Basic intro info for beginners and refresher for intermediate level traders

[Triantus Shango]

hi rahman, i'll address your question in future when i'll be posting a list of brokers i believe are the most worth considering if anyone is serious in taking their trading to the next level.

that being said, could you please tell us why you don't like FxOpen and Pepperstone anymore?

P.S.: as much as possible, everyone, please support your statements with examples/data/links and so on when making recommendations or passing judgement on this or that. it would be more beneficial for all if this thread could aggregate as much knowledge as possible that is not just backed up by 'feelings', intuition, or guesses alone, otherwise it is only going to become one guy's opinion against another one, he said/she said kinda thing, and that it is just not so useful.

i am hoping this thread will give enough 'objective' info to help people think about the issues presented here in a more informed, cogent, and systematic way. or at least, help them keep in mind those points (not related to trading itself from a fundamental or technical perspective) that are important when trying to make it in this business, and that usually starts with the info gathering necessary to select a broker, and to do that properly, one must gain deeper understanding of this industry and the issues brokers face as businesses. hint: read industry e-magazine and white papers, build a database of knowledge, and then cross-correlate until you can filter out the bull**** and reach that elusive nugget of truth.

 

[Triantus Shango]

Broker risk management software

to access this article, you will have to create a free account. but it's worth it. this is from the april 2012 issue of e-forex. here is the full URL: e-FOREX April 2012

and the article discusses the risks market makers are taking and to mitigate it. in the process, you'll learn about B-books.

you'll also find a screenshot of the article attached in case it disappears from the web.

hope this helps further your understanding.

 

[Triantus Shango]

An insider look at slippage, liquidity, and market structure

[sorry guys, when i was reading the article i got distracted and didn't realize i hadn't finished the whole article. so i attached the 2 remaining pages as well, page 3 and 4. you should read them as they will give you a better insight re liquidity and technology issues from a broker's perspective.]

this too is an article from the e-forex april 2012 edition: e-FOREX April 2012

attached you'll find 2 screenshots, page 1 and 2, just in case this disappears from their site.

hope this helps you understand, amongst other things, that slippage is a fact of life, even for the big boys.

 

[Triantus Shango]

List of (alleged) ECN brokers

i just came across this page: ECN brokers list | ECN/STP Forex brokers

note: '!=' means 'not equal to'; 'MM' means 'market maker'

please note that the following equality is NOT TRUE: (STP = ECN = DMA ) != MM.

if not self-evident, think about it some more, and do some research. it's easy to find out why that is so.

 

[Pharaoh]

Just remember to keep that word "alleged" in the front of your mind. Any broker can claim to be ECN, STP, NDD, XYZ, etc. There are plenty of bucketshops out there willing to lie to get their hands on your money.

 

[duderex]

Just remember to keep that word "alleged" in the front of your mind. Any broker can claim to be ECN, STP, NDD, XYZ, etc. There are plenty of bucketshops out there willing to lie to get their hands on your money.

Definitely, just make sure you seek on the broker's information before you are registering. The best broker are the broker that can answer any complain, either from their trader or not. And they can answer blaspheming that the trader or non trader are throwing at.

 

[Triantus Shango]

Legal recourse available to retail traders against RFEDs

i've been going through so many legal documents, my head is spinning and i don't know my name anymore.

on the SEC site i came across this mention of the legal venues retail customers have available to get the RFEDs who scam them to face the music (now i am not a legal expert by any stretch of the imagination, so maybe i am not comprehending all the gibberish properly, you tell me).

this is from a letter from executive VP of SIFMA (Securities Industry and Financial Markets Association) and executive vice chairman of ISDA (International Swaps and Derivatives Association) to the SEC Secretary. begin quote:

"Do investors have adequate recourse against broker-dealers for any misconduct related to retail forex transactions?


Yes. Customers have a number of different alternatives available to them to address actual or perceived wrongdoing by a broker-dealer and its personnel relating to retail foreign exchange. First, an investor can file a complaint with its broker-dealer or with the regulator of the broker-dealer, which requires follow-up and tracking by the entity itself as well as by the regulator. Second, the customer can bring an arbitration proceeding against the broker-dealer for a range of allegations, including violations of specific rules of an SRO to which the broker-dealer is subject, such as suitability requirements or a duty to disclose conflicts of interest, including the fact that the broker-dealer is acting as principal on the trade, or breaches of general principles, such as just and equitable principles of trade. In some cases, customers may be able to bring a lawsuit against a broker-dealer for state law anti-fraud violations or breach of fiduciary duty claims under the Investment Advisers Act of 1940 (“Advisers Act”) or applicable state law.


In addition to direct recourse against broker-dealers by retail customers, retail customers are protected in

ANNEX A
Page 8 of 18

respect to foreign exchange activities conducted with broker-dealers by the ability of the Commission
and the SROs to bring actions against broker-dealers for wrongdoing involving any instrument in which the broker-dealer is transacting, including retail foreign exchange.14


Under Sections 15(b)(4)(D) and (E) (which were added to the Exchange Act by Dodd-Frank), the SEC has authority to sanction broker-dealers and to suspend or revoke their registrations for, among other things, any willful violation of the federal securities laws and the CEA as well as any aiding and abetting of such activity or any failure to supervise with a view to preventing such violations. This provision grants the SEC broad authority to sanction broker-dealers in connection with their foreign exchange business. In addition, in the case of foreign exchange conversions that relate to securities, the SEC should be able to rely on the broad anti-fraud authority it has in respect to transactions “in connection with the purchase or sale of a security.”15


Under this authority, the SEC should be able to bring either an administrative action16 or a civil action17 against a broker-dealer in connection with foreign exchange conversions relating to the purchase or sale of a security.

FINRA also has authority to bring enforcement actions against and sanction broker-dealers for failure to comply with FINRA rules, including those relating to retail foreign exchange.18 In FINRA NTM 08-66,
FINRA expressly interpreted the “just and equitable principles of trade” requirement under NASD Rule
2110 (now FINRA Rule 2010) and its correspondence rules under NASD Rule 2210 to apply to a
broker-dealer’s retail foreign exchange business."

Source: http://www.sec.gov/comments/s7-30-11/s73011-12.pdf

 

[Triantus Shango]

Required reading: Prime of Prime Brokerage extending market access for Retail FX providers

let me tease you with this quote, which should start you wondering:

"The liquidity a retail MT4 broker needs is very different from a broker looking to provide quality liquidity to their high end retail customers, who demand extremely aggressive spreads and the ability to deal in size across a wide range of FX and CFD products...."

also, at the very end of the article, there is some interesting info, albeit brief, regarding GAIN Capital.

Source: http://www.e-forex.net/articles/free/Retail+e-FX+Provider/1783/Prime+of+Prime+Brokerage+extending+marke%20t+access+for+Retail+FX+providers

as always, attached as well, just in case...

 

[Triantus Shango]

Not all MT4 offerings are equal

here is what i found on the site of a Prime of Prime Brokerage:

"Our technology allows us to handle multiple fills in MT4, which few other brokers can facilitate. This means the system can sweep a large order through multiple levels in our aggregator. This gives clients the best opportunity to get the optimum fill on a large order in MT4.

Limit orders placed in Sucden Financial's MT4 environment are handled in the market as limit orders when the price triggers. This means that a client's limit is preserved rather than releasing a market order once the price hits the limit. Clients putting large limit orders into the system will therefore not experience slippage on their execution. Many MT4 bridges release market orders when limits are triggered leaving clients exposed to price slippage.


These features mean that Sucden Financial's MT4 offering is especially suited to Institutional or high net worth individuals."

Source: MetaTrader 4 - Sucden Financial (bottom of page)

as always, attached is the PDF version of the page, just in case...

also, just read this on the Advanced Market FX site re the platform they offer (since they quit the retail FX market in the USA) now for MT4 brokers: www.ultimt.com/platform.html .

as you can see, there is more than one way to offer an MT4 based solution, and apparently the traditional MT4 brokers everyone hears about are not offering the most performant market access to their retail clients. it all depends on what they use on their backend and how they configure it.

but like i said in some previous post, at the end of the day, why would you want to bother with MT4, or 5 when there are so many other charting solutions out there that are better? fine, you want to run your BS EA, you say?

paying solutions: eSignal or MultiCharts (just to name a few) let traders write their own EAs as well and they let you hook up the charting software with the order servers of brokers. but here is the catch: most retail RFEDs are not set up to let you hook up into their order servers like the pros do. so find a broker that does (if they let you use FIX as the protocol to talk to their backend, that's a good sign as it is the standard protocol used between financial institutions) and start approaching this business more professionally.

and in terms of free solutions, the best i have found so far is tradingview.com--a webapp all running in the browser, but no EA capability.

the reason i write this is that i wish retail traders start realizing that by becoming more professional, they can then start expecting more professional services from the broker-dealers instead of this BS we had to put up with all these years. just look at the quality of execution the pros get compared to retail platforms. the latter is laughable. but since everyone got hooked on MT4, you get what you deserve i suppose.

i just hope people would wake up and start migrating to the better solutions, thereby also putting pressure on the broker-dealers to start upgrading to better platforms, because as long as they cater to MT4, which was never designed to enable high performance trading/execution, the backend engines don't need to be improved either. we all lose.

and 1 more word about EAs, especially the MQL based ones: EA is algorithmic trading; to do algorithmic trading properly, you need a platform than can run not just simple scripts, but also scripts that require more computational power or do you think that the professional algo traders out there are running programs as simple as moving average cross-over or your traditional multi-technical indicator based signal generating scripts? of course not.

sophisticated algo trading usually relies on AI. here is an example of what is possible and available to retail traders: www.neuroshell.com (if i remember correctly, it's only available for the eSignal platform). we are talking neural networks here. do you think MT4 can sustain the kinds of compute intensive requirements that are necessary to run a proper neural net based EA without significantly slowing down the whole platform? the answer is 'NO'.

to give you an example of how bad the MT4 scripting engine is, on a 2.2 GHz intel7 quad-core machine with 8GB of ram, and broadband access via FTTH (fiber optics to the home), when i was using MT4 and tried to run just a few regular kind of scripts, meaning nothing fancy at all in terms of mathematical computations, the charting would slow down so much that the market could not be traded anymore (of course, i am not talking about daily/weekly/monthly charts, so position traders couldn't care less). so it is obviously impossible to run any real AI code worthy of the name on such a platform since for that, you need a platform that can run the code efficiently and fast. and then you need a broker who can execute the EA's orders fast. so more likely than not, to cut down on latency, you will need a broker that offers VPS to run your EAs, preferably not on a Windows server but Linux.

and now we have www.quantopian.com, with your EAs running in the cloud on machines more powerful than your home desktop. even though it is still only available for stocks, at some point in future they say that other markets such as forex will be available as well. i know, it's not now. just need to wait a little. or use the eSignal or MultiCharts and hire someone to put your algorithm into code for those platforms if it's not available from their online library.

 

[Triantus Shango]

LMAX, European MTF (Multilateral Trading Facility) news

i just stumbled upon this piece of news:

'Serious players such as Goldman Sachs and JPMorgan use it, as do wealthy punters, mainly from overseas. Last month, it handled a not immodest $45 billion of foreign exchange wagers. Liquidity is building steadily. It will probably require another round of funding to get LMAX through to profitability....'


if it's good enough for Goldman Sachs and JPMorgan, then ....


Source: Nick Goodway: It?s a fair bet this sell-off is a losing strategy for Betfair - Analysis & Features - Business - London Evening Standard