What your saying is that " There is also little old me" dose not look like a complimented trader ? Is that right. Well you can simply follow my posts to find out.
I remember that being mentioned in one of Market Wizards books. Citi was mentioned as being able to make so much money on spreads (market making) because they had worldwide presence including dealing in countries that had no own central bank and such. But keep in mind that is based on old market conditions. Since then much has changed and competition is fierce. Spreads have narrowed significantly as these are dictated by competition. In fact I listened to one fx dealer (that claimed he worked for deutche and others), that nowadays banks barely make anything on spreads and even lose money. But that is the cost of doing business, in this case they gain extremely valuable information on the flow and possible direction. And that's where bank trader comes to play, as he is making markets for the clients he puts on the positions for the bank to profit from.
From what I heard, I don't think this is that easy to determine. Why? Keep in mind these are market makers. Prices are taken from them. As such they don't have the luxury of putting on a certain size on and keep it constantly at that size. In fact, with so many deals each minute the dealer doesn't even know exactly how much long or short he is on a given pair. Sounds crazy but if you think about it that's the only way it could really work.
What? If these were mere "brokers doing business on behalf of their clients" then where (according to you) would the execution take place? These are not "brokers" but "market makers", they are liquidity providers. This is OTC fx market making and Volcer rule has got nothing to do with it.
So first of all the Volcker Rule, which I presume is what you were referring to? prohibits banks from taking principle positions to profit on directional trades and it absolutely includes forex. It does not prohibit market making, you are correct on that and I should have included that. Interestingly, since until a few months ago IB's subsidiary Timber Hill engaged in market making, my analogy was still pretty dead on. My point being the big banks aren't trading to make money on the direction of forex anymore, while they once did, which is something not everyone seems to be aware of. If you were aware of it, great, have a great weekend!
Look, I'm not trying to be a dick, but in your post (that I quoted) it was pretty much clear what your point was and I just corrected that misinformation. Your point and analogy is wrong. I have no idea to whom IB is making markets. But these big fx market makers (listed earlier in the thread) do whatever they have to do to make money. They might be even losing money on the spreads. They have their own algo departments that can make only so much money. So the true money is made by putting on the manual trades based on the information you get from the flows of your customers. So if the (bank) trader things the pair will go up, he reloads on the dips. Whether you call it part of market making or taking temporary directional bets, it's all semantics.
So Right - Large Organisations will have there own traders as well logistic who place trades on there behalf as well own market bias that they will arrive at - Commission on spreads will depend on how much you like losing your entered into positions - and by that - you are able to make money for them the Large Organisations - As to putting the spread exchange there way - Its all money for the pot is the simplest way of looking at it.
Sure the bank's trader's can cheat a bit in market making. I can tell you that in the case of at least two banks on that list that I have personal knowledge of the bank itself is pretty clear that they discourage that behavior and if a trader gets caught on the wrong side of it they're going to get hung out to dry. And if you're a market maker incentives are structured to discourage it. Not only does it violate Dodd Frank, but the bank's found that the volatility of their prop returns were so high that they were actually a poor risk adjusted return compared to essentially printing money market making. So in reality, they don't make big prop plays, sorry if that removes a big boogie man we all love to hate.
Frankly I don't understand what cheating or boogie man you are talking about. I have never said anything about taking big prop plays. And when you talk about that personal knowledge are you referring specifically to fx market making or something else. Why you keep bringing Volcker, Dodd Frank, cheating to fx world is beyond my level of expertise. As far as I know these are OTC markets, you can trade on "insight information" freely. Unless something has changed that I'm not aware off, there is no "cheating". Making markets you are disadvantaged because customers are taking prices from you and they are considered to be better informed. For the risk of getting big positions dropped on your lap (that you can't unload profitably) and the counter party risk, fx market maker gains some information about possible direction of the market. It might go that way, it might not, it's not a sure bet. If from the order flow he sees that the market might be going up, then he goes long now and reloads on the dips. Whether you want to call it directional play or simply reloading inventory so you have something to sell on the way up (making markets), it is all semantics and I don't look at it as "cheating". Regardless "cheating" in fx, it might be a little bit dated but checkout Market Wizards for that Solomon Bro big fx trader, he explained perfectly that the issue of "riding" on customer's flow info is not cheating (what Schwager implied). There is a real cheating going on regulated markets in US i.e. with specialty type orders given to HFT firms and you are talking about cheating in fx markets?
Yes there is Market Sentiment Indicators which displays the average user volume as in Market Orders placed in either direction. HFT firms are simply cashing in on candle pattern formations which appear at high speed similar to google search engine which is todays Analysis of trading reckoning patterns which form within the database if we hit 8 out 10 correctly we are still light years ahead of the crowd.