FXCM as a broker and/or data provider

During last week's NFP I saw a spread of 6 on FXCM (EURUSD) and 15 on MBTrading. That was the final straw for me.

 

so your leaving mb trading

 

I was deciding between MB and FXCM. I had traded with Sol, but I wanted variable spreads, and those 2 seemed like the best.

 

Hmmm... I don’t think you understand. Picking off slow prices? I have no clue what you mean by slow prices, I will assume you mean prices which are off what the rest of the market is at and have not correct yet. This leads me to believe you do not understand how these prices correct themselves and become ‘unslow’ in the case of every related security. Without people arbing the prices back into line the prices would not be only diverge, they would never converge. FXCM isn’t slow prices, its a separate security from other derivatives and related securities. I'd even say other banks offering their own prices on forex pairs can be considered a 'separate' security. Stat arbers are providing a service to all traders.

Let me put it to you in a simple analogy. Imagine a disaster strikes in some town, and all the gas power generators get bought up, driving the prices up. Because the price went up in the disaster area doesn’t mean the prices went up across the country. So you could 'arb' that situation, buying generators cheaply where there is liquidity, and selling them where there is demand, repeat until prices are back into line. This guarantees that the people in the disaster area are not playing too much and the people on the other side of the country are not paying too little (because the demand has increased since the disaster).

As you can guess, in this specific case, FXCM is the disaster area . It has nothing to do with finding that FXCM has bad servers which always lag, and taking advantage of their traders based on that, I don't believe this is what is happening. Its about that finding that FXCM is offering 'expensive' generators which do not make sense with what the rest of the market is saying. I obviously can’t pin point why FXCM is off market most of the time, it could be the banks they use or it could be them manipulating the prices (which I imagine is illegal if they do it to make profit off their clients). Either way there should be market forces there to correct this (arbers). Personally I don’t want to trade where the price is artificially kept too high or too low.

I think you are mistaken on many points.

This is not how free markets work.... If a market maker cuts itself off from the global market, its offering something different than is being offered on the real market. Ie. FxcmPoints.

arbing a price into line with related securities should not make any difference to 'guaranteed' stops being offered. Arb based market corrections are always very small, arbing prevents stops from being hit with artificial prices, and only get hit when the global market moves to that direction, preventing both types of traders from being screwed over by catching stops which would not have happened on a better broker.

At no point did I mention taking advantage of latency :S nor anything in a temporal sense. I said it was possible to trade on the market inefficiencies (the generators).

uhh not quite sure where to start here. other people are seeking forex prices that are made up by some company which is making money off your gains and _losses_? that’s surprising. guaranteed prices should be done using statistics, probabilities and padding spread evenly on each side. Not pulling numbers out of their asses to take advantage of liquidity issues and screwing over their clients when their made up numbers hit stops and limits when the real market doesn’t. If the spread is padded around the 'actual' market price, it would still be considered 'on market', just at a premium.

Really? you found it better than Oanda and IB's IdealPro?

I'll agree with the black balling thing. Arbing is definately something not meant for small fries to do. I've found lots of barriers in place to prevent low capital firms from being able to do this. I would'nt be surprised if they would block people from it too.

I am interested in hearing your views on this. I know big firms make a killing on this type of market optimization. But I have a math background, not finance.

 

one at a time

First, a market maker in Forex is offering retail traders the ability to access a market that trades 1.9 Trillion notional value. If you think picking a couple 100k lots is going to help create an efficient market you are wrong, again.
Watch an ECN or any Currenex platform during news and you will see it widen to 20 or even 30 PIPs or possibly blackout. Now, a dealing desk that keeps a fixed spreads cannot do this. But when the dust settles and the bid skip 20 pips to within 2 or 3 pips of the offer the dealing desks must follow. The dealing desks are now, in effect, slow. And a trader who takes advantage is taking advantage of price latency.

 

The sanitized environment needs no elaboration. Trade futures or equities, plece a stop and then come tell me if you got the exact price you asked for.

But I am not sure that answers the argument. In fact I am confused by the argument. I was generalizing the two types of clients that are suited for a dealing desk.

 

Iv heard this before that small arbs cant correct the market, and i agree that its rare to see bid / ask sizes less than 1mm on major price pairs for each level. Thats why you kept taking advantage of it until its fixes itself. Ie. keep bringing generators until the people who are selling them for too much are forced to lower thier prices.

From experiance with fxcm. during market news (any every other time of the day) if your order does not match the market prices, they reject it or send it to a bank to be filled at significant slippage from what you wanted.

They are not offering fixed spreads at that point, they arnt offering anything. They just reject or let slip any order when their fake prices would cause them to lose money, and I bet they pocket the extra money when its on the other side.

and I do trade futures. Slippage is a fact of life, as I said before the ONLY way to guarentee prices is doing it based on probabilities with a premium. FXCM does not offer guarenteed prices. They will never take a loss if the market moves against them, they will tell you against and again, only in 'normal market conditions', which means whenever your trade causes them to lose money, they will reject or prop it to a bank ie slippage.

I think that 'dealing desks' as far as FXCM is concerned is a way for them to make money when the market goes thier way, and screw their clients on thier 'guarentee' when it does'nt. The only benefit which I like about dealing desks it being able to trade over the counter securities like forex, allowing my orders to be matched against other clients at the brokerage without having to go to an exchange / bank, ie faster execution at lower costs (even though the commission stays the same regardless if the order does not have to go through a bank). I perpose this is the sole real benefit every type of trader.

 

Any regulated FCM is subject to audits by the NFA. If they did not receive a quote from a bank it cannot be quoted to the client. The manipulation of prices argument is antiquated.

 

Note that I did not present the idea of FXCM manipulating as an anguement or fact in support of my views. Merely as a possibility of an explaination of what I saw in thier market data.

Also I have read online that there are some litigations against FXCM along these lines so maybe it would'nt be so antiquated as one might think in this day and age of regulated markets.

 

Traders lose because they overleverage. Across the board, this is why they lose. They talk about the market moving against them and the 'market maker' hitting their stop but that is a scapegoat. NFP moves 60 to 100 PIPs or more in seconds, so do not open too many lots or keep the account well-funded. And, assuming dealing desks are evil, then do not use them. This thread is talking about the NO DEALING DESK platform. I did not sign up for the dealing desk.
This works like a prime brokerage. The trades are immediately offset, they get their rebate for volume and I get faster execution. But, what is more important, I get to use their size to get their pricing (spreads).