Quote from Lon Eagle:
I really hope you don't believe this rubbish.
Interestingly I interviewed on of your traders for a position once.
A few points he made to me. He said your model was built on the fact that 90%+ of your clients blow their account. You therefore prefer not to hedge anything, where possible.
Traders who make money spoil this scenario as failure to hedge by you leads to losses.
'succesful' traders therefore tend to be put on manual execution. When it is volatile they cant therefore deal at the required price. You are only providing liquidity to the losers, in effect.
If your business model is based on long term relationships perhaps you would like to tell us what the average time a client has an account open with a positive balance on which they continue to trade?
This is all fair enough but why not be honest about it?
On a point of fact and market action. You claim that after a major figures prices quite often ebb before they flow. This is simply rubbish. When data like that comes out it is a one way bet for the first move. No other market maker called the dollar stronger at first on that day and nor would any player who had even the tiniest bit of knowledge unless there were other reasons for quoting a 'wrong' price.
As for prop fx - can you confirm whether this model reflects the true price of currenex on which it is based - or does fxcm adjust these streaming prices on their own platform? If the prices on FXCM Pro are not identical to those of currenex how and why do the prices get adjusted?
I am a representative of FXCM.
Thanks for your response and all of your good points. As to the first question of our business model, with 50,000 accounts including some where very large positions are traded, FXCM would be taking risks beyond measure if its dealers fail to offset those positions in the interbank market, as a single successful trade of size could cost FXCM hundreds of thousands of dollars. For that reason and so that it is aligned with its customers, it is FXCM's policy to offset market risk from its clients' positions in the interbank market.
Finally, since FXCM aggregates thousands of orders--after offsetting 70 to 80 percent of those orders internally--prior to offsetting with a bank, a position must be built that in fact can be offset. Because the lot size on the interbank market is 1 million units, FXCM cannot offset until its clients' net positions reach that level at least.
As to how FXCM deals with dealer confirmation and how that relates to successful traders, please re-read my earlier posts for details of exactly why traders are put on dealer confirmation. Dealer confirmation has nothing to do with whether a client is profitable and everything to do with a client entering into trades at off-market prices and taking advantage of technological inefficiencies.
Because FXCM aggregates buy and sell orders in each currency pair prior to offsetting its exposure, it is clear that a trader can--and many of FXCM's traders do--make profitable trades and maintain profitable accounts long-term without any intervention on FXCM's part. I can only reiterate again that such a client is ideal in terms of FXCM's business model as he will remain a trader long-term and will generate profits for FXCM through the spreads on his trades. FXCM seeks traders who are profitable and offers PropFX to traders who desire to profit from technical lags and the like.
As to specific records on the numbers of profitable traders holding accounts at FXCM, I will address the larger issue prior to addressing that question specifically. If one were to ask the same question of any market maker or broker of retail or institutional accounts (in forex or another market), one would not receive a detailed response for obvious reasons: trading of any kind is a challenging enterprise, and retail traders are the least prepared to succeed at it without gaining the requisite experience required to succeed.
FXCM is for the most part a retail market maker, and therefore a large proportion of its traders fail to educate themselves sufficiently to overcome seemingly obvious pitfalls, such as overleveraging an account, trading without considering reward/risk ratios, and overtrading generally. This is to be expected, but it does not change the fact that a major component of FXCM's business model is to have a higher percentage of successful traders. See previous posts for information on how FXCM goes about achieving this.
I do not have access to and cannot disclose any specific numbers but I hope that my explanation above will suffice. This is the best I can do in answering your question while remaining as forthright as possible in my response.
As to the reiterated question regarding treatment of trades following the August 2004 Non-Farm Payrolls release, please see my previous post for a detailed response. It is FXCM's policy to honor stop, limit, entry, and market orders under normal market conditions and to answer to any complaints or disputes of its execution policies in a detailed manner on a case-by-case basis.
Finally, to answer your question about PropFX and Currenex, keep in mind that Currenex is simply a software platform that enables PropFX to operate by matching up traders with interbank dealers. The quality of those prices and the resulting quality of execution clients receive is a function of the banks on the other end of each trade rather than the software itself.
FXCM's position as a market leader, its size, and its resulting relationships with top-tier institutions enable PropFX's pricing to be as high of quality as it is. FXCM is compensated for making prices between banks and traders by a rebate from counterparty to each trade.
The website for PropFX goes into more detail on how the platform functions, why FXCM feels it is superior, and how trades are executed than I am able to do on this forum.
As always, your questions are welcome and I will respond to them in as timely a fashion as possible.
