Possible?!

Discussion in 'Forex' started by cigarno, May 17, 2010.

  1. cigarno

    cigarno

    Is it possible to short Euro against dollar at broker (A) and then buy Euro against dollar at Broker (B) and use then use the long position at broker (B) to close your short position at broker (A)?!
     
  2. LeeD

    LeeD

    Unless you have some special arrangement with both brokers you'd have to unwind each position separately.
     
  3. cigarno

    cigarno

    Why not?! Isn't money fungible?
     
  4. LeeD

    LeeD

    for 2 reasons:

    1) I assume foreign exchange position involves leverage. So, if you sell US dollar and buy Japanese yen you actually own just a small part of the yen balance; the rest actually belongs to the broker as you need to seel this yen to pay up the dollar you borrowed from the broker when you opened a position.

    2) Most retail brokers don't actually give you any yen in this transactaion. Instead they give you what is legally a contract for difference. So, if you buy yen with dollars, than buy euro with yen you've got and ultimately buy dollars with all euros you've got, you'll end up with 3 constracts for difference instead of dollar-only balance. One of the very few few brokers that provides actual currency and not CFDs is IB.
     
  5. Pippi436

    Pippi436

    Its not so uncommon in the pro segment, google for "give-up agreement". Unsure why this should be necessary in retail space.
     
  6. cigarno

    cigarno

    That is exactly the point.......All FX brokers ,including IB,do not actually buy you the currency they just carry it on their books or they shift it on other broker book. There is no such thing as SPOT FX market so $/euro rate could be different from one dealer to another since there is NO exchange for FX market
     
  7. LeeD

    LeeD

    Here there is a difference between ECNs and bucket shops (or market makers as many of them prefer to be called). An ECN doesn't take positions; they just provide connectivity so that their clients (some of which are usually major banks) can trade between each other. In this sense each ECN is a mini-exchange. On the other hand, bucket shops take the other side of every customer's trade and it's their choice to hedge it or not.

    Brokers that offer CFDs do so for customers convenience - lots of crewdit and debit balances in various currencies are more difficult to read. Regarding IB, if you have dollars in your account and you buy yen without leverage you can transfer yen into your bank account.

    Exchange rates may differ a little, especially during fast moves but... Liquidity for ECNs is ultimately provided by the same bunch of large banks. So, if there is any mismatch between market places banks are the first to arb it away.
     
  8. cigarno

    cigarno

    You said " An ECN doesn't take positions; they just provide connectivity so that their clients......"
    What assures you 100% that they do not take positions? You as a trader do not have a way of knowing who is on the other side of your trade, it can be another customer or your broker. THERE IS NO WAY FOR YOU TO KNOW. Just becaue they advertie they do not take poitions does not mean it is true.
    And when you said that each ECN become a small exchange in it self, well what is referrence point that they go to to show you the rate for any currency pair on your screen?!
     
  9. Pippi436

    Pippi436

    You can exchange currency on IB or Oanda and wire it out. For example, trade your EURs for USDs and wire them out to close a debit balance on your USD bank account. Real enough?
     
  10. LeeD

    LeeD

    You are missing the important part - that trade in an orderly market place where the quotes are offered by other participants. If you place a markte order you get executed against the best price. Even if ECN do have a branch of businerss who trades FX in their own market place they follow the same rules as other participants like bank algorithms and retail traiders.

    If they are public company, you can read their investo info and see of trading on their own account is a significant part of business. If it is a private company there is no way to know. However, most ECNs don't run market place themsekves. They provide connectivity to a bigger forex market place. So, it is the same as routing trades to the exchange. The fact that banks have prop trading teams doesn't stop cients from using a banks's brokerage.

    Like an exchange they parse all active limit order and show the best bid and the best ask.
     
    #10     May 18, 2010