outofphase
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I have spent the past 6 weeks looking for a new broker and getting an education in what is what. So of course, I can the FPA registry, and when I see people complaining about this broker or that broker is not a true ECN broker, be that as it may, and provide some sort of explanation that makes no sense, I need to speak up.
Once and for all, people, here is what ECN means:
1- ECN is not a business model; DD or MM vs NDD and STP and DMA (even though at the retail level there is no DMA possible) are business models, the acronyms being simply another way of saying A-book, B-book, or C-book;
2- So if you trade on an IT software infrastructure running on your broker's servers that meets the minimum requirements of what an ECN is (think of an ECN as an MTF or a central limit order book exchange like the CME Futures exchange) it still does not mean that your orders are put on the A-book, or that your broker is not making a market for you;
3- think about (2) above deeply until you fully understand the implications;
4- an ECN environment allows the trader to go on the bid/offer, meaning place a buy/sell order between the spread and thus improve the spread; in other words, on an ECN you can provide and take liquidity;
5- even though (4) is true, all the volume you see on the ECN's DOM (depth-of-market) could very well originate with your broker only and not come from the other clients trading on the ECN or the LPs your broker uses to push client risk out into the real market -- > so you could have a ECN like behavior on your trading app, such as cTrader, but the actual market you are trading on is a synthetic market made by your broker, the market maker; same is true for anyone trading on Currenex since Currenex white label can be set up to be B-book only EVEN THOUGH Currenex is a software infrastructure on the backend that has been designed to work as an ECN.
So how do you know for sure you are on an ECN? Only if you can go on the offer/bid and improve the spread.
How do you know if you are on an ECN that is not a market maker's synthetic market in spite of what I just wrote in the previous sentence? --> Only if the broker is willing and can provide you with a full trade report showing the full lifecycle of each and every trade you made, including the FIX report.
In other words, if your broker always puts your orders on the A-book and sends them to its LPs to fill them, the broker's system will talk to an aggregator and matching engine that facilitates communication between all the IT systems involved using a protocol called FIX (sometimes they use a binary protocol like ITCH or OUCH--you can learn all about it here: http://www.nasdaqomx.com/technology...rketview-magazine/viewarticle?contentId=38762) and everything should be logged.
If this is the case, then your broker should be able to provide you with a full report showing where and when your order was created, and all the processing stages your order went through all the way to when the order was filled, by whom it was filled, how it was filled, and so on.
That is the only way to know your broker is not B-booking you, ie using the market maker model.
But there is 1 exception as we just saw with FXCM recently. For those who don't know, a brief recap: broker claims A-book/NDD and no market making business model; BUT in reality broker sends all client orders to 3rd party affiliated with broker, and 3rd party has total control over feed and order execution.
In this case, broker can claim he is not on the other side of the trades, and even produce a report showing this 3rd party as being the LP filling all the client orders. And yet, you are not trading in a real NDD environment; your orders are passed through directly to this 3rd party (so technically it is STP) but the 3rd party behaves like a market maker! What an irony!
Global Prime in Australia uses the same setup as all client orders go through its parent company, Gleneagle Securities, which is the counterparty to all client orders even though they make a big fuss of claiming that there are very transparent precisely because they will provide you with a FIX report. You can find this information in their legal documentation, so don't take my word for it. I mention it only to illustrate the point that there is more than 1 broker out there deceiving their clients in this way.
So, conclusion is: if you want a true and real ECN trading environment, get at least 50K and open an account with prime broker Baxter-FX, or LMAX, or get 250K to open with GAIN GTX. Dukascopy is a hybrid, meaning that the broker will take the other side of some client orders, match some client orders with another client orders (aka cross-matching, what MBTrading used to call EXN), and send some client orders STP directly to external LPs even though their software trading infrastructure is designed to behave like an ECN.
Or get even more money and open an account direct with any of the institutional ECNs.
Otherwise, the best retail traders can get is STP via a broker licensed to act only as a matched principal or sometimes as an agency broker and also when you check their licence, make sure they are not authorized to trade on their own account, which many are.
Finally, there is always the lone honest market makers, such as OANDA.
So it depends on what you need. If speed and algo/HFT is what you want, also deep liquidity, trading 10K notional up to very large sizes only limited by what's available on the market, then A-book on ECN is what you want. Of course, manual trading is also going to be OK.
Non-HFT algo, speed, deep liquidity, trading 10K notional up to very large sizes only limited by what's available on the market as in lots of volume on the DOM, then A-book with STP is OK for auto trading and manual trading.
For everything else, go with a market maker until the MM tells you that you have become too good or you trade sizes that are too large (> 10M notional) or let's you trade large sizes but execution keeps degrading because they are not properly set up to hedge your trades with the real market fast enough and at best price, at which point you know you are ready to move up to the pro level.
And regarding leverage: No A-book broker will offer anything higher than 200:1. So whatever you are told by the 400:1 and above outfits, make sure you do your homework before you talk to them. And this starts by knowing to ask the right questions.
Once and for all, people, here is what ECN means:
1- ECN is not a business model; DD or MM vs NDD and STP and DMA (even though at the retail level there is no DMA possible) are business models, the acronyms being simply another way of saying A-book, B-book, or C-book;
2- So if you trade on an IT software infrastructure running on your broker's servers that meets the minimum requirements of what an ECN is (think of an ECN as an MTF or a central limit order book exchange like the CME Futures exchange) it still does not mean that your orders are put on the A-book, or that your broker is not making a market for you;
3- think about (2) above deeply until you fully understand the implications;
4- an ECN environment allows the trader to go on the bid/offer, meaning place a buy/sell order between the spread and thus improve the spread; in other words, on an ECN you can provide and take liquidity;
5- even though (4) is true, all the volume you see on the ECN's DOM (depth-of-market) could very well originate with your broker only and not come from the other clients trading on the ECN or the LPs your broker uses to push client risk out into the real market -- > so you could have a ECN like behavior on your trading app, such as cTrader, but the actual market you are trading on is a synthetic market made by your broker, the market maker; same is true for anyone trading on Currenex since Currenex white label can be set up to be B-book only EVEN THOUGH Currenex is a software infrastructure on the backend that has been designed to work as an ECN.
So how do you know for sure you are on an ECN? Only if you can go on the offer/bid and improve the spread.
How do you know if you are on an ECN that is not a market maker's synthetic market in spite of what I just wrote in the previous sentence? --> Only if the broker is willing and can provide you with a full trade report showing the full lifecycle of each and every trade you made, including the FIX report.
In other words, if your broker always puts your orders on the A-book and sends them to its LPs to fill them, the broker's system will talk to an aggregator and matching engine that facilitates communication between all the IT systems involved using a protocol called FIX (sometimes they use a binary protocol like ITCH or OUCH--you can learn all about it here: http://www.nasdaqomx.com/technology...rketview-magazine/viewarticle?contentId=38762) and everything should be logged.
If this is the case, then your broker should be able to provide you with a full report showing where and when your order was created, and all the processing stages your order went through all the way to when the order was filled, by whom it was filled, how it was filled, and so on.
That is the only way to know your broker is not B-booking you, ie using the market maker model.
But there is 1 exception as we just saw with FXCM recently. For those who don't know, a brief recap: broker claims A-book/NDD and no market making business model; BUT in reality broker sends all client orders to 3rd party affiliated with broker, and 3rd party has total control over feed and order execution.
In this case, broker can claim he is not on the other side of the trades, and even produce a report showing this 3rd party as being the LP filling all the client orders. And yet, you are not trading in a real NDD environment; your orders are passed through directly to this 3rd party (so technically it is STP) but the 3rd party behaves like a market maker! What an irony!
Global Prime in Australia uses the same setup as all client orders go through its parent company, Gleneagle Securities, which is the counterparty to all client orders even though they make a big fuss of claiming that there are very transparent precisely because they will provide you with a FIX report. You can find this information in their legal documentation, so don't take my word for it. I mention it only to illustrate the point that there is more than 1 broker out there deceiving their clients in this way.
So, conclusion is: if you want a true and real ECN trading environment, get at least 50K and open an account with prime broker Baxter-FX, or LMAX, or get 250K to open with GAIN GTX. Dukascopy is a hybrid, meaning that the broker will take the other side of some client orders, match some client orders with another client orders (aka cross-matching, what MBTrading used to call EXN), and send some client orders STP directly to external LPs even though their software trading infrastructure is designed to behave like an ECN.
Or get even more money and open an account direct with any of the institutional ECNs.
Otherwise, the best retail traders can get is STP via a broker licensed to act only as a matched principal or sometimes as an agency broker and also when you check their licence, make sure they are not authorized to trade on their own account, which many are.
Finally, there is always the lone honest market makers, such as OANDA.
So it depends on what you need. If speed and algo/HFT is what you want, also deep liquidity, trading 10K notional up to very large sizes only limited by what's available on the market, then A-book on ECN is what you want. Of course, manual trading is also going to be OK.
Non-HFT algo, speed, deep liquidity, trading 10K notional up to very large sizes only limited by what's available on the market as in lots of volume on the DOM, then A-book with STP is OK for auto trading and manual trading.
For everything else, go with a market maker until the MM tells you that you have become too good or you trade sizes that are too large (> 10M notional) or let's you trade large sizes but execution keeps degrading because they are not properly set up to hedge your trades with the real market fast enough and at best price, at which point you know you are ready to move up to the pro level.
And regarding leverage: No A-book broker will offer anything higher than 200:1. So whatever you are told by the 400:1 and above outfits, make sure you do your homework before you talk to them. And this starts by knowing to ask the right questions.