CME futures document - who to trust?

Discussion in 'Trading' started by Richbynature, Aug 29, 2006.

  1. I was reading through details on Globex and found one of the first references that I have seen on "positions" taken by brokers actually stated by a reputable (I think) source:

    If you scroll to page 4 of 6 a reference to wide spreads (up to 5 pips) and most noteworthy "prices are produced for the interested counterparty only". Presumably this means that a broker could control your account if you become too profitable?

    Surely, if this is true, these brokers (spreadbetters only?) should be closed down or carry a warning in bold pt size 42 "We WILL take money off you"? A clear separation should be made between DAT and spreadbetting (assuming that's what this reference is to).

    At least when you go to a casino there is a (small) chance that you will win. The implication here is that you are under control. Is this how you read it?

    Who would you trust to work with rather than against you? IB is a name that comes up quite often.

  2. The document's source is certainly reputable: it's the CME. The passages that apparently concerned you are in reference to OTC forex dealers, not globex. In the document IB stands for "introducing broker", not "Interactive Brokers".

    They're basically saying that you're safer trading currency issues on a transparent exchange, such as the CME, with segregated accounts and governmental oversight. OTC forex is completely unregulated and lacking in transparency and one should do considerable research to ensure that a FX dealer is legit before opening an account.
  3. Yes, research is critical. Thanks for pointing out about IB (I was aware that IB has 2 meanings!).

    My question is about the ability of some firms to offer a personalised price to each customer. This is not something that they openly discuss. Clearly if they set the price and can make the offer to you, making profit, in the long run will be impossible for the trader and guaranteed for the spreadbet company.

    Is this a rumour or is there more to it? Spreadbet companies are sometimes accused of this sort of manipulation. It seems to be implied in the document that I have linked above.
  4. On exchange-traded futures (such as CME currency contracts) there is only one price at any given time, and brokers have no role in setting that price.

    OTC forex is completely different. Spot currencies are traded on the interbank market, which is a large, unregulated network comprised of some of the world's biggest banks. Retail traders generally do not have direct access to the interbank market, but instead trade through middleman dealers such as Oanda or These dealers can and do set their own prices at which they will buy or sell a given currency to their clients. I don't know if prices are personalized to individual clients, but at any one time there is definitely more than one price in the FX marketplace for the same currency.

    Does that address your question?
  5. Yes.

    I agree with your statements and also do not know if prices can be personalised or individual accounts 'left to hang' mid-trade.

    For one thing there is little in the way of rebuttle of these statements by spreadbet companies. They could also make a statement "we promise to accurately reflect the price of the underlying futures contracts" and also "all customers receive the same prices and there is no manipulation of prices against specific customers who make large profits" . . . or some such comment . . .

    . . . but they don't, which makes me suspicious of their intentions, and it would be easy to give customers confidence by making such statements and offering independent auditing of their procedures . . . but they don't.
  6. Just to keep things in perspective. The CME "good" - some forex firms "bad"...

    CNN [9] quotes an official of the National Futures Association as saying "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically." Between 2001-2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $300 million mostly in managed accounts. CNN also quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"

    Some trade the FXE on the NYSE, perhaps a bit safer. IMO.

  7. Don,

    Thanks for the quote relating to US regulation. Do you know anything about UK regulation?

    There are many 'spreadbet' companies in the UK offering tax free trading profits. Some people claim they can hang accounts and set each individual their own price (and hence restrict profits).

    Do you have experience of this or have you heard of this practice?
  8. Yeah, well, my radar would certainly spin out of control...."tax free" trading losses maybe, LOL.

    I can't really comment on the UK, but it sounds fishy to me.