LMAX inside spread liquidity

There's nothing to it. Most people use Market orders, so when you BUY you get matched with the momentary lowest OFFER/ASK price. When you SELL you get matched with the BID price. So you "pay the spread" as an ordinary retail trader. That's the definition of "retail".

Wholesale is a bit more difficult to define but, in general, it's an attempt to become a "liquidity provider" and "make prices", rather than the retail guy who just "takes" available prices. Exchanges like LMAX allow participants to "compete" with limit orders at "Best Bid", for example, and thus have the opportunity to Buy at a much lower price, subject to "liquidity". In other words, there has to be a counterparty to sell to your Bid. At most Forex venues, you do not have a genuine opportunity to compete on a "level playing field" with the Banks and other liquidity providers. At Dukascopy, for example, you can easily use an order type which places yourself at "Best Bid" on their "ECN". But you'll find that there's nobody who wants to sell to you, as the participants are themselves all wholesale liquidity providers. So you are doomed once again to Buying at the Ask (Retail) since you can't get a lower price.

So that's the difference between Wholesale and Retail pricing. With Wholesale pricing, or some approximation of "better than Retail pricing" you have the possibility to "make a portion of the spread at least", as well as covering your costs, to some extent, on a probabilistic basis. Algorithmic scalpers do this all the time, it's just not a mode of trading which has been available to individual traders, until recently as better "fair and anonymous exchanges" bring liquidity to the smaller operator.

Here I am not talking about simultaneously buying the Bid and selling the Offer in a single transaction. To succeed at this game you have to deal with Partial Fills, probabilistic fills, and have the ability to be persistent, usually through algorithmic or computer assisted placement of orders. You cannot guarantee that you will be filled at Best Bid, and others will quickly join you or jump over you, so this is a rather fast game. Rather, you have to be patient in your Bids and Offers, picking fills over time, and there is a cumulative effect over time which enables you to Buy much lower and Sell much higher through competing with others for Best Bid and Best Offer, and having "Retail players" or others who are setting their prices "by mistake" (i.e. the non-professionals) who will "hit" your Bids and Offers, thus giving you liqudity as a counterparty. Thus you become a "mini Market Maker", if you want to think of it in that way... Theoretically (and this is just theoretical) you can make money all day long, but the Market price doesn't really move in any significant way. This is not a good way to make money, but it is a theoretical possibility given "perfect" Wholesale pricing opportunity through sufficient liquidity to provide counter-parties to your Bids/Offers... Not even the Big Outfits get the lion's share of their revenue through this "spread scalping" but it is a component of their much lower overall costs.

People think you need to have an order which "jumps" in price in milliseconds in order to do this. That's not true. Much easier is to "stack" your Bids at Increments in price from your Best Bid, on down in price. Then as the market "runs into" your Bids, they are filled, thus giving you a much lower average Buying price. So a lot of this "game" involves what is known as "Cost Basis Averaging" in which your position is the result of many Buy fills at various prices and lot sizes, a VWAP if you like "volume weighted average price" which represents your Long Entry price, for example. On the Sell side you do the same thing, averaging your VWAP higher through multiple fills. The difference between your VWAP Buy price and your VWAP Sell price multiplied by Lot Size is your theoretical Gross Profit potential.

You can use what I call "incremental trading" even if you are doomed to buying Retail, but you can see the leverage which Wholesale Buying Power provides to enhance your outcomes by lowering your trading costs. Even a Retail player knows how to play the "averaging game" to some extent, so this isn't a new concept.

Hope this helps !!
HyperScalper

 

It sounds to me it would be much easier to get someone with a Reuters terminal to give you the data (all Lmax trades are published on Reuters). This way you could determine if this even makes sense on this platform before embarking on a months long development project. Maybe even lmax gives you the data if you ask (doubt it tho).

30% to 40% of the volume is in eur/usd, most of the rest in aud/usd, gpb/usd and usd/jpy. I doubt you can compete in these pairs with the LPs with HFT-infrastructure. And in the other pairs like gbp/jpy there will be little activity.

 

I think you may be underestimating the cumulative effect of 1) price advantage, plus 2) the value of knowing the micro trend and the power of 3) incremental position trading. By using all of these techniques "synergistically" you have a solid "edge". No single technique is enough, and I'd like to stress that we are NOT competing with HFT traders. Their goals are completely different. So there isn't a simple answer to the question: What is the most successful strategy to trade? There are many ways to extract profit from markets, on many different timeframes, and with many different strategies. All you have to do is to Buy Low and Sell High at the end of the whole process to make money HyperScalper

 

So, I am still curious, as this thread gets longer and longer: Is there actually anyone who trades a live account through LMAX and can share a bit more what liquidity looks like in some of the most liquid G8 currency pairs during London market hours? The demo account makes me seriously worry because I hardly see any liquidity, sometimes less than 1 million in eur/usd at top bid/offer??? Seems incredibly low.

 

Use the vwap page. Insert the amount you want to trade. Look at spread. There is really no more info anyone could give you.

 

Well, they fall into 2 general categories: 1) the pros who can't be bothered to answer the question, or who haven't measured things, or who use lot sizes way bigger than "mortals" could use, and 2) those who really have never tried it, never measured it and, most likely, are also not interested to answer the question. But to be fair, and in general, as in most trading situations, the Devil is in the details of precisely your situation, and really there is no one who can really answer the question for you or for me, without just diving in and getting some specific data in exactly the way I plan to trade or scalp. Even if somebody has a general idea of an answer, it won't apply to your specific situation. General answers really are not very helpful and liquidity will vary due to a lot of factors like time of day, currency pair just to state the obvious ones. That's why I've devoted a lot of work to finding the answer for my specific question, for my trading style, lot sizes and so on....... It's a lot like "how long is a piece of string?" question. In trading, there are really no generic answers which are of any specific usefulness. Not trying to be "cute" here, just saying that nobody can answer my question for me, since it's a very specific question. HyperScalper

 

with all due respect but you have mentioned for many pages how you opened a live account but it does not seem that way. Others and I specifically have walked you in detail through how you can modify limit price orders. I am trading professionally for well more than a decade (mostly at hedge funds and sell-side investment banks) so please believe me when I am saying I am well aware of everything you are saying here. I simply am curious of someone who can share actual fill stats in terms of liquidity available. Simple as that. If you do not trade live then no need to reply.

 

With equal respect, I intend to furnish a reasonable characterization of the liquidity. We had some issues with transfer into the Live LMAX account (honest, we did...) and anticipated Live-ness yesterday or today, neither one of which materializ(s)ed. So I await tomorrow. But if some of you are thinking I'm going to tell you about $1 million individual transactions, or even $100k notional sizes, you'll be disappointed. My methodology is to "nibble" groups of smaller transactions so, to the extent that liquidity available at a given price is lot size dependent (which it is, as concerns VWAP of a single larger transaction, versus individual smaller transactions) and also considering the "granularity" of the "retail counterparties" will have some statistically optimum size. In other words, it may be easier to nibble $5k than it is $20k, and the rate of acquisition of a given position size (whether "now", at Market versus distributing an Entry process over 20 minutes) influences the outcome. So, I may leave you with "Your Mileage May Vary" as they used to say, since I'm going to be exploring the smaller lot sizes. But I really do thank all of you for your interest, and I will be "bummed" if LMAX does not deliver significant liquidity advantages, especially for "minor forex crosses" with wide spreads; I'm not talking about super weird "exotics" of course.

HyperScalper.

 

Put in some crude instrumentation to measure fill pricing.
Once we get Live, this will be more interesting, and I'm open to
suggestion about a few other data items to log. Data looks
as shown below, but this will change slightly. GMT Timestamps will also
be in there, and maybe some LMAX ID's.

I "normalized" the Bid/Ask spread to represent 10 levels, where
the BID is on the left, and the ASK/OFFER is on the right of the
10 characters. B is used for the Buy Fill, and S for the Sell Fill.

So we are getting "Wholesale pricing" when B is to the left (BID), and
S is to the right (ASK/OFFER). We are getting Retail fills when B is
on the right side (ASK/OFFER) and S is on the left (BID). Hope
that makes sense. As you can see their DEMO yields "wholesale"
pricing (imaginary) fills most of the time )

B--------- means Buy was at the Bid (wholesale)
---------B means Buy was at the Ask (retail)
S--------- means Sell was at the Bid (retail)
---------S means Sell was at the Offer (wholesale)

My quantities here shown in millions so 0.1m is $100k "Dukascopy
style". 0.001m is $1k which LMAX internally represents as 0.1

ForexInstrument,B/S,FillLocationInSpread,SpreadPips,Qty(Millions),Price
DEMO results shown in this sample data.
GBPJPY BUY B---------- spdPips: 0.30 qty: 0.02 @ prc: 174.363
GBPJPY BUY ----------B spdPips: 1.00 qty: 0.02 @ prc: 174.339
GBPJPY SEL ----------S spdPips: 0.80 qty: -0.02 @ prc: 174.359
GBPJPY SEL ----------S? spdPips: 1.20 qty: -0.02 @ prc: 174.376
GBPJPY BUY B----------? spdPips: 1.10 qty: 0.005 @ prc: 174.336
GBPJPY BUY B----------? spdPips: 1.10 qty: 0.005 @ prc: 174.328
GBPJPY BUY B---------- spdPips: 0.60 qty: 0.005 @ prc: 174.32
GBPJPY BUY B----------? spdPips: 0.60 qty: 0.005 @ prc: 174.312
GBPJPY BUY B----------? spdPips: 0.60 qty: 0.005 @ prc: 174.304
GBPJPY BUY B---------- spdPips: 0.60 qty: 0.005 @ prc: 174.296
GBPJPY BUY B----------? spdPips: 0.60 qty: 0.005 @ prc: 174.288
GBPJPY BUY ---------B- spdPips: 1.10 qty: 0.005 @ prc: 174.213
GBPJPY SEL ----------S spdPips: 0.60 qty: -0.005 @ prc: 174.269
GBPJPY SEL ----------S? spdPips: 0.90 qty: -0.005 @ prc: 174.277
GBPJPY SEL ----------S? spdPips: 0.90 qty: -0.005 @ prc: 174.285
GBPJPY SEL ----------S spdPips: 0.70 qty: -0.005 @ prc: 174.293
GBPJPY SEL ----------S? spdPips: 0.70 qty: -0.005 @ prc: 174.301
GBPJPY SEL ----------S? spdPips: 0.30 qty: -0.005 @ prc: 174.309
GBPJPY SEL ----------S? spdPips: 0.30 qty: -0.005 @ prc: 174.317
GBPJPY SEL ----------S? spdPips: 0.80 qty: -0.005 @ prc: 174.325

(you'll note here that some qty is shown as negative. LMAX denotes
a SELL with a negative quantity but I will be making these all positive
for my "Dukascopy style" quantities.

The trading style here is never to close any position in the traditional
retail sense most are familiar with. Rather, everything
is done by Limit order, and so we simultaneously Buy Limit at multiple Bid levels
and Sell Limit at multiple Ask/Offer levels to maximize price advantage. Most
traders are familar with a Market (retail) order, and then Close (retail) of
that position to flat, but here we are "accumulating a constantly shifting Net
position long/short" using only limit orders with possible partial fills in the
mix, of course. (see sample attachment)

We do have $5k at LMAX but they have not applied it to the Live account.
No, it wasn't BitCoin ) so my partner is working the issues with them,
AML (anti money laundering), etc...

HyperScalper

 

Update: we had a funding rejection at LMAX and return to our Bank.
This is typical AML (anti-money laundering) behavior I'm sure you
have all seen before... So we have another transfer in progress...
HyperScalper