Is it true that ECN system that is used for currency trading reflecting the real price level on the interbank market? Is each of your orders is closed from your broker at the interbank market in general and whether they affect him?
To answer this question you may want to step into your brokers’ shoes. Imagine that you are a broker with 25 000 000 capital provide your clients with facility to trade on margin with amounts up to 100 bigger than their deposited margin deposits and covering each of their deal in ECN, where certain banks, and you trade with each other by real exchange assets of the value date , in a clearing system.
Imagine that Deutsche Bank say the system used for trading and there is a need to buy 50’000’000 EUR which has launched a limit order and the amount is necessary to make certain payments on behalf of their customers. Imagine also that at the same time five of your client with balances on their accounts of 100 000 each decide to sell 10’000’000 EUR each. Where will you as a broker find the other 25’000’000 to cover the payments on their transactions? Most likely from nowhere. Or you could find them if you enter into a similar leveraged transaction or credit line with the bank or banks that use the same trading system.
If so, this means that the banks that use this system to trade in general do not rely on it to regulate their liquidity but in reality they are market-makers for you and you must enter into a reverse transaction only with them to meet your obligations. Thus the loss, which is your client’s loss, will appear as their earnings and vice versa. What is the point then, for you as a broker to close all of your client’s positions with a posit transaction in the same way as it is happening at the exchange for a significant commissions. Most likely there isn’t any.
To effectively present and promote yourselves as serious broker and convince your clients that your are trading on the interbank market it is important to show that you have software in which transactions are completed in the same way as at the exchange. You could use something similar for example, to CURRENEX, or your own in house developed software as MB Trading. It is also very well if you could use the names of some of the big banks, as liquidity provider. You could meanwhile quietly generate liquidity in your system, closely following the prices at which transactions actually are concluded with a real exchange of assets. You could use for example EBS or REUTERS.
From that moment on, your customers will be extremely happy and will assume that any of their contract even as small as 10 000 is closed on the interbank market and there is no direct conflict of interests, as if one trades with the market-maker. When your customers lose they will not blame you directly that you are somehow guilty for everything in their life but will calm down with the conclusion that that is just what the market is. In regard of scalpers and news traders who trade heavily in very volatile market there is simple remedies widens the spread between bid and ask. In any case, this is much better option for you compare with the other one which all traders hate -slippage and re-quoting.
Thus you build an image as a brilliant broker and in the same time your clients’ loss stays with you or in the worst case scenario you share with the liquidity providers.
This is generally the truth about so called Forex brokers and the truth about you is that there is nothing wrong in both systems to be used for trade. You must learn that whether trading of exchange or directly against the market-maker, which are easily found on the exchanges as well your profit is a direct loss for someone else.
It doesn’t matter if you know the opposing parties in the transaction or not, that will not help in any way. There is no way that everyone wins on the financial markets, someone always loses and pays the bill on the other.
It is also curious why all traders who are trying to scalp or trade during the news, complain against their brokers (market-makers!!!), which dissolve spreads or use slippage. Why these same people do not try to use the same techniques directly to the exchange, for example CME where currency futures are traded and volumes and prices of the contracts are just like those currently available?
The highest level of margin coverage should not be a reason if this technique is always winning. The truth is that these traders are just trying to take advantage of the delay of the quotations of their brokers (market-makers!!!), and thus to steal few pips from them, within 20-30 seconds. Most of them would in no way place a trade, if they are not sure that there is any delay in their broker quotes (market-maker!!!), and that when scalping or placing stop orders they will be filled without any slippage at the required price level during the news release.
Of course the other party (broker (market-makers) takes very simple and effective action against them - to dissolve spreads.
The truth is that when trading spot currencies with margin based account you will always have a market-maker, regardless of what they pretend to be.
To answer this question you may want to step into your brokers’ shoes. Imagine that you are a broker with 25 000 000 capital provide your clients with facility to trade on margin with amounts up to 100 bigger than their deposited margin deposits and covering each of their deal in ECN, where certain banks, and you trade with each other by real exchange assets of the value date , in a clearing system.
Imagine that Deutsche Bank say the system used for trading and there is a need to buy 50’000’000 EUR which has launched a limit order and the amount is necessary to make certain payments on behalf of their customers. Imagine also that at the same time five of your client with balances on their accounts of 100 000 each decide to sell 10’000’000 EUR each. Where will you as a broker find the other 25’000’000 to cover the payments on their transactions? Most likely from nowhere. Or you could find them if you enter into a similar leveraged transaction or credit line with the bank or banks that use the same trading system.
If so, this means that the banks that use this system to trade in general do not rely on it to regulate their liquidity but in reality they are market-makers for you and you must enter into a reverse transaction only with them to meet your obligations. Thus the loss, which is your client’s loss, will appear as their earnings and vice versa. What is the point then, for you as a broker to close all of your client’s positions with a posit transaction in the same way as it is happening at the exchange for a significant commissions. Most likely there isn’t any.
To effectively present and promote yourselves as serious broker and convince your clients that your are trading on the interbank market it is important to show that you have software in which transactions are completed in the same way as at the exchange. You could use something similar for example, to CURRENEX, or your own in house developed software as MB Trading. It is also very well if you could use the names of some of the big banks, as liquidity provider. You could meanwhile quietly generate liquidity in your system, closely following the prices at which transactions actually are concluded with a real exchange of assets. You could use for example EBS or REUTERS.
From that moment on, your customers will be extremely happy and will assume that any of their contract even as small as 10 000 is closed on the interbank market and there is no direct conflict of interests, as if one trades with the market-maker. When your customers lose they will not blame you directly that you are somehow guilty for everything in their life but will calm down with the conclusion that that is just what the market is. In regard of scalpers and news traders who trade heavily in very volatile market there is simple remedies widens the spread between bid and ask. In any case, this is much better option for you compare with the other one which all traders hate -slippage and re-quoting.
Thus you build an image as a brilliant broker and in the same time your clients’ loss stays with you or in the worst case scenario you share with the liquidity providers.
This is generally the truth about so called Forex brokers and the truth about you is that there is nothing wrong in both systems to be used for trade. You must learn that whether trading of exchange or directly against the market-maker, which are easily found on the exchanges as well your profit is a direct loss for someone else.
It doesn’t matter if you know the opposing parties in the transaction or not, that will not help in any way. There is no way that everyone wins on the financial markets, someone always loses and pays the bill on the other.
It is also curious why all traders who are trying to scalp or trade during the news, complain against their brokers (market-makers!!!), which dissolve spreads or use slippage. Why these same people do not try to use the same techniques directly to the exchange, for example CME where currency futures are traded and volumes and prices of the contracts are just like those currently available?
The highest level of margin coverage should not be a reason if this technique is always winning. The truth is that these traders are just trying to take advantage of the delay of the quotations of their brokers (market-makers!!!), and thus to steal few pips from them, within 20-30 seconds. Most of them would in no way place a trade, if they are not sure that there is any delay in their broker quotes (market-maker!!!), and that when scalping or placing stop orders they will be filled without any slippage at the required price level during the news release.
Of course the other party (broker (market-makers) takes very simple and effective action against them - to dissolve spreads.
The truth is that when trading spot currencies with margin based account you will always have a market-maker, regardless of what they pretend to be.