Hi @jamho22 -
Thanks for all the kind sentiments, we appreciate it.
The trade flow process is correct for what practically happens in a matter of milliseconds.
What happens legally is different. In legal terms, there are several agreements between entities and counterparties which are required to facilitate trading. The trade flow process would look something like the below:
Note, 'trading as principal' in the case of the below means trading as yourself and not 'as an agent' on behalf of someone else. Principal trading does not mean 'B-book' as Shiro21 has wrongly suggested.
In the above example, Global Prime is the legal counterparty to the clients trade. It's at points 6 and 7 where the trade is hedged with a liquidity provider. All of the above happens in a matter of milliseconds.
- Client places trade (as principal)
- Global Prime receives trade (as principal)
- Global Prime places trade (as principal)
- Gleneagle Securities receives trade (as principal)
- Gleneagle Securities places trade (as principal)
- Liquidity provider receives trade (as principal via give up agreement with prime broker)
- Liquidity provider confirms trade to Gleneagle Securities and prime broker
- Gleneagle Securities confirms trade to Global Prime
- Global Prime confirms trade to client
This can also be denoted as:
Client / GP relationship
GP / GES relationship
- Client long 100,000 EURUSD at 1.10
- Global Prime short 100,000 EURUSD at 1.10
GES / Prime broker relationship
- Global Prime long 100,000 EURUSD at 1.10
- Gleneagle Securities short 100,000 EURUSD at 1.10
- Gleneagle Securities long 100,000 EURUSD at 1.10
- Prime broker short 100,000 EURUSD at 1.10
That is what STP and A-book looks like. A corresponding hedge trade is simultaneously executed across counterparties so there is no market risk arising from clients trading. The order is confirmed in the underlying market for that instrument before it is confirmed back to the client.
The language in the PDS is consistent with the above. The PDS explains things in more legal terms. Its correct but I can see how we can improve it to make it clearer. Hope that helps! But let us know if you'd like further clarification
Batch Hedging
Prime Brokers charge fee's for small tickets - the fee structure is quite complex and costly.
FX trades less than 50,000 (or 30oz gold) are bundled together until they reach 100,000 and then sent to the liquidity providers as a batch trade.
Trades above 50,000/30oz gold go directly to the liquidity providers.
The price that is given to clients is always derived from our liquidity providers. The trade is executed using Global Prime's FIX engine 'Skout' based on these prices. Execution speeds for Skout are usually around 1ms. There isn't an artificial delay on fills as is the case with b-book brokers trying to emulate real market execution.
The 50k internalization and 100k thresholds are the lowest reasonable size to prevent small tickets hitting multiple LPs which would increase trading fees, significantly. The thresholds are trading volume, liquidity provider and prime broker dependent.
What this means is we are only ever maximum up to 100,000 (1 lot) in open exposure on a pair - compare this to most large b-book brokers which could have upwards of 1,000,000,000 (yes 1 billion) in open exposure as they aim to generate profits from market movements.
Our batch hedger is a purposely 'dumb' system as it's intention is to simply reduces the prime broker fees to a level that makes our dealing model more viable.
On the website here: https://www.globalprime.com/best-execution/#small
Regards,
Jeremy
Everything sounds about right, except that 6 and 7 don't always happens, or there would have been no need for this part:
And let me just be clear that i did not say Globalprime B-books, I'm saying they can bucket your trades anytime they want, because they clearly state so in their PDS.
And when you really look at it, there really no need both gleneagle and globalprime to be in the entire equation together, the trade could have just gone from us to either one of them, then straight to the LP, but why do they want the trade to pass through 2 of their entity before it reaches the LP? I've provided a lot of evidence in my previous post already. It's not difficult to piece all these togehter.
- Client places trade (as principal)
- Global Prime receives trade (as principal)
- Global Prime places trade (as principal)
- Gleneagle Securities receives trade (as principal)
- Gleneagle Securities places trade (as principal)
- Liquidity provider receives trade (as principal via give up agreement with prime broker)
- Liquidity provider confirms trade to Gleneagle Securities and prime broker
- Gleneagle Securities confirms trade to Global Prime
- Global Prime confirms trade to client
And since indices and XTIUSD trades are not ECN and never goes to the market, but is instead kept in their own bucket, those are likely the trades that Gleneagle "choose not to place its hedge contract directly in the market."
Jeremy, if you would like to prove me wrong, feel free to email me all 1046 receipts of my XTIUSD and indices trades being placed by Gleneagle Securities as principal with a counterparty and I'll gladly look through each one of them to verify that they were indeed hedge at the same time I took the trades. Something you would never be able to provide, because the trades were all held internally by Gleneagle Securities, who always took the other side of the client's trades.