IB or Oanda or ????

[LoosenUp]

Hi all,

I know the question of which forex broker is better has been debated many times before. I would like to open a 100k account to trade spot forex. I currently have smaller accounts with Oanda and IB. I trade quite infrequently and I enter and exit based mostly on STOPS, as I cannot spend too much time watching the screen. So, an important criteria for me is that the platform must allow stop entries and the slippage on stops must not be unduly wide. In fact, this has been my major concern for IB's IDEALPRO because there are numerous times that the spreads are wider with less size both sides. Most of my entries are on STOPS and I fear that I may experience huge slippage if my STOPS are triggered in a period when IB's IDEALPRO is less tight, especially after data release. I have been quite happy with Oanda so far in terms of their execution with little slippage, albeit with smaller account. My main concern with Oanda is that they do take the other side of our trades and hence our interest are not aligned.

Please share your thoughts and suggestions and give recommendations and not just restating the pros and cons again. Safety of funds is also important.

 

[murfy_kl]

Oanda is one of teh best forex brokers today.

 

[misha7]

Quote from LoosenUp:

Hi all,

My main concern with Oanda is that they do take the other side of our trades and hence our interest are not aligned.

Please share your thoughts and suggestions and give recommendations and not just restating the pros and cons again. Safety of funds is also important.

In this market there is ALWAYS someone on the other side of the trade. For a retail client 99% chances are that the other side will be a market-maker, the question is which one. I have never traded with Oanda but my impression is that they are generally OK.

 

[jerry11901]

I am using Oanda, FXsolution and CMS Forex .I like them all…
Why three brokers? Do to safety - just don’t wan to put all my eggs in to the same basket…

 

[jimrockford]

Quote from misha7:

In this market there is ALWAYS someone on the other side of the trade. For a retail client 99% chances are that the other side will be a market-maker, the question is which one. I have never traded with Oanda but my impression is that they are generally OK.

Misha7,

nothing is wrong with having a market-maker on the other side of your trade. The problem arises when your market-maker and your broker are one and the same.

It is your broker's "fiduciary" duty to obtain the best possible price for you. If your broker is trading against you, by taking the other side of your trades, then your broker profits by NOT getting you the best price. Your broker will then have a duty, to the stockholders, other owners, and creditors of his brokerage firm, to get you the worst possible price, because every penny you lose is a penny they gain. The broker will be pulled in two different directions, which is what we mean when we say this situation is a "conflict of interest". Can you guess who wins, and who loses, in such a conflict?

Many customers are not sophisticated enough to detect the scams, ruses, and deceptions by which their brokers steal from them. These scams range from inadequate protections against bankruptcy, to stop-running, manual-quoting, requoting, freezing, shading, individualized quoting, trade-busting, etc., etc., etc. It can be very difficult to detect when your broker abuses his position of trust, as an opportunity to steal from you little by little, on a regular basis, from transaction to transaction.

This is why it is critical to make sure that your broker does not trade against you, and that the market-maker who is on the other side of your trade is not your own broker.

 

[pipscooper]

JimRockford, thanks for your thoughtful reply. This has been on my mind also of late. I posted in another thread the details for direct dealing with Citi. Would the same conflict of interest apply in any direct dealing arrangement, whether a market maker or a bank? If so are you saying the only way to ensure a square deal is to deal through an ECN type arrangement, or in other words to have multiple market makers competing for your business? I read the comments by riskarb in the other thread with regards to UBS, and it sounds like he is being treated well.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=59124

As Pabst stated with regards to UBS,

They certainly aren't going to fade an account who has a position of several million Euro's.

Quote from jimrockford:

Misha7,

nothing is wrong with having a market-maker on the other side of your trade. The problem arises when your market-maker and your broker are one and the same.

It is your broker's "fiduciary" duty to obtain the best possible price for you. If your broker is trading against you, by taking the other side of your trades, then your broker profits by NOT getting you the best price. Your broker will then have a duty, to the stockholders, other owners, and creditors of his brokerage firm, to get you the worst possible price, because every penny you lose is a penny they gain. The broker will be pulled in two different directions, which is what we mean when we say this situation is a "conflict of interest". Can you guess who wins, and who loses, in such a conflict?

Many customers are not sophisticated enough to detect the scams, ruses, and deceptions by which their brokers steal from them. These scams range from inadequate protections against bankruptcy, to stop-running, manual-quoting, requoting, freezing, shading, individualized quoting, trade-busting, etc., etc., etc. It can be very difficult to detect when your broker abuses his position of trust, as an opportunity to steal from you little by little, on a regular basis, from transaction to transaction.

This is why it is critical to make sure that your broker does not trade against you, and that the market-maker who is on the other side of your trade is not your own broker.

 

[misha7]

Quote from jimrockford:

Misha7,

nothing is wrong with having a market-maker on the other side of your trade. The problem arises when your market-maker and your broker are one and the same.

It is your broker's "fiduciary" duty to obtain the best possible price for you. If your broker is trading against you, by taking the other side of your trades, then your broker profits by NOT getting you the best price. Your broker will then have a duty, to the stockholders, other owners, and creditors of his brokerage firm, to get you the worst possible price, because every penny you lose is a penny they gain. The broker will be pulled in two different directions, which is what we mean when we say this situation is a "conflict of interest". Can you guess who wins, and who loses, in such a conflict?

Many customers are not sophisticated enough to detect the scams, ruses, and deceptions by which their brokers steal from them. These scams range from inadequate protections against bankruptcy, to stop-running, manual-quoting, requoting, freezing, shading, individualized quoting, trade-busting, etc., etc., etc. It can be very difficult to detect when your broker abuses his position of trust, as an opportunity to steal from you little by little, on a regular basis, from transaction to transaction.

This is why it is critical to make sure that your broker does not trade against you, and that the market-maker who is on the other side of your trade is not your own broker.

jimrockford,

I usually agree with you on most things but not this one.

Let's define 'market-maker' or ('dealer') and 'broker' for FX. FX is by definition a decentralized multiple dealer market. Dealers (e.g. banks) trade with each other either either directly or via a broker. Broker in this case have traditionnaly been firms that essentially connected various market makers by acting as a sort of bulletin board (ever saw a room with a bunch of guys screaming rates into 10 phones each? - this is what currency brokers used to be). Nowdays these have been replaced with electronic-type brokege systems that allow to bring together prices from several dealers, e.g. EBS.
Now as a retail client or even a corporation you are a price taker (whether you like it or not). There is ALWAYS a counterparty to your trade and that couterparty will be a dealer. Now the way you actually place the order (whether it goes directly or not) is completely irrelevant - in the end of the day your Stop or Limit order will be with a dealing desk and its their responsibility to fill you. We are back to square one.

Unfortunately retail FX firms 90% filled with people who have no idea about interbank market. The self-proclaimed ECNs just hire kids with no experience and no series 3 license to tell the mantra of "we do not trade against our customers"", yet the cannot even answer the simplest questions "who is the counterparty to my trade?". Belive me, I tried asking.

The reality is that there is no 'magic' solution thats gonna solve the problem of bad dealers (of which there are plenty, I agree). There has always been simply bad execution and good execution and traders should vote with their feet.

 

[Steve_IB]

Quote from misha7:


Now as a retail client or even a corporation you are a price taker (whether you like it or not). There is ALWAYS a counterparty to your trade and that couterparty will be a dealer. Now the way you actually place the order (whether it goes directly or not) is completely irrelevant - in the end of the day your Stop or Limit order will be with a dealing desk and its their responsibility to fill you. We are back to square one.

Unfortunately retail FX firms 90% filled with people who have no idea about interbank market. The self-proclaimed ECNs just hire kids with no experience and no series 3 license to tell the mantra of "we do not trade against our customers"", yet the cannot even answer the simplest questions "who is the counterparty to my trade?". Belive me, I tried asking.

That's not completely correct. If you trade through an FX broker with an ECN type model, you do not have to be a price-taker. A retail client can post their own prices and effectively make markets.

Your counterparty will also not always be a dealer. With an ECN type model, answering "who is the counterparty" is not a simple question. With IB, for example, there are thousands of different entities that could be on the other side of your trade - it could be a bank, a hedge fund, a broker, a corporation, or another retail trader.

 

[misha7]

Quote from Steve_IB:

That's not completely correct. If you trade through an FX broker with an ECN type model, you do not have to be a price-taker. A retail client can post their own prices and effectively make markets.

Your counterparty will also not always be a dealer. With an ECN type model, answering "who is the counterparty" is not a simple question. With IB, for example, there are thousands of different entities that could be on the other side of your trade - it could be a bank, a hedge fund, a broker, a corporation, or another retail trader.

Granted, in some places they will let you place your own bids/offers but a) i believe it only applies to market orders b) this can lower your cost of trading if you're lucky but will not provide and substantial liquidity, particularly when it's needed.

The question of a counterparty is a basic one and should be known for every transaction. Why? Otherwise who is responsible for filling your stop order? Who will issue the margin call? Etc. For example Hotspot, depite being a multiple-dealer system, clearly state that they are the counterparty to all trades. I have not seen that kind of information from other ECNs, I suspect that IB is your counterparty, which I have no problem with, apart from the fact that they have to clearly state that.

Again, if FX were a centralized exchange based market we could say the exchange is the counterparty and close the issue. We do not have this luxury and that's why any multiple-dealer interbank system is built on a transparent list of participants extending credit lines against each other. It is simply not acceptable tfor retail FCMs to be misleading customers about 'no dealing desk' that will somehow magically solve all problems.

 

[def]

Quote from misha7:

Granted, in some places they will let you place your own bids/offers but a) i believe it only applies to market orders b) this can lower your cost of trading if you're lucky but will not provide and substantial liquidity, particularly when it's needed.

The question of a counterparty is a basic one and should be known for every transaction. Why? Otherwise who is responsible for filling your stop order? Who will issue the margin call? Etc. For example Hotspot, depite being a multiple-dealer system, clearly state that they are the counterparty to all trades. I have not seen that kind of information from other ECNs, I suspect that IB is your counterparty, which I have no problem with, apart from the fact that they have to clearly state that.

Again, if FX were a centralized exchange based market we could say the exchange is the counterparty and close the issue. We do not have this luxury and that's why any multiple-dealer interbank system is built on a transparent list of participants extending credit lines against each other. It is simply not acceptable tfor retail FCMs to be misleading customers about 'no dealing desk' that will somehow magically solve all problems.

With IB your orders are not restricted only to market orders, you can place your bid outside or within the spread and your order will be represented to all who have access to the IB network. IB is not the counter party as IB doesn't trade. Most likely the counter party is a major Bank since they are making tight quotes for size. However, why does that matter? If you see an offer you like, just lift it. If you see a bid hit it. If you don't like either, split the market and become price maker instead of a taker. If there was only one market maker, I could possibly see your argument. However, when there are multiple market makers competing against each other, like the IB model, if one widens out to take advantage of an order, they will not get the trade. As a result, you should have fairer pricing.