I live in Asia... shedloads of bucket shops around, thats true, but mkt's getting more mature all 'round, like everywhere else, plus everybody has access to the net, and as far as trading's concerned, anybody can use an english-language trading station, so thats not really an issue... now from my past life as a broker, observation is about 95% of the clients eventually blow up their acct, nothing to do with the spreads, leverage etc, no matter what you tell them NOT to do, they WILL overtrade, they WILL place 60pips wide stop losses and take 15 pips only profits etc etc... Steve, you may be able to relate to this, if you've ever tried to save a few, at least on the basis that if they manage to survive, they'll trade longer and that means more comms... fact is, that's just a sad losing battle... its got NOTHING to do with leverage, they'll just lose it faster but thats all, its 99% down to behaviour / discipline etc, sorry tomcole... just because you can't deal with leverage doesn't mean nobody can... its just different styles....
tomcole - whats ya view mate? currenex & hotspotfx (incl prime broker costs) r just as cheap, half the price of futures, but am sure u've got sthg interesting to say about trading futures and via a big bank, right?? pls don't disappoint ))
IMHO, its a function of your account size where you trade. Jumbo leverage makes no sense if you can swing reasonable size at name brokers/banks. I take enough risk trading, worrying if my broker will open his doors in the morning isnt a worry I want. Although for periods of time the bucket shops may make sense, I am a firm believer that you get what you pay for and I'm willing to pay for peace of mind of a balance sheet that stable.
I agree re balance sheets but 2 things should be remembered. 85-90% of margined traders blow up so bucket shops are a licence to print money. Of course one will go bust and so you should be careful which one you choose. However a 2 pip spread in euro dollar at all times is very valuable. UBS/Deut and the rest won't quote that to anyone and as you will be aware the liquidity on the EBS dries up over figures. If you manage to get on a rate as figures are published then that is invaluable. Use leverage to your advantage. If you trade say in eur 5m clips you only need usually eur50k margin. Whenever your balance goes substantially over this withdraw the excess. If the counterparty goes bust you lose eur50k. Now I would not want to lose eur50k but if you trade in 5m clips then it isn't a big deal. Of course all this is scaleable and if you trade in 1/2m lots then you only need to keep 5k in the account.
FWIW, i am sitting across the partition from an FX online broker in an incubator type set-up, i've helped them in their initial devl phase therefore had and still have privileged access to pretty much everything there, which is probably why like lon eagle i am not overly worried about the credit risk issue - not denying it exists tho'... guys started 3 years ago, just the 2 partners both ex-voice brokers from prebon etc etc, as a no-tricks white label op., just making (fairly decent) money on volume rebates and charging a transparent comm. per trade (yes there r some countries where... but as i said earlier its changing...). basically no risk, or really not much... late last year, they acquire the licence to their own turn-key front-to-back brokerage platform. how much? $25K one-time, yes... that cheap... how things change hey?... , plus coms on volumes etc but again we're talking $5-20/mio depending, really not much... i.e. not sthg you and i can't afford... then all you need is an API with a willing liquidity provider and again thats not particularly difficult to find... situation today? they've hired because thanks to good e-marketing their nb of clients has just gone thru the roof, but r still only 6 quasi-full-time total, outsourcing anything that can be. volume-wise, high-single digit yrds/mth, which translates grosso-merdo into $1mio+ rev. / mth, not kidding you... (ok, their mkting costs r not small but hey, there's a lot of room there...) do they bucket? of course, but only small size trades. remember, they r brokers, not even dealers, not traders, very risk-adverse animals... plus their assessment after trying to bucket more is its just not worth the risk... and considering how much they're making now, can't blame them really )) so, you must be asking yrselves, why am i still sitting there and trading instead of just doing the same hey?? well, not a question for this thread, is the answer... but bottom line is, similarly to lon eagle, i have pretty solid reasons not to worry too much over my brokers' credit risk (thats not them btw), there will be some accidents of course, but i can live with that risk, considering the already debated (better executions, higher leverage etc) benefits...
Thanks for your comments - I thought they were absolutlely terrific!!! Risk is always a question of perception, so if you make cash your way and I make it my way, we're both happy.
A hypothethical question, If I want to open a $100k to $200k account to trade spot forex specifically, which ones do you recommend and why? I am thinking Oanda as I am very pleased of their execution platform. Please give your views.
Like someone said , leverage is NOT the reason for blowing up accounts, it just makes it happen faster, if your edge isn't big enough to overcome spreads and commissions, you will go down no matter what, leverage or no leverage, if you increase your leverage with factor 2, you go down 2 times faster, simple as that..
Post below is recently from a "Senior Member" of the much-touted forum at Oanda, the fx retailer that, we're told, is honest and the "best" of the bucketshops. The senior Oandian is replying to another Oandian's ire over having his limit orders dishonored by Oanda, while his stops are always filled instantly (i.e., "misquotes" always running in the shop's favor, never in the customer's, a problem I learned about with the fx retailer I used): ____________________________________________ "My perception is, that they are doing a double work on us: automatic shading is linked via a formula to something which calculates the probability of them being hit on one or another side of market in function of customer positioning and speed of market move. You cannot work against this, but you can live with it if you trade directionally, as you tend to get in and get out on the same kind of offset if you are fast. The other thing, which they do only in quiet markets, is to manually move the price in front of stop and limit orders, to maximize the execution profit further, and to avoid that, you should not be leaving orders close to the market, but instead execute your trades by yourself, especially the stops. So keep your stops wider, and execute them manually when your normal level is reached." ________________________________________________ If the above is "honest" and "best," I'd hate to see the dishonest and worst.