counterparty (losers) to news

[Painkiller]

Most of us retail forex investors trade with companies like Oanda or FXDD or whomever, and these companies trade against us as opposed to counterparty trading. It is said that when they take your opposing trade, they themselves hedge to protect against loss (at least on large trades anyway) and make the spread as a commission. This makes them more like a market maker than a broker. So a few thoughts spring to mind regarding this situation which I thought someone with more experience might elucidate.

1. If they are passing trades on to a counterparty, why would either they themselves or a counterparty take a position opposing a directional move triggered by a news event knowing that it is at the very least a short term loss if not worse?

2. If they take the opposite side of your position and then go out and hedge it 100% presumably nearly instantaneously, why not just be a counterparty broker and not trade against their clients at all? Does it take a lot of time to have their own orders filled?

3. Who are they hedging with? Do these brokers trade with banks directly on the interbank?

 

[sccz97]

Quote from Painkiller:

Most of us retail forex investors trade with companies like Oanda or FXDD or whomever, and these companies trade against us as opposed to counterparty trading. It is said that when they take your opposing trade, they themselves hedge to protect against loss (at least on large trades anyway) and make the spread as a commission. This makes them more like a market maker than a broker. So a few thoughts spring to mind regarding this situation which I thought someone with more experience might elucidate.

1. If they are passing trades on to a counterparty, why would either they themselves or a counterparty take a position opposing a directional move triggered by a news event knowing that it is at the very least a short term loss if not worse?

2. If they take the opposite side of your position and then go out and hedge it 100% presumably nearly instantaneously, why not just be a counterparty broker and not trade against their clients at all? Does it take a lot of time to have their own orders filled?

3. Who are they hedging with? Do these brokers trade with banks directly on the interbank?

whilst most fx brokers will say they hedge themselves by directing trades to the interbank market, more often than not, this is rubbish. Seeing all the interest around trading news recently on this forum perhaps ppl need to understand what's going on in the market instead of complaining about widening spreads.

Of cousre when you trade, someone else has to take the other side of the trade. With brokers like oanda where they take the other side of the trade, what other options do they have besides widening spreads or simply not accepting any trades around news. It seems most brokers have decided it's better for their reputation to just widen the spread and hope they don't get hit for large orders.

Trading around news is just another thing brokers have to put up with like guarnateed stops a few years back until too many ppl do it and they just redefine their terms and conditions. Ppl need to stop whining about their broker widening spreads or slipping their trades as they obv have no idea how the real market works. My suggestion to you all is try this in a proper regulated market like fx futures. You'll all get slaughtered and realise this is just a good couple of months worth of easy money from the retail fx brokers that will inevitably end over the coming months just as guaranteed stops around nfp did.

I seems obv to me that more and more are trading this way due to certain ppl selling signals and such. Just stop and think for a minute, if this is such a profitable way of trading, why would they tell anyone else? It's quite obv that like many strategies than have come and gone, the end of the road is near and they know that they can only conitnue to make money by selling the signals instead of acutally trading.

 

[Painkiller]

Of cousre when you trade, someone else has to take the other side of the trade.

Yes this much I had deduced, but who might it be? Even before it was popular or trendy to trade news releases on the forex, people were doing it. If you look back historically years ago before retail forex trading was mainstream, news caused spikes in price in the direction of positive or negative impact for that currency or pair. So by a matter of deductive logic, if a good NFP number came out and the price went up 80 pips, there had to be a seller for every buyer of that move or the price would have remained unchanged. Who are those sellers? Who would dare sell into a positive news release or in a broader sense, who is trading against the news on? If all retail forex brokers decided tomorrow that they would disallow news trading henceforth, I am willing to bet that price action would still be the same around news releases; so is it just banks trading against other banks then? And why would one bank trade in the direction of the news and another in opposition to it?

Sorry for beginning a sentence with “and”

 

[sccz97]

Quote from Painkiller:

Yes this much I had deduced, but who might it be? Even before it was popular or trendy to trade news releases on the forex, people were doing it. If you look back historically years ago before retail forex trading was mainstream, news caused spikes in price in the direction of positive or negative impact for that currency or pair. So by a matter of deductive logic, if a good NFP number came out and the price went up 80 pips, there had to be a seller for every buyer of that move or the price would have remained unchanged. Who are those sellers? Who would dare sell into a positive news release or in a broader sense, who is trading against the news on? If all retail forex brokers decided tomorrow that they would disallow news trading henceforth, I am willing to bet that price action would still be the same around news releases; so is it just banks trading against other banks then? And why would one bank trade in the direction of the news and another in opposition to it?

Sorry for beginning a sentence with “and”

think about how it works on an exchange. There don't have to be any trades for the price to move. if the price is currentrly 24/25 and all the offers at 25 are pulled with the next offers at 30, you're gonna get a quote of 24/30. When the forex market gaps aroudn figures is it becuase so many ppl are buying/selling that all the bids and offers are taken out up to the new price? Of course not. The market gaps becasue the market makers are now offering/bidding new prices. The banks will know far better than any retail trader where the price should be after the news has been released so they'll change their quotes, not bend over and wait for traders to pick off their erronous quotes. I can see all the retail brokers following oanda and just widen the prices or start slipping ppl because that's how the real market works and noone wants to be a sucker, even the banks who can take the hit occasionally