Conspiracy theories about news trading and scalping

habrys

Private, 1st Class
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58
I've read such posts and opinions many times, but somehow I cannot understand it. There seems to be a common consensus, that brokers, which are market makers do not like news traders and scalpers. And they try to make theirs lives as hard as possible with some "dirty techniques", like requoting, slippage, delays in order execution, making spreads huge around news release times, etc.

Why would brokers do that? They make money on spreads, right? It makes no difference if trader wins or loses, he pays the spread anyway. So what gives? Can somebody explain it to me in simple words?
 
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cowmadagan

Sergeant
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393
Sure. The answer is that the spread pales in comparison with the size of your account balance, so why fill your pockets with silver coins when you can take your time finding the gold ones in a pile?
 

Pharaoh

Colonel
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19,729
Bucketshops trade against customers. That means that customer losses are gains for this type of broker. A successful customer directly takes money from them.

Some better bucketshops hedge against customer positions, but do it in aggregate form every few seconds to every few minutes. A quick trading style grabs profits before they can cover themselves. Once again, the trader's gain is the broker's loss.

If a forex broker claims to use STP or ECN, they've got no excuse to not permit scalping. If they claim the trader is lag trading, that's a pitiful excuse, since those entry and exit prices are supposed to be what is happening in the real market. If there's a big enough lag to take advantage of, fix it and stop blaming the traders. Some STP and ECN brokerages still claim they can't handle newstrading because of liquidity issues, but I think this is BS. If they are truly STP or ECN, then any lack of liquidity should result in the order not getting filled.
 

cowmadagan

Sergeant
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393
Hey Pharaoh...I looked through the glossary on the different acronyms, but what's BS? I couldn't find it....
 

cowmadagan

Sergeant
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393
merde is French for poo...'du' means 'of', and taureau is the male version of 'vache' which means cow.
 

habrys

Private, 1st Class
Messages
58
Some better bucketshops hedge against customer positions, but do it in aggregate form every few seconds to every few minutes. A quick trading style grabs profits before they can cover themselves. Once again, the trader's gain is the broker's loss.
Thanks for explanation, Pharaoh. Now it makes more sense to me.

One more question. So if I trade news, open positions as fast as possible using SNW and close after few seconds, it generates loses for a market maker - that's clear to me. What if I wait 5-10 minutes with closing? Is it any better for them and why?

I ask, because I've seen somewhere a post from Felix describing his conversation with CEO of Oanda, who said this. "Wait more than 5 minutes with closing" or something like that. But I cannot understand why would it be any better for a broker. I enter the market with price before news release. The aggregated hedging would happen almost always after spike, even if the broker does it every few seconds. So what's the difference for them?

BTW: good discussion about BS acronym :)
 

Pharaoh

Colonel
Messages
19,729
It depends on the trading terms and how well the broker follows its own rules. Some of them don't ban opening a trade right at the time of news release, but may have a minimum time to hold the trade. If they can't come up with an excuse to cancel the trade (especially if it's profitable for you), they may have to eat the loss. If you keep doing it and cost them too much, they'll eventually create some new merde du taureau rules or else you'll find yourself in requote and slippage hell.

Sometimes, it comes down to whether your profits create a big enough blip on their radar screen.
 
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