Safety of online forex dealers

Quote from Bankedout:



This whole online FX scene does seem similar to the bucket shops I have read about.

Banker
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I don't think they are bucket shops as in the Jesse Livermore days, as I think they lay off their risk after you enter the position.

I think how they make their money is that they offer you a 5 pip spread, while their liquidity providers provide them a lower spread, maybe 2 pips.

For example, if they offer you a 100-150 spread, their liquidity providers offer them a 115-135 spread.

You buy from them at 150. They sell to you at 150.

They turn it around and buy it at 135 from their liquidity provider and go flat, in the process capturing 15 points for themselves.

The problem is if they somehow screw up laying off the risk. They they can blow up quite easily.

If a forex dealer is not laying off the risk, and they are not a bank with huge capital behind them, I wouldn't touch that firm with a 1000 mile pole.

-- ITZ
 
Quote from InTheZone:

I may end up watching the price action on the interbank market, and trading futures off that chart instead.

-- ITZ
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Where can I find a chart showing interbank price action?

Banker
 
Quote from InTheZone:




I don't think they are bucket shops as in the Jesse Livermore days, as I think they lay off their risk after you enter the position.

I think how they make their money is that they offer you a 5 pip spread, while their liquidity providers provide them a lower spread, maybe 2 pips.

For example, if they offer you a 100-150 spread, their liquidity providers offer them a 115-135 spread.

You buy from them at 150. They sell to you at 150.

They turn it around and buy it at 135 from their liquidity provider and go flat, in the process capturing 15 points for themselves.

The problem is if they somehow screw up laying off the risk. They they can blow up quite easily.

If a forex dealer is not laying off the risk, and they are not a bank with huge capital behind them, I wouldn't touch that firm with a 1000 mile pole.

-- ITZ
More...

That's kind of what I was thinking about how these guys play the game. I would prefer to participate at the best bid/ask (if that's even possible) and pay my commissions.

Livermore used to watch real transactions from the stock exchange. When he placed his orders at the bucket shops, they would not be reflected in the trading activity at the exchange. I have noticed differences between FXCM's dealing data and their charts. I can't say that they play a similar role to a bucket shop for sure, but it is possible.

Banker
 
as I understand it, the bucket shops of livermore lore were not really selling him the stock he was buying. they were simply debiting his account when he went long (according to their marging game) and crediting it when he went flat.

the idea was that most people were going to lose and therefore the net for the bucket shop at the end of the day would be positive.

occasionally the <i>BS</i> itself would take a positition on the exchange in order to move the market and to force its customers to dump or meet a margin call, and of course most would dump at a loss (but at a profit to the <i>BS</i>).

 
IB does not offer FX. However, you can trade GLOBEX currency
futures, which is a very fair and rather liquid market for
the majors, EUR, CHF, GBP and JPY. crosses are illiquid
and not favourable for trading. commission $4.8 per rt.

you trade into an open limit book (GLOBEX) and are not
bound to bid / ask quotes of a MM.
 
Plus at IB via their Universal Account, funds not used for margin are held in segregated accounts, earn interest, and have SIPC protection.

-- ITZ
 
Quote from saschabr:

IB does not offer FX. However, you can trade GLOBEX currency
futures, which is a very fair and rather liquid market for
the majors, EUR, CHF, GBP and JPY. crosses are illiquid
and not favourable for trading. commission $4.8 per rt.

you trade into an open limit book (GLOBEX) and are not
bound to bid / ask quotes of a MM.
More...

Have you traded GLOBEX currency products?

http://www.cme.com/products/currency/index.cfm

Banker
 
Quote from Bankedout:



Have you traded GLOBEX currency products?

http://www.cme.com/products/currency/index.cfm

Banker
More...

No, I have not, but I suppose I can. What I do not like about futres is that they do not trade 24 hours a day, while the interbank does. Thus, there are overnight support and resistance levels which do not show up on futures charts.

I could trade futures off the interbank chart, but it wouldn't be optimal as the prices won't exactly match up due to the cost of carry.

-- ITZ
 
Quote from Bankedout:



Have you traded GLOBEX currency products?

http://www.cme.com/products/currency/index.cfm

Banker
More...

Yes, I have, but only a little bit, since I am not to deep in FX
market.

What do you want to know ?

Order routing, is fast, the order goes "green" after 1/2 second,
so it should take only 250 msec until it arrives @ globex.

Only disadvantage: spreads get wide short before econ. news
as MMs pull their quotes. During normal trading, spreads
are as narrow as 1 pip (EUR). If it is 2 pips, just enter
your order in the middle, it will very likely be filled
since the market has good liquidity from traders.
 
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