Is FXCM a market-maker?

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montmorencyt2w

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I've put this in the spread-betting section, although I am actually talking about FXCM in general, as Forex brokers, rather than just the spread-betting operation that they run in the UK.


The reason for this is that debate among the pro- and anti-spread-betters here has partly focused on whether the spread-betting firms are in effect taking a position against their clients. Some of them - like CMC - have explicitly declared a No Dealing Desk platform. Others, like Prospreads, have declared a "DMA-like" platform.

FXCM have been saying for a long time that they do not take a position against their clients. Nevertheless, as I read and re-read what they say, it doesn't quite sound like DMA, either.

So I set about trying to answer the question: In what way is FXCM not a market-maker?

I found the following fairly recent article on ET:

http://www.elitetrader.com/vb/showthread.php?threadid=214476

Comments?


I hope this will be a debate including the pro- and anti- SB people, but especially I look forward to hearing from people with an open-mind (among whom I like to include myself).



FXCM/Jason is welcome to take part, without feeling that it/he has to. Look on with quiet amusement if you prefer!
 
montmorencyt2w said:
I've put this in the spread-betting section, although I am actually talking about FXCM in general, as Forex brokers, rather than just the spread-betting operation that they run in the UK.


The reason for this is that debate among the pro- and anti-spread-betters here has partly focused on whether the spread-betting firms are in effect taking a position against their clients. Some of them - like CMC - have explicitly declared a No Dealing Desk platform. Others, like Prospreads, have declared a "DMA-like" platform.

FXCM have been saying for a long time that they do not take a position against their clients. Nevertheless, as I read and re-read what they say, it doesn't quite sound like DMA, either.

So I set about trying to answer the question: In what way is FXCM not a market-maker?

I found the following fairly recent article on ET:

http://www.elitetrader.com/vb/showthread.php?threadid=214476

Comments?


I hope this will be a debate including the pro- and anti- SB people, but especially I look forward to hearing from people with an open-mind (among whom I like to include myself).



FXCM/Jason is welcome to take part, without feeling that it/he has to. Look on with quiet amusement if you prefer!
Click to expand...


FXCM state there Banks use 'pricing engines', the only people that know the algorithms
behind those engines are FXCM and their banks. I suppose this could be similar to a
Market Maker.
 
Trader number 7 had a very long discussion with Jason re. fxcm last summer iirc, in which he was adamant that FXCM were not true NDD/ECN. I'm prepared to accept Jason's explanation of the portfolio of fxcm's 'banks' that 'quote for the business', previously my belief (suspicion) was that they only used dbfx, or their autobahn facility..
 
Black Swan said:
Trader number 7 had a very long discussion with Jason re. fxcm last summer iirc, in which he was adamant that FXCM were not true NDD/ECN. I'm prepared to accept Jason's explanation of the portfolio of fxcm's 'banks' that 'quote for the business', previously my belief (suspicion) was that they only used dbfx, or their autobahn facility..
Click to expand...

Trader7 came across as someone who had some unsettled issues with FXCM somewhere in the past. He did make a few good points but IMO he lost a lot of credibility by being way too arrogant and very unprofessional. OTOH, Jason remained calm and very professional, even though he had to repeat himself often.

Unless SEC gets involved in the lawsuit against FXCM, I don't see it being too much trouble PR-wise for them no matter the outcome. My guess is a settlement without admitting guilt.

There's a lot that we retail traders will never know about the inner workings of all this NDD/ECN/Pass thru processing. Enough so that shady brokers can continue shady practices that are hidden right inside the transparency they are showing us.

Peter
 
wackypete2 said:
Trader7 came across as someone who had some unsettled issues with FXCM somewhere in the past. He did make a few good points but IMO he lost a lot of credibility by being way too arrogant and very unprofessional. OTOH, Jason remained calm and very professional, even though he had to repeat himself often.
Click to expand...

You're being far too polite re. T No 7..;) and yes Jason handled himself and the baiting very well. At the end of the day we could all torture ourselves re. how the fx and sb firms operate, their ocassional faults do not stop us being profitable, that's entirely in our own hands/of our own making
 
Isn't it the case that a company offering spread bets has to be a market maker, or else it wouldn't qualify as spread betting?
 
Ross Spur said:
Isn't it the case that a company offering spread bets has to be a market maker, or else it wouldn't qualify as spread betting?
Click to expand...
If all bets are equal to the futures prices and hedged in the real market it would by definition not be a market maker. Also a good indication is that if your are are able to trade inside the spread. To be able to categories the business as SB you just add a spread wrapper to the real spread of the future price and suddenly you can be categorized as spread betting. I do understand your legal way of looking at it, and it is kind of a gray zone, and I myself wonder how they could have got it approved as being SB and thus being tax free (talking about Prospread).
 
gle101 said:
If all bets are equal to the futures prices and hedged in the real market it would by definition not be a market maker. Also a good indication is that if your are are able to trade inside the spread. To be able to categories the business as SB you just add a spread wrapper to the real spread of the future price and suddenly you can be categorized as spread betting. I do understand your legal way of looking at it, and it is kind of a gray zone, and I myself wonder how they could have got it approved as being SB and thus being tax free.
Click to expand...

I always wondered how FuturesBetting satisfied the rules when they claimed that all trades were offset directly in the market, but I don't see that Prospreads is now much different from FXCM or CMC next gen, apart from being more expensive.
 
I was looking at FXCM's web site, and noticed that while on the top page, it was saying "No Dealing Desk Forex Trading" (or similar) when you clicked down to the spread-betting page, it didn't use the term "No Dealing Desk" (although the description could just about have covered that).

I emailed them to ask about this and they got in touch with me to explain that it was indeed NDD - it just didn't say so explicitly for some reason. As others (including Jason I think), have said, it's a SB wrapper around their Forex offering, more or less, so one would expect (or hope) it to be also NDD.

I just throw that in for completeness. I don't think it affects the general question posed in the thread title though, either way.
 
Fascinating discussion at the beginning of this thread which I should have looked at before.

It's nearly a year old (discussion in question), so I don't know to what extent any points made are still 100% correct, but it covers some very interesting ground.
 
montmorencyt2w said:
Fascinating discussion at the beginning of this thread which I should have looked at before.

It's nearly a year old (discussion in question), so I don't know to what extent any points made are still 100% correct, but it covers some very interesting ground.
Click to expand...

monty, thats what Black Swan and I were alluding to with Trader7. Take some of that with a grain of salt. Some info from T7 is old hat or just to argue. For instance FXCM states no entry restrictions, but apparently they have a $50 million notational limit and T7 takes delight on calling Jason out on that and lying about the no entry restrictions. Take what you will from that thread there are a few good points but IMO T7 acts like a bitter failed trader.

Peter
 
wackypete2 said:
monty, thats what Black Swan and I were alluding to with Trader7. Take some of that with a grain of salt. Some info from T7 is old hat or just to argue. For instance FXCM states no entry restrictions, but apparently they have a $50 million notational limit and T7 takes delight on calling Jason out on that and lying about the no entry restrictions. Take what you will from that thread there are a few good points but IMO T7 acts like a bitter failed trader.

Peter
Click to expand...

Thanks Pete. Sorry, missed your previous allusion before.
Re: T7: Probably you are right, but he gives the impression of knowing a lot :)
 
gle101 said:
If all bets are equal to the futures prices and hedged in the real market it would by definition not be a market maker. Also a good indication is that if your are are able to trade inside the spread. To be able to categories the business as SB you just add a spread wrapper to the real spread of the future price and suddenly you can be categorized as spread betting. I do understand your legal way of looking at it, and it is kind of a gray zone, and I myself wonder how they could have got it approved as being SB and thus being tax free (talking about Prospread).
Click to expand...

Essentially what we have done is added a spreadbet wrapper to the regular CFD account. So execution on each account would be the same except for the tax advantage afforded the trader in the UK and Ireland. This means NDD execution also applies to forex trades in the spreadbet account as it does in the regular account.

As Mike correctly pointed out, the NDD information is not listed for the CFD products (indices, oil, gold, silver). NDD does not apply to the indices, metals, and oil. Our original intention in launching the CFD products was to have it be NDD as well, but we were unable to do so with the launch. FXCM maintains a no re-quote policy for indices, metals, and oil, although those orders do not operate on straight through processing.

Please feel free to let me know if you have any questions, and I will do my best to answer.

Cheers,

Jason
 
Black Swan said:
You're being far too polite re. T No 7..;) and yes Jason handled himself and the baiting very well. At the end of the day we could all torture ourselves re. how the fx and sb firms operate, their ocassional faults do not stop us being profitable, that's entirely in our own hands/of our own making
Click to expand...

That's certainly not what stops you from being profitable Paul. That's just down to the fact that you can't trade. ;)
 
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