Shaun Overton interviews Batur Asmazoglu

This is definitely a video worth watching for the retail forex trader. Listen to what Batur (former Deutsche Bank & Credit Suisse Trader), has to say about "stop levels" and "spreads" and "the order book."

Better than getting him to post his comments here.

Aaaah, yes! We finally get some honest at 29:10 when Batur, actually admits that there is a Spread Widening Button that the banks use to make life difficult for the smaller fish in the ocean of retail FX.

Hmmmm. This flies in the face of what most retail brokers tell you. Of course, the retail brokers will also tell you "hey - we just pass along the prices - we have nothing to do with widening spreads."

So, there it is folks. You had better do your homework on the retail level and know what the big boys are doing - or are capable of doing to you.

I actually re-wound the video. He said:

"...there's a lot of different things you can actually play around with. You can play around with spreads.... this is from the algo... that restricts customer trading... there is actually - there's a PANIC BUTTON THAT WIDENS THE SPREADS... its QUITE USEFUL ACTUALLY... You can MAKE THE PRICE FEED FASTER THAN IT IS RIGHT NOW... "

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Wow. And, he calls these little games "solutions." Solutions to what? LOL! Oh, yeah. "Solutions" to make trading difficult for the "Customer."

Hmmmm.

Skipping the stuff that's actually being sold in the video (just ignore it) - I thought this was a fairly eye opening 39 minutes. It confirms several of the more intriguing suspicious that I had about Banks and how they might be manipulating price behind the scenes. The finally get testimony that indeed there was a spread widening mechanism routinely used in FX was a jewel. But, the very fact that they actually gave the "button" a name (PANIC BUTTON) is very telling indeed.

One interesting thing I learned was that they actually have the ability to alter the speed of the price stream. I must admit that even I was a bit shocked to hear that one in particular. Speeding up and I supposed slowing down the prices that you trade on, is a new twist for me - I did not know that before today.

I already knew that Banks don't rely a great deal on technical analysis and that they care a lot more about deal flow, contemporaneous news and how the market responds to it. He also confirmed that they do lurk out around your stop levels as well, though much of it as a function of providing liquidity at those levels.

I guess the real shocker for me was the revelation about their ability to change the speed of the stream. That's just bizarre and it explains a few things I often wondered about before today.

So, is there a conspiracy in FX? He was very casual with his statement that about 95% of the retail guys fail. It seemed like a slam dunk statement for him to make - very matter of fact. He also made it clear that Banks do believe in "algos" right up until the point when they stop making money - then they just shut them off, LOL! That was hilarious to listen to because it means that the Banks are out there GUESSING about some things just like a lot of traders.

This video also helped to reinforce my belief in bespoke algorithm design for the smaller trader and how I would not even dream of trading without an empirically driven decision support trading system on a hybrid auto/manual execution basis. Helps me realize I am doing the right thing by taking a statistical approach to trading with manual executions.

Aaaah, refreshing to get the truth from a Bank! Or, Ex-Bank Trader.

Very good video. The retail joes only need to know 2 things:

1. At 10:30, trades placed through brokers go to the algo's
2. At 13:00, wherever you place your stops, the market goes to

For point 2, the retail joe's are a bit f*cked, and they thought it was their own "psychology" that's failing them. Hahaha. This is what happens these joes guarantee the banks to buy high and sell low. The banks say lovely jubly.

Excellent video and very eye opening.

But there are issues with interpreting some things that are being said. For instance, widening spreads...who's spreads? If the bank is widening their own spreads via adjusting their own bid/offer price then how is that devious? They have the right to bid or offer at any price they want...after all it's THEIR pricing. However, if they show different spreads to different customers then that's a much darker arena. Remember too that their customers are NOT retail traders but the brokers that we all have accounts with. If they widen spreads to those brokers and the brokers pass those wider spreads on to the retail customers then it appears that many brokers are CORRECT in stating they just pass the wider spreads on and don't widen them on their own.

Without a doubt there are downright scum bag brokers out there and the forex arena is murky at best. But the video clearly shows that widening of spreads originates from the large fx banks (that us retail traders are NOT customers of ). Several of us have said this many times over the years here.

That being said the fact that they can and do alter the speed of the price stream is new to me too. Every once in a while I can be surprised and I've been around for a while.

Peter

BeginnerJoe said:

Very good video. The retail joes only need to know 2 things:

1. At 10:30, trades placed through brokers go to the algo's
2. At 13:00, wherever you place your stops, the market goes to

For point 2, the retail joe's are a bit f*cked, and they thought it was their own "psychology" that's failing them. Hahaha. This is what happens these joes guarantee the banks to buy high and sell low. The banks say lovely jubly.

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I missed that slice of heaven - thanks!

All the more reason for the retail FX brokers to start designing their own bespoke trading algos. The brokers don't have the ability to stop the banks from Stop Grazing. I'm calling it Stop Grazing because this is where the banks "graze" on traders. It sounds disgusting - to be "grazing on a trader" - but when your stops are continually "eaten alive" (no pun intended) the banks get "fatter" and that's what Cows do when grazing the pastures.

It would seem to me that traders have little other alternative but to fight fire with fire and design "algos" of their own to take advantage of this Grazing Range. I theorize that if stops are being triggers in clusters, then price should accelerate. The ratio of Price over Time should increase to some statistically detectable level.

The key is using statistical probability in an array of various density functions based on unique measures taken from the mid-point of some significant market move out to mirrored swing high and a swing low levels. This should help to locate the highest probability for movement in a particular direction (relative to that unique mid-point) based on the Grazing Range. That's the starting point for a thesis of sorts.

The grazing range is the active component of a move into a swing high or swing low - it cannot be the swing high or swing low themselves. These guys can't make money there. They want to cascade your stops and that produces the movement in the market between certain swing high and swing low types.

All the market ever does is swing high and swing low with measurable and definable corrections in between. Even when volatility gets low, you can still measure and detect these exact same swing patterns and swing cycles. This is standard market behavior and it has to have something to do with where people are placing their stops, to a large degree.

Rest assured the traders algo cannot be predicated on simplistic a Pivot arrangement because the banks and the brokers know about your pivot locations - they are standard calculations already in the public domain. The trader's algo has to contain bespoke configuration logic and bespoke calculations - something the trader designs and creates on their own, so that nobody can know what the trader is doing, or when the trader plans to do it.

Aside from the Central Banks who can use their monetary policy tools to move markets for prolonged periods of time and literally set the direction of the market by doing so, the rest of Interbank banks are often times guessing, just like many traders. We know that now and that's why they play games with spreads and the market feeds to brokers/dealers and that is also why they have their various Panic Buttons. These guys are not freaking geniuses - they are human beings just like the rest of us traders.

If it bleeds - we can kill it.

That means that if you get good at developing your own bespoke algos, you can be consistently profitable. The reason the vast majority of traders in FX are not consistently profitable is due to their total reliance on standard technical analysis tools that everyone and their grandmother uses and improperly placed stops levels.

I do not trade with stops. I am the stop in all my trades. I replace the stop with decision making in real-time. Therefore, neither the banks nor the brokers know what my intentions before I execute. I will never trade with a hard stop again - ever. There is just no reason to do it, if you are in tuned with what's going on in the market at all times during the hold period.

Algo Wars:

This is what they play when the Dark Side Banks hit the Panic Button:

Can't you just see the Banks marching to this crap.

The Rebel Trader's Victory Theme:

Aaah, the sweet smell of triumph over the Dark Side Banks!

wackypete2 said:

If the bank is widening their own spreads via adjusting their own bid/offer price then how is that devious?

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Very true. When the liquidity providers do it, they are merely offering prices as they see fit. However, they can also see both depth of market as well as all stop orders submitted electronically. I don't doubt for one minute that they have a view of the broker's back-end that gives them this advantage. So, when the banks cranks the spreads they do it to their own advantage. Price Spiking cannot be done absent a crank on either the Bid or the Ask, or both simultaneously.

So, simply offering prices that vary is not the problem - that's the way the business should work. But, spiking the Bid/Ask or artificially widening the Bid/Ask when they know full well that a significant move is on the way (before/during news for example), is somewhat devious to say the least.

Now, couple that with the Brokers algo and you can see how the retail guy gets the shorter end of the price stability stick all the time. Brokers are adding yet another layer of price manipulation on top of what the Banks are already doing to cushion and/or prevent their losses.

The only way for the retail trader to reach long-term success, is to find the repeating patterns in the data and develop the algo to exploit them whenever and wherever possible.

wackypete2 said:

They have the right to bid or offer at any price they want...after all it's THEIR pricing.

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Sure they do - that's the way the business works. But, a "Panic Button" and tweaking the speed of the price stream - speeding it up and slowing it down at will? That's market manipulation and it probably results in even wider spreads being seen on the retail platforms, as the broker's algo has to work out its own profit model when wildly diverging bid/ask streams result from more than one bank jerking the speed of their stream (no pun).

Again, if brokers would give traders at least access to the true DOM, then traders could decide for themselves where prices are lagging, who is lagging them and where best to place their order. But, since the vast majority of FX retail brokers don't offer anything even remotely close to true DOM, the retail trader is left with jerky pricing and artificially rigged spreads.

wackypete2 said:

However, if they show different spreads to different customers then that's a much darker arena.

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Actually, with true DOM on your platform (something that brokers CAN do) you could decide to do business with those providers offering fairness in pricing. If you see a bank jerking off in the corner with wildly differing pricing that is outside of true mean, then you can ignore that jerk and do business with someone offering a fairer price. Likewise, if you see no fair prices out there, then you can simply sit back and wait until you are happy with the pricing levels before entering your position.

Right now, you have no idea whatsoever what fair looks like - because it is all being masked by the broker's back-end pricing engine and their need to generate revenues through keeping spreads artificially wide.

Remember, in a true DOM world, you would get opportunities for Zero Spread entries because you can do your own price matching of sorts and pick the best opportunity the market has at the time of your entry. Right now, you don't have the opportunity on most retail platforms.

wackypete2 said:

Remember too that their customers are NOT retail traders but the brokers that we all have accounts with. If they widen spreads to those brokers and the brokers pass those wider spreads on to the retail customers then it appears that many brokers are CORRECT in stating they just pass the wider spreads on and don't widen them on their own.

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Not quite. Banks are not paying the same ridiculous spreads that retail traders pay. Remember, there is Interbank and then there is Forex. Retail traders trade on Forex. The banks ARE the Interbank system and they are often times seeing Zero to Negative Spread conditions. They take advantage of those all the time. Arbitrage opportunities are very real at that level - but I'm not even talking about that.

So, what brokers are getting from the banks [individually] are more than likely not the high spread conditions you see - as brokers have to widen those spreads to pad their revenues. As proof, just take a look at DCFX pricing right now. They charge a commission and the spreads are fairly tight for a retail account - even tighter for an institutional account. Therefore, if the banks were delivering wider spreads to DCFX, there would be no reason for that broker to reduce the spread before streaming it to their trading platform - that makes no sense. So, the banks must be delivering very tight spreads to that broker to begin with.

wackypete2 said:

Without a doubt there are downright scum bag brokers out there and the forex arena is murky at best. But the video clearly shows that widening of spreads originates from the large fx banks (that us retail traders are NOT customers of ). Several of us have said this many times over the years here.

Click to expand...

That applies to Interbank. Retail traders do not trade on Interbank rates. If you did, then you would see Zero Spread conditions and even Negative Spread conditions a lot more often - as matter of routine business. These are the conditions that are seen on Interbank all the time. Therefore, if Zero to Negative Spread conditions exist, that must mean that banks are dealing at near Par on a very frequent basis on Interbank.

However, inside these Dark Side Bank retail Forex proprietary liquidity pools is where retail traders execute their orders and those are not Interbank rates. The broker is also widening the rate to establish their revenues from retail transactions consistently.

Between the broker and the bank, the retail trader is getting hosed. So, it becomes important to beat these guys in the Algo Arena, where if you design your own they can't touch you. All the broker can do at that point is start freezing the platform after you execute your order, start offering you more re-quotes than you have ever seen before and increasing the amount of negative slippage than you normally see in your trading.

This is precisely what happens on many retail trading platforms when you actually start growing your account balance to significant levels and it is precisely why you can only go so far, as a non-commercial retail trader on such rigged platforms. At some point, you have to switch to an institutional account on a real institutional platform and use a prime broker.

wackypete2 said:

That being said the fact that they can and do alter the speed of the price stream is new to me too.

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I'm still scratching my head on that one too. :-0 But, again - with true DOM on your platform, you could at least see where the lagging occurs on an individual basis and then choose the banks that best represent fair pricing at that moment. There are all kinds of tactical decisions that you can make at entry time when you have access to true DOM. Right now, most retail brokers are just price aggregating wholesalers.

They may even be doing some of their own off-setting when the banks just can't agree on a "fair level" for price at any one time, by taking your order and then off-setting it at a later time against other "entities" within their pool [best guess]. If the banks are all over the map on pricing, that blows a hole straight through the middle of the retail broker's business model. The brokers can't just close up shop and go home - they have to deal.

So, in a sense, you could argue that the brokers offer a kind of "price stability" in such situations where the liquidity providers just can't agree on where price should be in any instant. However, price stability should not be confused with price fairness. The brokers are still, for the most part, screwing the trader left, right, up, down and sideways.

Create unique and bespoke algos based on repeating patterns with empirical and historical support and screw them before they screw you.

No matter what - somebody is going to get screwed - might as well be them not you.