market is too great to provide the best pricing possible along with deep liquidity if the institution is exposed to the risk of being picked off by other fast and sophisticated market participants.

Contrast this to the average retail trader and the steps they may take to make a trade. First market data is more likely to be received using internet speeds offered by cable or phone providers that pale in comparison to microwave towers, dedicated fiber optic cables, and co-located servers used by institutional traders. Next, the trader processes this information analyzing the chart, watching the number being released on CNBC, etc. whether to buy or sell which is probably going to take at least a second or two. And finally, the trader manually clicks the platform and transmits the order back to the exchange over a regular cable or DSL internet connection.

The retail trader takes a figurative eternity to place an order the institutional liquidity provider can complete in microseconds. Even if you and the institutional trader saw the same price at the same time, the race to trade on that price would be like racing a minivan versus a fighter jet and that is probably being generous. What this all means is that it factors into slippage and execution that could impact your trading P/L.

Because you have this predatory environment at the institutional level, a safer route for institutional liquidity providers to take is to quote smaller sizes at wider prices to minimize margin of error of being picked off. Mistakes are very costly. If your algorithm is wrong, it's better to be wrong at a smaller amount and wider price. The risks involved make market making a fishing expedition based on speed where quality pricing and liquidity could be punished. The competition in the highly sophisticated institutional market is too great to provide the best pricing possible along with deep liquidity if the institution is exposed to the risk of being picked off by other fast and sophisticated market participants.

So if you're the average retail trader likely receiving information from a website or TV channel, over a regular cable internet line, manually placing trades from your average desktop computer, back over our internet connection with any latency involved, do you think you're going to beat the Virtu's of the world for the best price available?

This isnt' to suggest that FXCM is better than any one venue. To their credit, institutional venues such as the CME, Reuters and EBS provide a valued service in the FX industry and are excellent option for institutional traders. Our liquidity providers require them to trade otherwise they would not be able to make markets for FXCM's retail clients or their own clients. The transparency of pricing and market data on the CME sets a standard for global trading which many FX market participants look to as a benchmark. However, its important to realize how different customer segments are better suited for different venues.

How is FXCM's trading environment different? On our NDD model for Standard accounts, our liquidity providers (also known as market makers) are only allowed to be price makers on our retail client stream, and only a retail trader can take a price from the liquidity provider. Liquidity provider A is not able to take a price from liquidity provider B through FXCM. This gives our liquidity providers the ability to make a market based on quality of price and liquidity rather than speed to protect against being picked off by predatory trading from other liquidity providers.



For full transparency, FXCM also provides Mini accounts with a dealing desk (DD) offering in which we act as the liquidity provider. This execution option is offered for smaller accounts ($50 minimum) in order to manage the risk. It's worth noting that we use the same base price for DD execution on Mini accounts (before adding the spread markup) as the base price we use for our NDD execution (before adding the commission).

When I started working at FXCM almost 12 years ago, there were over 30 retail forex brokers in the US, but now only a few remain. The reasons are often actively debated on this forum. One thing I would point out is how regulatory capital requirements have increased over the years for US forex brokers and how they now compare to capital requirements for futures brokers:

1. $20 million minimum for forex brokers (AKA Retail Foreign Exchange Dealers) https://www.nfa.futures.org/nfamanua...%201&Section=7
2. $1 million minimum for futures brokers (AKA Futures Commission Merchants) https://www.nfa.futures.org/nfamanua...2011&Section=7

As I mentioned earlier, the futures market where all participants can act as a market maker has created an environment where the largest market participants are at a significant data and speed advantage due to the resources being spent on those speed advantages. It occurs in equities and currency futures. Just read Flash Boys.

I think there's this allure to exchange trading from a perception that thousands of buyers and sellers match together in this perfectly democratic way:


However, this is far from today's reality:


Electronic trading moves at ultra-fast speeds measured in nanoseconds where prices can change hundreds of times a second. A market makers algorithm is changing those prices based on market data also being received from the exchange at super fast speeds. Why would the market makers algo need to update hundreds of times per second? To protect itself from other market makers which can take pricing from them. The competition between the top participants creates a predatory environment that quickly punishes mistakes. Therefore a safer route for institutional liquidity providers to take is to quote smaller sizes at wider prices to minimize margin of error of being picked off.

FXCM's NDD forex execution helps address those concerns. Since our liquidity providers are only allowed to be price makers, not price takers on our retail
client stream, each liquidity provider can provide pricing and liquidity without fear of another liquidity provider picking them off. This creates the environment in which liquidity providers are better able to offer quality pricing and liquidity which in turn benefits the trader, rather than making a market based on speed out of protection from other market making predators.

The latest industry report for Q2 of 2016 by Finance Magnates shows daily retail forex volume to be $335 billion (to say nothing of the over $5 trillion per day traded in OTC spot FX overall according to the latest BIS survey). It's worth noting that even if you choose to exclude the trading volume of smaller brokers, the same report shows the combined daily retail forex volume of the 20 largest forex brokers in the world is still greater than the $210 billion per day volume in FX futures across all futures brokers.

Since we are discussing what FX futures offer retail traders compared to retail forex, it's important to keep in mind the vast disparity in trading volume for FX futures contracts of different sizes. The following table displays the average daily notional trading volume for the E‐micro (M6E), Emini (E7), and Euro FX Futures (6E) contract from December 24, 2015 to January 26, 2016.


Average daily notional E‐micro trading volume makes up a mere 1.1% of total EUR/USD futures volume and E‐mini trading volume makes up only 1.4% of total EUR/USD futures volume. There is relatively very little participation in the E‐micro and E‐mini contracts (where it would be expected that most retail traders would participate) compared to the standard FX futures contract.

This is particularly relevant to retail traders when you consider that the E-micro and E-mini contracts are not fungible with each other or with the standard Euro FX futures contract. That means, if you trade E-micros, you are limited to the E-micro contract pool of liquidity to offset your contracts (similarly, E-mini traders are limited to the E-mini contract liquidity pool), which you can see is considerably smaller than what is available for the standard Euro FX futures contract.

It's also worth keeping in mind that the E-micro contract size (12,500 currency units) is still over 10 times larger than the micro lot (1000 currency units or 1K) minimum trade size FXCM offers to retail traders with NDD execution (some other retail forex brokers offer even smaller trades with DD execution). Furthermore, on our NDD model, liquidity providers offer a minimum liquidity of 1M (one million currency units) when they're quoting, and our retail client benefit from that large liquidity pool to have their orders offset with NDD execution whether they are trading 1K, 10K, 100K or greater and any derivation thereof such as 156K.

The terms of the Leucadia loan impact FXCM shareholders, not FXCM account holders. Despite the events of 15 January 2015, FXCM's capitalization remains at levels similar to before the SNB flash crash. Our clients appreciate this fact, which is why the latest financial data from the CFTC show traders continue to have more money on deposit with FXCM than any other US-regulated forex broker.


Its worth noting that when Leucadia announced their own second quarter 2016 results, they had this to say about FXCM:

"We anticipate full repayment of our loan during 2017, as FXCM continues its sale of noncore assets and generates operating cash flow."

The latest proof of FXCM's commitment to this goal is our agreement to sell news and research website DailyFX.com for $40 million. The transaction is expected to close by the end of October and gets FXCM closer to paying off its debt to Leucadia. We recognize that this was a valuable asset, however DailyFX is not a critical part of the company. This was an unexpected department of the company to sell, but when the opportunity came along it was something we felt we should take advantage of.

$36 million will be paid to FXCM on closing of the deal which is set for the end of October with the additional $4 million to be paid on completion of certain migration requirements. With this transaction FXCM will have made loan payments of $157 million to Leucadia with $153 million outstanding and will have repaid more than half the debt.

FXCM still believes that the current valuations for the remaining assets held for sale will satisfy the remaining debt outstanding to Leucadia. We continue to work hard towards selling our remaining assets held for sale which include our stake in Lucid, V3 and FastMatch.

I apologize if anyone thinks this is off-topic from Pipmaster's original post, but I thought the points you raised were important and should be addressed. Questions and discussions such as this are always welcome in our own thread.