Taking Velocity Futures as an example (but applies to all Introducing Brokers and Non-Clearing Members) what do they add in the chain between me (the trader) and my relationship with the exchange I trade on and the clearing member who clears my trades? (Apart from the obvious aggregation of orders and accounts in relation to the clearer, nevermind marketing issues) If I use Velocity (who could clear through Man Financial for example) and I use X-Trader I understand that Velocity manage my risk parameters and set my commissions etc but do my orders/fills ever really pass through their setup and if they do why? Could it not just as easily be the case that my client software recieves market data directly from the exchange via the clearer's systems and that my orders/fills route directly through the clearer's systems (on which Velocity have set my risk parameters etc) from/to my PC? Isn't trading with someone like Velocity just adding an extra layer if my orders do need to route via them? or is there some mechanism that means the clearer's systems are bypassed in this model??? Any help understanding these issues much appreciated. Q1
I thought that they were "self-clearing", no? Velocity Futures, L.P. is a registered United States Futures Commission Merchant ("FCM") with the Commodity Futures Trading Commission ("CFTC") and is also a member of the National Futures Association ("NFA"). Velocity Futures is also a member of the Chicago Mercantile Exchange ("CME"). Velocity Futures, L.P. is operated by it's general partner Velocity Management I, L.L.C. Due to the strict daily financial reporting requirements, substantial net capital requirements to hold customer funds on deposit, and the vigorous audits performed by the NFA, your funds on deposit with a United States FCM are well protected.
Velocity Futures is not listed as a Class A Clearing Member on the CME website. They are not members of LIFFE or Eurex in any capacity (ie not even NCM). But that's not the issue...!
Btw, this is NOT intended as a Velocity-bash - I admire their stance of publicising their rates for everyone to see - I may well open an account there in Q1 this year. I just want to undestand what goes on under the hood a bit better than I do now. Q1
According to the CFTC web site, as/of November they have 680K in capital and 423K in excess capital. Do you call that substantial?
I think he wants to know what is the difference between Velocity futures executing the trade on its platform and managing the broker back office functions vs the clearing function of the exchange members.
Velocity to the best of my knowledge is presently self clearing at the CME. Generally Quiet I share your mis trust of firms that aren't clearing members of the exchange I'm trading on. Two points though. Some clearing firms, Rosenthal for example, does not have a direct customer division. They "wholesale" their rates to IB's who in turn market for RCG. The litmus test for me is where do I make my deposit. If my money goes directly to the segregated account of a clearing member then I'm satisfied that my funds are safe. NEVER write a check or send a wire into the account of a non clearing member. Even when trading through a clearing firm such as IB, your orders are "filtered". I'm sure everyone, well at least us over traders, have been denied a trade because of being under margined. The speed at which these calculations are made is transparent to the trader. It's not as if when you trade through IB or Refco or Man that you're going direct into Globex's server. No more than when you speak on the phone or type a post on ET that you're truly "direct." Regardless of clearing or not, the speed of your order will not be effected.
If for example, I am based in the UK and I make a trade on Eurex via Velocity what happens to my order? Here's some imagined steps: 1) I click buy 1 Bund @ 114.39 on my X-trader client (London) 2) My order gets sent to VF where it checks against my trade and position limits held on VF's own X-Risk system (Houston) 3) Having passed this check my order then gets passed to VF's clearer to make sure that VF are not breaking any of their limits etc (London?) 4) Having passed that check my order hits the exchange and gets filled. (Frankfurt) 5) The exchange passes the fill information back to the clearer...(London) 6) ...who forwards it to the executing broker (Houston)... 7)...who forwards it to me (London). Is this right? There's a lot of big hops in this model which even in these days of fast network connections must involve some latency.