I was wondering if anyone here is a market maker at HotspotFX or other ECN type dealers? Had some questions regarding the business and the nitty gritty of things. Thanks.
You might get more answers by posing the questions themselves, rather than asking if someone might answer them.
Sure QQQ: 1) It seems that typically there is around a ~1 pip spread on the EURUSD. However, I was wondering how the market makers handle unexpected volatility or news figures. Do you typically get out of the market completely or increase your bid/ask levels? 2) Do you manually make the markets or use any computerized algorithm to do so? Is it possible to link third party applications to Hotspot which can send orders for hotspot's platform for execution? 3) How would you rate that overall trading condition in terms of liquidity, executions etc? I understand that on a "one way street" type of a market the market maker can take a hit but typically how is the overall environment for the operations? Any specific risks that can be associated with Hotspot? These are the ones bugging me mostly. Thanks!
I have worked as a market maker at major banks and I also trade on Hotspot so I will try to answer you as best I can. 1. Most of the time you widen your spread. It rarely suits a market maker to drop their prices totally. There is a great opportunity to make money as a market maker when showing very wide spreads. In horrific times people will deal on any price they can get so it doesn't suit to pull them out entirely. In Hotspot, while I have never seen extremely wide spreads, I have seen spreads widen to say 5 pips should there be a huge announcement, but this has been momentary at worst. 2. While I have never posted prices to an ECN, most if not all banks use an algorithm which draws rates from several sources such as EBS, Reuters matching, etc and then they shade/widen to suit. I don't know of any third party applications such as Tradestation, etc that you can link up to Hotspot, although you can access them through the Realtick platform via Terra Nova trading. 3. I have always had excellent execution and liquidity in the 4 years I have dealt with them with no complaints. The only criticism many people have that I have read of is their 10 pip exclusion when trying to modify, enter, or cancel a resting order with them. They have this in place since the banks they leave orders with have the same sort of exclusions (most if not all single bank platforms have the same exclusions, some worse). I can tell you from personal experience that this is more of a guideline and they will try to get your order changed/cancelled etc to their best ability. I have only been really denied once and that is when I was trying to change an order that was already at the price.
Taboni, a quick question if I may. Is Hot Spot indeed a true ECN broker? I ask because they state the following in their FAQ: Who is the counterparty to my transaction? Hotspot FX is the counterparty to all transactions. I'm wondering if sclapers/short term traders would have problems with them.
Hotspot is a true ECN broker. They state what should be stated by all currency ECNs. Technically, you are trading on bank's prices using Hotspot's credit lines with the bank, since you as an individual does not have a credit line with the liquidity providing bank. The bank sees Hotspot acting as your prime broker. All currency ECNs act in the same manner since you as an individual do not have credit with their liquidity providers.