Best Thread Other Side of the Screen

Hello,

I am a member of T2W but made a new account to share some insight into what goes on behind the scenes at a brokerage/market maker. This is because I do not want to be identified. I should also make it clear I have not and do not intend to ever sell/market anything to anyone, it is not in my interests. If this goes against company policy I am happy to disclose to a mod my other username.

This thread will remain locked until I can upload all the relevant information. I will then unlock it so that some of you may ask questions. I will not answer anything personal or that could jeopardise my identity.

Common misconceptions of the Market

I often see people on forums discussing slippage and re-quotes and complaining about ‘people’ coming after their stops. I think it is important to educate people on real market conditions. As such let us say for the sake of explanation, we are trading on the live market, this way there is no room for accusations of malpractice by our broker.

When trading on the live market, you will not face re-quotes. In normal trading conditions the price you see is what you get. Sounds perfect right? It is, if you are buying 20 lots of EURUSD at 10:15am London time and the markets are calm.

If however you decide you want to get 20 clips off at 1.35555 exactly because it’s lucky for you and the Fed just announced more Tapering then I’m afraid you’re going to have a hard time. The point is this, slippage is normal sometimes and trading during news or volatile markets and expecting not to get slipped is ludicrous, especially when you start taking the 5th decimal place into consideration on FX.

As for the theory that brokers or banks move markets to hit YOUR stops, that’s ridiculous. Let me start by saying there are very few brokers that have the capital to move a market, and I would say fairly confidently that there are none who could move the FX market.

Then there is the risk associated with this. Your £2pp trade on a spread-betting account is not worth it, even if you’re going £2,000pp. The amount of money it takes to move markets is massive, especially when considering there is minimal leveraging when trading the underlying market (UM). It is like a professional poker player risking £2m to win £2 off of you in one hand of poker. He may win, but it’s just not worth the risk.

Most of the time, stops get hit because people place them too close to a key level or point of retracement or just too close to their entry.

How trades/traders are handled

Something that may be interesting to people is the way in which trades and traders are handled. Essentially everyone is broken down into two groups. A book and B book; with 90% of clients falling in the B book category. The way they are categorised will vary slightly from company to company.

‘What makes up a B book trader’ – Those who have lost consistently over time will almost always be B book. Someone with a small account balance (up to $10,000.00) will usually be B book until we see sufficient evidence that they are net winners. At this moment in time, they will be set to ‘Monitor’ which means that they will remain B book and automated, but we may decide if they are a genuinely good trader to mimic a percentage of their trades. B book clients are often handled with no intervention and are automated.

‘What makes an A book trader’ – Those who have consistently shown that they are a good trader, those with large account balances or who trade in large sizes, and those who employ questionable tactics. Someone with a large account or who trades in big size needs to come through to the desk for one simple reason, we may need to hedge them.

They may be the worst trader in the world who constantly loses money to us, but if they trade large enough to breach our limits then we need to be able to hedge that risk in the UM. Then there are those who use questionable tactics (sending false quotes etc) who will request prices that are always at least 30 pips away from the market.

If trades do come to the desk then even if they are slightly out on price, we will just put them through at the price originally requested. The only exceptions will be if the price is too far from the market or the client is trying to do large size in one clip (around 100 lots in FX) then we may re-quote a pip or two where liquidity would be sufficient.

Do Brokers employ dirty tricks to take your money?

Where I worked it was an honest place with no malpractice. The FCA come down so hard on firms now that it would be pointless to ever try and screw a client over, no matter how small. My job was to fill orders and hedge risk.

Of course I have heard stories about people getting swindled, some not getting paid after winning big etc, but these are always linked to bucket shops out in Cyprus or other unregulated territories where there is never guaranteed safety but the lure of a ‘great deal’ entices people in. If I could give you one piece of advice, go with a reputable broker that has been in the business for some time, and ensure they are regulated by someone that matters. If you still are unsure, look at going DMA (Direct Market Access), the minimum deposits can be higher but you go straight to market.

Another fact of life is that the statistics don’t lie. Almost all of the traders I dealt with lost money, they simply weren't good enough. We never needed to steal or cheat because we made plenty of money just letting people do what they wanted and I believe it is the same for most companies. This sounds harsh but it is true.

What are the most common mistakes traders make?

The biggest mistakes I see are people who cannot accept a loss. Honestly this is how we make 75% of our money. As an example, one recent client had a run of about 25-30 profitable closed trades, each time he would bank $1,000 - $5,000. He did not have 1 losing trade in his first two weeks of trading so the next time he opened a position I monitored his account suspecting the obvious…he let his positions run until they showed profit.

Sure enough this was the case, his large account balance allowed him to take a lot of pain, then when he would come onside slightly as the markets ranged he would Bank the profits and clean up. Well, not two weeks later he was down around $250,000 and was close to liquidation. As with most he simply did not know when to throw in the towel and ended up blowing his whole account.

Another common thing I see is traders who self-hedge. They will lock in a loss and try to get themselves out of trouble by trading out of a losing position. This has hardly ever worked well for anyone. Swaps often eat away at you, and as you try to work the trades, the spreads also start chipping away. Again it comes down to people refusing to accept losses!

What makes a good trader?

The best traders I have seen often have a strong knowledge of their market. You will see them time their entries well and cash in on decent moves. They will rarely look for the big ones where they can make a fortune, they often just ride a small, decent wave up/down and then exit the trade. Their timing is usually their greatest asset and often they will close a trade quite quickly if it doesn’t work out. Of course there are many ways to trade well, but I would say timing and understanding a specific market’s behaviour is key.

If you have questions please ask and I will respond where possible.

Thread locked

Currently I cannot figure out how to unlock this thread to allow replies from others. I also cannot PM the mods for some reason as it gives me the following:

ERROR: We detect suspicious activity from your network; to complete this action, please contact the webmaster.

Once this is sorted out I will take questions.

Many Thanks,

LLSS

First up, a big thank you for doing this.

Quick question: I had a problem with SB company a good while back now, the basic gist was i was using a P&C stop to enter right near (less than 2 pts away) the market in dax with a fixed 1pt spread. Modest size around 8pp iirc
Order ex: P stop to sell at 70 / C stop to close 71.1
yeah, i know! :cheesy:

One morning i started to receive constant slippage as opposed to the pinpoint (for the most part) fills id been getting. Rang up and asked whats changed, "nothing" was the reply.
Unhappy with that i asked a fellow trader to mirror an order (same time/price) to compare fills. I got slipped and he didnt. Back on the phone to them, the most i got was "you wernt being very fair to us", which of course i wasnt. They wouldnt admit that i was being treated any different when it was obvious that i was.

I trade a bit different to that these days, all limits and no hard stops, but would defo be interested to hear the typical view of me and my previous behavior from the other side of the screen.

Cheers
D

Re ". We never needed to steal or cheat because we made plenty of money just letting people do what they wanted and I believe it is the same for most companies. This sounds harsh but it is true. "

Amen to that. And surely by the same token...it's understood that *most* sb firms tolerate 'winners' precisely because the majority regularly lose more than enough to more than cover any regular/irregular gains made by the minority of 'winners'.

BTW, when you say "Someone with a small account balance (up to $10,000.00)", *if* I may assume you worked for a UK outfit, did you mean up to 10K GBP?

Great thread.

It has always annoyed me how losing traders always blame the broker - the worst being they moved the market to hit my stop!

LLSS said:

Currently I cannot figure out how to unlock this thread to allow replies from others. I also cannot PM the mods for some reason as it gives me the following:

ERROR: We detect suspicious activity from your network; to complete this action, please contact the webmaster.

Once this is sorted out I will take questions.

Many Thanks,

LLSS

Click to expand...

Thanks and keep going. Very interesting.

LLSS said:

I often see people on forums discussing slippage and re-quotes and complaining about ‘people’ coming after their stops. I think it is important to educate people on real market conditions. ...

As for the theory that brokers or banks move markets to hit YOUR stops, that’s ridiculous. Let me start by saying there are very few brokers that have the capital to move a market, and I would say fairly confidently that there are none who could move the FX market.

Then there is the risk associated with this. Your £2pp trade on a spread-betting account is not worth it, even if you’re going £2,000pp. The amount of money it takes to move markets is massive, especially when considering there is minimal leveraging when trading the underlying market (UM). It is like a professional poker player risking £2m to win £2 off of you in one hand of poker. He may win, but it’s just not worth the risk.

Most of the time, stops get hit because people place them too close to a key level or point of retracement or just too close to their entry.

Click to expand...

If you are a market maker how exactly does it 'cost' you to move the price your quoting up. It doesn't cost a man on a market stall any more to shout Bananas £2 a bunch rather than Bananas £1 per bunch. In fact if he owns a lot of said Bananas he's actually making MORE money from other people buying while he's shafting you for having bought the option (from him) to sell them @ £1.50.
To continue the analogy if he changes the price overnight when no other 'Barrow boys' are around and your pregnant wife needs a Banana NOW! your screwed.
Now take a look at the Dow!

postman said:

If you are a market maker how exactly does it 'cost' you to move the price your quoting up. It doesn't cost a man on a market stall any more to shout Bananas £2 a bunch rather than Bananas £1 per bunch. In fact if he owns a lot of said Bananas he's actually making MORE money from other people buying while he's shafting you for having bought the option (from him) to sell them @ £1.50.
To continue the analogy if he changes the price overnight when no other 'Barrow boys' are around and your pregnant wife needs a Banana NOW! your screwed.
Now take a look at the Dow!

Click to expand...

good one postman !

postman said:

....
Now take a look at the Dow!

Click to expand...

Are you seriously suggesting that after the markets closed last night that normal market behavior made the prices go to above 16,030 cash equivalent value then everyone realised they'd pressed the Buy button instead of the Sell button and quickly reversed their trades bringing the price down to 15,800 now.

Market makers just kept changing the numbers on the screen until it was up where they made most money from 'punters' and then changed those prices again until they are at current levels.
When the markets are open Arbitrage can keep futures trading under control but when the markets are closed you are at the mercy of the greediest ugliest bunch of sharks in the world.
If you dont think prices are manipulated to take out stops you are deluded in my humble opinion.

Boring stopped reading "no offence" ...

tar said:

Boring stopped reading "no offence" ...

Click to expand...

None taken

a book and b book, exactly as i thought. Good business model, take opposite side of b book trades and put to market and follow the a bookers. Is there a better business plan on the face of the planet? doubtful

MajorMagnuM said:

a book and b book, exactly as i thought. Good business model, take opposite side of b book trades and put to market and follow the a bookers. Is there a better business plan on the face of the planet? doubtful

Click to expand...

sometimes the books get mixed up


http://www.trade2win.com/boards/spr...ss-vs-guaranteed-stop-loss-4.html#post2263316

Thanks to the mods for opening this thread up again for me. I will try to answer as many relevant questions as possible with a good amount of detail but due to work etc my responses may be sporadic.

First up then:

darktone said:

First up, a big thank you for doing this.

Quick question: I had a problem with SB company a good while back now, the basic gist was i was using a P&C stop to enter right near (less than 2 pts away) the market in dax with a fixed 1pt spread. Modest size around 8pp iirc
Order ex: P stop to sell at 70 / C stop to close 71.1
yeah, i know! :cheesy:

One morning i started to receive constant slippage as opposed to the pinpoint (for the most part) fills id been getting. Rang up and asked whats changed, "nothing" was the reply.
Unhappy with that i asked a fellow trader to mirror an order (same time/price) to compare fills. I got slipped and he didnt. Back on the phone to them, the most i got was "you wernt being very fair to us", which of course i wasnt. They wouldnt admit that i was being treated any different when it was obvious that i was.

I trade a bit different to that these days, all limits and no hard stops, but would defo be interested to hear the typical view of me and my previous behavior from the other side of the screen.

Cheers
D

Click to expand...

Haha well to be honest it will depend on the firm and I can't speak for everyone but I would view you as a bit of a cheeky sod but also with some form of admiration. I think you're an t*t because you make my life/job harder as I have to trawl through loads of your data to find out what you're up to but admire your efforts for finding a loophole. It's also the fact that I know that you know what you're doing is taking the mick a bit.

At the end of the day though we try to mimic the real underlying market environment as closely as possible, and you and I both know (I presume from your wording) that in real market conditions these tactics simply don't work.

In a related example, we faced a similar thing previously where a client would try to place a buy and sell stop each side of the market during big data. Fine, but when he got slipped as the price thundered one way or another he would then ring up to complain when he got slipped. Even after showing screenshots of the underlying market at 1 second before/during/1 sec after where price had gone from 1250 to 1247 (Gold) in a split second, he wouldn't understand why he couldn't get filled at 1249. So in his case we simply widened the price he was allowed to place his orders at to negate slippage. Imo it's a worse deal but he was happy with it

LLSS said:

Thanks to the mods for opening this thread up again for me. I will try to answer as many relevant questions as possible with a good amount of detail but due to work etc my responses may be sporadic.

Click to expand...

Should have said this first before my posts.
Thank you for putting your head in the Lions mouth by coming on here.
Not sure why your doing it, you have your reasons but thanks anyway. I'm looking forward to a lively thread and a few 'myths' dispelled. You never know, you might learn something.