Michael Greenberg's Forex Market Watch

[ForexMagnates]

Michael gives us his valuable insight into the latest developments in FX.
This is the place to ask anything you wanted to know about Brokers, IBs, online retail forex market, regulation and anything else.

[ForexMagnates]

One of the most intriguing issues in online Forex trading is what is a market maker, STP and ECN and what are the differences and similarities between them and what the benefits for traders are. First of all you can start by reading a more extensive overview of the aforementioned: Part1 and Part2.

Below is the short summary:

Market Maker (MM), also called a Dealing Desk (DD): MM is an artificial type of broker because it doesn't reflect the market directly, but simply quotes prices which are similar to what the market displays. Any order you enter is processed internally and never goes out to the market.

Pros: Quick execution (typically no re-quotes)
Cons: Every dollar you gain goes out of the broker's pocket and every dollar you lose ends up in its pocket = major conflict of interest.

Straight Through Processing (STP): This type of broker typically routes some or all of your orders directly to the market. This is a hybrid model between MM and ECN. Some brokers though say they are STP while they are actually MM, you can never tell and sometimes they do a bit of both - MM for losers and STP for winners.

Pros: Smaller conflict of interest, more accurate prices
Cons: Slow execution with plenty of re-quotes, if you are a loser your broker might end up moving you to market making servers

Electronic Communications Network(ECN): Is the only type of a broker per-se. Like in equities - brokers are supposed to let you gain access to the market not be the market (like in MM or STP sometimes). So a true ECN broker lets you see the actual prices and display the order in the market. You trade with other traders and financial institutions but not against your broker.

Pros: Direct market, no conflict of interest, typically no spread mark-up
Cons: Re-quotes, smallest lot possible is 100k (although I heard FXOpen are working on introducing a solution to smaller players) and there is a commission involved (albeit much lower than the spread you pay to MM and STP).

Any questions and clarifications are welcomed

[Ezzy]

Hi and thanks for the information.

How can one find out if a broker is MM, stp, ecn.

Many thanks
Ezzy

[ForexMagnates]

Hi Ezzy,

Actually knowing whether a broker is a pure market maker or a STP broker, or even a hybrid of both is very difficult.
What you can do is call the broker and ask this directly. Whatever the broker's representative tells you, tell them that you demand to trade on a STP server and that they should commit to that. If they agree in writing - fine, if not think what your next step is.

ECN brokers are easier to tell - check my article on Forex Magnates to see screenshots of Dukascopy or check the article about FXOpen's ECN platform to see the unique features of ECN.
Also, ECN brokers are not too many and they are known. However, note that trading on ECN requires certain skills, is not for beginners and requires at least $1000 (this is the absolute minimum to open 1 deal).

[Ezzy]

Hi Forexmagnet and thank you for your reply I will make enquiries with my broker.

Cheers
Ezzy

[ForexMagnates]

Hi Ezzy, good luck and feel free to ask any other questions.
Regards,
Michael

[ForexMagnates]

This month, like every month, I’m releasing a monthly online retail Forex volume survey. The report I released in May estimated the total daily volume at over $105B. June’s report estimated the volume at $128B, the increase was mainly due to several more brokers being added to the list.
This month there aren’t any significant changes to the survey results except FXCM which reported that it applies a more conservative and methodical approach to its volumes calculation. There isn’t an industry standard to as how volume is calculated and each broker reports pretty much what he wants. FXCM were the first broker to report official volume and Net Capital figures back in 2007 and was soon followed by a small number of other Forex brokers who sought similar transparency.
I hope other brokers will adhere to these conservative reporting methods as well and that the regulators will release official volume reports just like they do with Forex brokers’ Net Capital.
Due to this change, Oanda leaps to the first place with FXCM and Gaitame following with almost identical figures.

Monthly Retail Forex Volume report for July, 2009 - $118 billion daily traded volume | Forex Magnates

[ForexMagnates]

Financial crisis eases – tough times ahead for Forex brokers | Forex Magnates

It’s not yet known if this severe financial crisis is over completely but there is no doubt that it has eased in the past few months.
And this is bad news for all brokers, including Forex ones.
Forex traders prefer turbulent economic times because Forex markets are very volatile as a result and respond more strongly to any economic news. Volatility leads to larger profits for some and larger losses for the others. Some trading systems can only operate in volatile markets. When markets are calm traders tend to place less trades as there are less triggers to trade, less ‘action’ and less ‘blood’ in the air in general. On the other hand this in part is offset by returning fundamental traders who tend to take a step back when markets are irrational.
For Forex brokers this means lower volumes which means less commissions which in turn is directly reflected in the P&L statements. For market makers this means less traders losses.
We have already seen the signs of that in IG Index’s quarterly report a month ago which showed decline in Forex growth in UK, Australia and Japan (was offset by increased equities trading).
Today we see that the trend continues across all financial instruments with London Capital Group reporting a large decline in profits amid strong growth in number of clients. On the other hand Institutional Forex business reported a very strong growth, rising 41%.
What does this tell us? Just like I wrote in the IG Index’s post – retail forex growth is slowing down in emerging markets and is expected to slow down or even decline as the markets calm down and traders stop betting and start actually investing in equities instead. Retail brokers should expand to emerging markets and/or offer additional products.
On the other hand, institutional trading which is more conservative by nature and which tumbled by 25% worldwide is expected to restart its growth. LCG’s report is the first sign for that.

[ForexMagnates]

Saxo's official statements:

http://www.saxobank.com/about-us/pre...eport-2009.pdf

[herry_fxhope]

hi i am a a new member and start member how about broker safe for me?

[ForexMagnates]

Hi Herry, welcome to the market. Broker decision is not an easy one. Can you tell a bit more about your trading style, experience, volume, etc... What is most important for you?

Selecting a broker is a major issue and there are many parameters involved.

[ForexMagnates]

http://forexmagnates.com/fresh-out-o...iles-125m-ipo/

That’s got to be one of the leading contestants for the biggest news of the year (I’m awaiting official confirmation).
Streetinsider brings this laconic report:
The offering is being made through Morgan Stanley and Deutsche Bank.
Gain Capital owns Forex.com and is an online provider of retail foreign exchange trading and related services founded in 1999 by a group of experienced Wall Street trading professionals. We offer our customers 24-hour direct access to the global over-the-counter, or OTC, foreign exchange markets, where participants trade directly with one another rather than through a central exchange or clearing house.
More details tomorrow, hopefully.
RTT News brings more details – Gain no longer active in China (we already knew that) and losses money in 2009 (this is new):

[ForexMagnates]

In Forex even regulators consolidate: SEC and CFTC stepping up their proposed merger plans: http://forexmagnates.com/sec-and-cft...-merger-plans/

[Tiger21]

I would like to point out about Saxo the following facts. I don't have any opinion about the bank as I don't trade with them:

Regarding guarantees in the event of a mandatory wind-up of the bank: In general cash is guaranteed by the Guarantee Fund for Depositors and Investors (supervised by a Danish Ministry) up to ~ EUR 40,000. As a general rule securities will not be affected by a bank suspension and will be returned to the client. In the unlikely event that Saxo Bank is unable to return securities held in safe custody, administered or managed, the Guarantee fund will cover up to EUR 20,000.

However, this now supercedes the previous paragraph for the time being: As of Oct 5, 2008, there is a 2 year guarantee on the part of a Guarantee Fund for Depositors and Investors which incorporates nearly all of the banks in Denmark and has been funded with DKK 35 billion (DKK 7.5 to Euro 1). Saxo joined this agreement on Oct 7, 2008 and as such all client funds will be fully protected for 2 years regardless of the amount. The guarantee will be in place until Sept 30, 2010 but may be extended if deemed necessary to secure financial stability.

[ForexMagnates]

FXOpen is one of the companies that are most responsible for Metaquotes’ (the company behind Metatrader) success simply because it introduces features that Metatrader should have but it doesn’t. Alpari is another of these companies and occasionally serves as Metaquotes’ beta-site.
FXOpen recently introduced the first ever MT4 ECN platform and also added PAMM accounts making money managers’ life much easier.
Today FXOpen announced (http://forum.fxopen.com/showthread.php?t=62155) that it completed the development and testing of another very important feature – incremental lot trading. With the exception of MB Trading small time traders could not have traded ECN style due to the very large minimal order requirements.
If opening an account with an ECN broker like Dukascopy requires a minimal deposit of $10,000 and a minimal trade size of 1 lot, with FXOpen you can start trading with 0.1 lots. For now, FXOpen’s commissions are about 30% lower than MB Trading’s.
FXOpen’s solution doesn’t mean that anyone can display any size of order inside the spread – this would obviously worsen the ECN feed with its liquidity providers. What it means is that orders less than 1.00 lot will be aggregated and processed via STP and will be filled when the market moves. These small orders have a slightly higher chance of not being filled than the large orders but it’s a small price to pay for the ability to trade ECN with as low as 0.1 lot (10,000 order size).

http://forexmagnates.com/fxopen-intr...n-lot-trading/

[AutoTrader]

Hi Michael,

I saw your news on Feb 28: Tradency storms the market with new busines model.

"Traders sending trading signals, manually or automatically, to a computerized system , where a subscriber can select among the trading signals, subscribe and trade the signals manually, semi-automatically or automatically - sending the orders to a broker over a internet connection."

Yes, this is such a good idea, that someone applied for a patent on this in 2007.