Triantus Shango
Sergeant Major
- Messages
- 1,371
so you want to become financially independent by trading forex? good. now, all you have to do is cut through the bullsh1t the various retail broker-dealers (RFEDs) will throw at you in the hope you'll be the next fish to bite.
in other words, when trying to decide which broker to use, and you are on the chat line asking questions, it would serve you well to have in mind the info in the PDF attached to this post. finally, after more than 20 years in the business, one of the largest players is taking some initiative to clean up this industry. i can't believe we had to wait until June 2013. long overdue. let's hope this gains more traction going forwards.
but back to the point.
your first concern should always be: conflicts of interest and unwillingness on the part of the RFED to be transparent about their technology, liquidity providers, and how client orders are processed, from creation to execution to post-processing.
second, any order you create should always have an order ID (also called ticket ID) and if i remember correctly, the broker's system also generates an internal execute ID number associated with your order. and of course, if you request to see these numbers, your broker should be able to provide them immediately. in fact, you should not even have to request anything as this data should automatically be provided to you both via automated emails and the online report tool. if they don't, that is your first huge red flag something is not the way it should be.
any nonsense about the need for some delay because maybe the computers are housed on some mountain top and it's so cold they need first to heat the room and then send a sherpa to retrieve the data and bring it back down the valley and ... you get my point. or someone telling you that this is simply impossible, is never done, not how this industry works, or simply cannot be done, is just a pure, unadulterated load of crap.
if you believe it, then please PM me and i will set up a bilateral trading relationship with you whereby you give me all your money. i'll give you a discount. trust me.
third, if your broker doesn't, why the hell not? and what are you still doing with them???
some final thoughts:
there are about 10 major banks providing liquidy to this market. then you have your 2nd tier banks, prime brokers (funneling hedge funds, institutional money, real money account trades into the market), prime of primes (will post another article about this in 5 mins), retail ECNs (funneling retail cients money through a prime broker or prime of prime) all hooked into a few major ECNs only accessible to institutional players that aggregate all this flow: KCG Hotspot FX, EBS, Reuters FXAll, Bloomberg Tradebook, Currenex, Integral, Barclay's Barx, Deutsche Bank Autobahn, and am sure they are others.
but my point is: it's no secret. so why would a broker be reluctant to disclose their liquidity source? unless they are set up properly to tap into the aforementioned liquidity venues, then rather than lie, they will instead pretend it's a trade secret. how ridiculous when everybody in the industry knows who is providing liquidity to whom. so that right there should tell you something about the broker. and if they tell you verbally or over the chat, 'yeah, we have 10 major banks as our LPs,' ask for an official document proving this, don't just take some rep's word for it.
it's all about disclosure and transparency, which go hand in hand.
technology-wise, same thing. if your broker only runs Metaquotes (maker of Metatrader) servers, they should tell you so. if they run a hybrid backend IT system with a MT4 bridge, they should also tell you so. and if they run on Spotware or PFSoft or Leverate or Integral or any other such tech vendors, they should also tell you so. and if they developped their own backend systems and hooked it directly into the professional IT systems powering this market at some of the top data centers such as Equinix, then they should also disclose that. and why would they not? there is absolutely no downside to disclosing this info as it is only a positive differentiator against the competition that is not able to provision the same quality IT infrastructure.
and here we see that it is not just about how tight spreads are, how low commissions are, or high the leverage or the minimum lot size allowed, but much more importantly: how resilient, performant, reliable, fast, in one word, professional, is the IT infrastructure that will carry your precious orders (money) to its destination and back? there are some significant differences between brokers out there when it comes to that. let me emphasize this again because i get the feeling that non-IT people don't seem to grasp this very well, thinking that when an order is sent over the internet to the broker, then all brokers become the same except where spreads, leverage, and commissions are concerned. nothing could be further from the truth.
and lest you think i nitpick, how about rephrasing this like so: if you had to transport your wealth, say in gold bars, 5,000km, would you rather choose a horse-drawn coach (like they did in the Wild West in the 19th century) or a fighter jet, or even better, an indestructible faster-than-light UFO/alien spacecraft? right, the choice is obvious. so why not choose a broker with the best IT infrastructure?
(as an aside, the LMAX MTF (multi-lateral trading facility) has their servers at Equinix and if you can park your own servers at Equinix as well, they will let you cross-connect. your average VPS broker offering doesn't even come close to this. think of it as your EA on steroids.)
finally, historically, Icap's EBS and Reuters are the largest electronic trading venues for spot FX (not sure if still the case, anyway, that's not point). now, why would a company like EBS be concerned about enhancing transparency and integrity in the FX market? and we are talking about the institutional market. so imagine the situation in the retail market. therefore, before even worrying about leverage or spreads or commission, always read the legal documents before opening an account. and if the legalese is written on purpose to be opaque, then enlist the services of a lawyer who can tell you what exactly it means. this is always were you will find the smoking gun either by omission and obfuscation, or clearly disclosed for the whole wide world to see its naked ugliness. that reminds me of another point: in Europe, brokers are required by law to publish such legal documents to inform their clients. if they don't, or do but misrepresent the truth in them, then you have legal grounds to go after them and bring them down. hence, the docs are your litmus test, as it were.
to get a better idea of what i am talking about, you might want to download and compare the legal docs from SAXO Bank (retail service, not SAXO Prime) and the LMAX MTF. you should see some very stark contrast. hopefully illumination will follow.
PS: forgot to add that the banks system go through a rollover/reset at 5 pm EST and so for a few minutes, if your broker is not a market maker, at around 5 pm EST, the system should be down and you should be unable to place any trades. that's a good sign. some more info here: http://www.investopedia.com/articles/forex/08/forex-rollover-credit-debit.asp
in other words, when trying to decide which broker to use, and you are on the chat line asking questions, it would serve you well to have in mind the info in the PDF attached to this post. finally, after more than 20 years in the business, one of the largest players is taking some initiative to clean up this industry. i can't believe we had to wait until June 2013. long overdue. let's hope this gains more traction going forwards.
but back to the point.
your first concern should always be: conflicts of interest and unwillingness on the part of the RFED to be transparent about their technology, liquidity providers, and how client orders are processed, from creation to execution to post-processing.
second, any order you create should always have an order ID (also called ticket ID) and if i remember correctly, the broker's system also generates an internal execute ID number associated with your order. and of course, if you request to see these numbers, your broker should be able to provide them immediately. in fact, you should not even have to request anything as this data should automatically be provided to you both via automated emails and the online report tool. if they don't, that is your first huge red flag something is not the way it should be.
any nonsense about the need for some delay because maybe the computers are housed on some mountain top and it's so cold they need first to heat the room and then send a sherpa to retrieve the data and bring it back down the valley and ... you get my point. or someone telling you that this is simply impossible, is never done, not how this industry works, or simply cannot be done, is just a pure, unadulterated load of crap.
if you believe it, then please PM me and i will set up a bilateral trading relationship with you whereby you give me all your money. i'll give you a discount. trust me.
third, if your broker doesn't, why the hell not? and what are you still doing with them???
some final thoughts:
there are about 10 major banks providing liquidy to this market. then you have your 2nd tier banks, prime brokers (funneling hedge funds, institutional money, real money account trades into the market), prime of primes (will post another article about this in 5 mins), retail ECNs (funneling retail cients money through a prime broker or prime of prime) all hooked into a few major ECNs only accessible to institutional players that aggregate all this flow: KCG Hotspot FX, EBS, Reuters FXAll, Bloomberg Tradebook, Currenex, Integral, Barclay's Barx, Deutsche Bank Autobahn, and am sure they are others.
but my point is: it's no secret. so why would a broker be reluctant to disclose their liquidity source? unless they are set up properly to tap into the aforementioned liquidity venues, then rather than lie, they will instead pretend it's a trade secret. how ridiculous when everybody in the industry knows who is providing liquidity to whom. so that right there should tell you something about the broker. and if they tell you verbally or over the chat, 'yeah, we have 10 major banks as our LPs,' ask for an official document proving this, don't just take some rep's word for it.
it's all about disclosure and transparency, which go hand in hand.
technology-wise, same thing. if your broker only runs Metaquotes (maker of Metatrader) servers, they should tell you so. if they run a hybrid backend IT system with a MT4 bridge, they should also tell you so. and if they run on Spotware or PFSoft or Leverate or Integral or any other such tech vendors, they should also tell you so. and if they developped their own backend systems and hooked it directly into the professional IT systems powering this market at some of the top data centers such as Equinix, then they should also disclose that. and why would they not? there is absolutely no downside to disclosing this info as it is only a positive differentiator against the competition that is not able to provision the same quality IT infrastructure.
and here we see that it is not just about how tight spreads are, how low commissions are, or high the leverage or the minimum lot size allowed, but much more importantly: how resilient, performant, reliable, fast, in one word, professional, is the IT infrastructure that will carry your precious orders (money) to its destination and back? there are some significant differences between brokers out there when it comes to that. let me emphasize this again because i get the feeling that non-IT people don't seem to grasp this very well, thinking that when an order is sent over the internet to the broker, then all brokers become the same except where spreads, leverage, and commissions are concerned. nothing could be further from the truth.
and lest you think i nitpick, how about rephrasing this like so: if you had to transport your wealth, say in gold bars, 5,000km, would you rather choose a horse-drawn coach (like they did in the Wild West in the 19th century) or a fighter jet, or even better, an indestructible faster-than-light UFO/alien spacecraft? right, the choice is obvious. so why not choose a broker with the best IT infrastructure?
(as an aside, the LMAX MTF (multi-lateral trading facility) has their servers at Equinix and if you can park your own servers at Equinix as well, they will let you cross-connect. your average VPS broker offering doesn't even come close to this. think of it as your EA on steroids.)
finally, historically, Icap's EBS and Reuters are the largest electronic trading venues for spot FX (not sure if still the case, anyway, that's not point). now, why would a company like EBS be concerned about enhancing transparency and integrity in the FX market? and we are talking about the institutional market. so imagine the situation in the retail market. therefore, before even worrying about leverage or spreads or commission, always read the legal documents before opening an account. and if the legalese is written on purpose to be opaque, then enlist the services of a lawyer who can tell you what exactly it means. this is always were you will find the smoking gun either by omission and obfuscation, or clearly disclosed for the whole wide world to see its naked ugliness. that reminds me of another point: in Europe, brokers are required by law to publish such legal documents to inform their clients. if they don't, or do but misrepresent the truth in them, then you have legal grounds to go after them and bring them down. hence, the docs are your litmus test, as it were.
to get a better idea of what i am talking about, you might want to download and compare the legal docs from SAXO Bank (retail service, not SAXO Prime) and the LMAX MTF. you should see some very stark contrast. hopefully illumination will follow.
PS: forgot to add that the banks system go through a rollover/reset at 5 pm EST and so for a few minutes, if your broker is not a market maker, at around 5 pm EST, the system should be down and you should be unable to place any trades. that's a good sign. some more info here: http://www.investopedia.com/articles/forex/08/forex-rollover-credit-debit.asp
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