Forex Trading - October 10th, 2006
"Now, keep in mind that a quote on a deal-desk platform is entirely generated by that deal-desk. There is no “true market” of banks that have to interact to move prices, such as in stocks and futures. When they put their price somewhere, it is somewhat arbitrary compared to where the real banks might be buying and selling. For example, let’s say I’m running a deal desk, and I have a live quote feed from one large bank on my desk. I can use this to buy and sell if needed, but I prefer to trade against my customers and make money. So, let’s say that the bank we monitor is showing the EUR/USD at 1.2532 by 1.2534. I have all of the orders of my customers compiled on one screen in front of me. I can see that they have stop orders in to buy the EUR/USD if it gets to 1.2537 on the offer. So, I move the quote on the platform to 1.2534 by 1.2537. This fills all of the buyers at 1.2537, which means I’m short at that price, having sold to them. This can occur even though I know that a bank is sellnig at 1.2534. But that bank isn’t electronically connected to me, so putting my bid quote at 1.2534 has no consequences. Now, some customers may decide that they want to sell at 1.2534 when I put my quote up there. That’s fine. I just sold a bunch at 1.2537, and now I can move my price back down. And if I start to think that the EUR/USD is actually going to head higher, I can buy from the bank feed at 1.2534. I was never at risk. I had complete control of the quote pricing, and I had full access to all of the customer orders in my system. Suddenly, you should have a good understanding of “commission-free.” It’s far from it. Not only is the desk making money, there is no structure to the pricing. It’s based on where they want to put their quote to fill customer orders. So as a retail customer, trading on a deal desk, no matter how small they make their “fixed spreads,” is a problem. They exercise complete control over the market that I want to trade in. Even when I’m right, I can get stopped out of a trade by them if it makes financial sense for them to capture my trade (usually only if many people have the same order in). Don’t be overly paranoid. They aren’t looking at YOU. They have hundreds or thousands of customers. They are looking at nearby pricing where there are a lot of orders. But make no mistake, it is about manipulation to make them money as a platform within that."
Copyright: 2006 Chris Mercer, Tradesight
tradesight.com/wordpress/?cat=1
"Now, keep in mind that a quote on a deal-desk platform is entirely generated by that deal-desk. There is no “true market” of banks that have to interact to move prices, such as in stocks and futures. When they put their price somewhere, it is somewhat arbitrary compared to where the real banks might be buying and selling. For example, let’s say I’m running a deal desk, and I have a live quote feed from one large bank on my desk. I can use this to buy and sell if needed, but I prefer to trade against my customers and make money. So, let’s say that the bank we monitor is showing the EUR/USD at 1.2532 by 1.2534. I have all of the orders of my customers compiled on one screen in front of me. I can see that they have stop orders in to buy the EUR/USD if it gets to 1.2537 on the offer. So, I move the quote on the platform to 1.2534 by 1.2537. This fills all of the buyers at 1.2537, which means I’m short at that price, having sold to them. This can occur even though I know that a bank is sellnig at 1.2534. But that bank isn’t electronically connected to me, so putting my bid quote at 1.2534 has no consequences. Now, some customers may decide that they want to sell at 1.2534 when I put my quote up there. That’s fine. I just sold a bunch at 1.2537, and now I can move my price back down. And if I start to think that the EUR/USD is actually going to head higher, I can buy from the bank feed at 1.2534. I was never at risk. I had complete control of the quote pricing, and I had full access to all of the customer orders in my system. Suddenly, you should have a good understanding of “commission-free.” It’s far from it. Not only is the desk making money, there is no structure to the pricing. It’s based on where they want to put their quote to fill customer orders. So as a retail customer, trading on a deal desk, no matter how small they make their “fixed spreads,” is a problem. They exercise complete control over the market that I want to trade in. Even when I’m right, I can get stopped out of a trade by them if it makes financial sense for them to capture my trade (usually only if many people have the same order in). Don’t be overly paranoid. They aren’t looking at YOU. They have hundreds or thousands of customers. They are looking at nearby pricing where there are a lot of orders. But make no mistake, it is about manipulation to make them money as a platform within that."
Copyright: 2006 Chris Mercer, Tradesight
tradesight.com/wordpress/?cat=1
