I don't know whether they limit the size at all for the retail market, but as far as the actual institutional platform, you can trade very decent size on there.
How do you define "decent?"
At the top-end of my trading, I'll be looking at moving between 20,000 to 50,000 lots per week. That's far to many individual trades on any retail platform that I know of, nor would I want the headache of trying to manage that many open positions during the course of one week. So, I'll need access to a platform that allows me to trade in Yards. This language does not apply to Options, I know, but I use it here just to give you the dollar volume concept that I'll be dealing with on the top-end of my trading. I'm not there yet, but it should be sometime this year when these lot levels become a weekly reality. I do not believe that there is any Options platform right now in FX that can handle that level of notional value. So, defining "decent" helps.
Doesn't even go to dealer intervention until a certain threshold (in common with almost all bank platforms).
"A certain threshold" - yes. They all have to protect themselves to some degree. But, again, in my case that threshold might be well beyond the current limits of FX Options liquidity.
I think your concerns regarding liquidity are a little unfounded and not necessarily based on a genuine knowledge of how the process works (as differentiated to how the downstream pricing of spot fx to the retail world works). Not the same animal at all.
Options liquidity in any market is always less (by mathematical definition) then the underlying instrument from which the derivative obtains its value. If I'm going to be pushing 1-4 Billion notional value around weekly, which translates (under my model) to an account balance of between 20 to 100 Million inclusive of margin requirement (depending on leverage - which is another issue, as no one will most likely allow me to trade at my current 100:1 that way - but that's another post entirely).
So, the size of my future options trades does have a liquidity issue attached as far as advertised trade execution goes. All the talk that intermediaries do regarding "fastest execution" is concerned, is based to a large degree on the "speed" with which they can
take the other side of your position from within their own deal book - their specific, in-house pool of liquidity. Your trade execution times AND fill accuracy drops-off with most intermediaries when you start trading larger sizes.
The trade who already trades large enough positions already knows this is true and should understand why. The dealing desk (regardless of those that tell you they have none - they lie) sees your position coming through the platform and either they manually or through an automated route, "realize" that they will not be taking the other side of your position in-house. At that point, you get
finally get routed outside of their proprietary pool and into the real interbank market, hopefully, if not a secondary pool (larger) that they never told you about when you opened your account.
Well, this stuff takes one thing: TIME. And, the time that all this takes is why you have the problem of Slippage, Re-Quotes, Partial Fills, Non-Fills, and all the other horse pookie (did I spell that correctly?) that people run into all too frequently in this business.
Now, as far as the exact details on precisely WHO is providing the liquidity is concerned, then hopefully you can educate me. But, knowing how my order is being routed, re-routed, screwed and urinated on, is mostly known by now.
They way I see it, when Retail Forex came out and was made available to the public (by definition - retail), that created (in broad spectrum terms) two currency markets. Most individual traders never have their trades executed against the real interbank liquidity pool and instead, unannounced to them, get filled inside their intermediaries book - their trade, never leaves their brokers domain. This is where and WHY all the manipulation is possible against individual positions related to the common in-house spread on a particular pair (if I've done my homework correctly and learned my lesson well).
Manipulation of the spread is real and is no joke, when you trade with a broker/intermediary within their domain - deal book. If you can actually get executed by your intermediary against the real interbank market, then such manipulations are for the most part forestalled because the spreads are more closely aligned with what the real players on interbank are dealing with. In this way, when we look at the 1 minute chart, we can better understand why there are such quick/rapid price extractions (called spikes) from one extreme to the other (long and short).
There is a lot of talk right now going on about the CFTC placing limits on leverage and restricting it for U.S. based traders down to 10:1. That idea is now being floated as a possibility. The silly unintended consequences and ramifications of doing that notwithstanding (more bureaucrats messing up yet another fine industry), the distillation from such an idea might lead to the concept or the notion that the entire International Currency Market should now have a Global Currency Exchange System - essentially turning the entire thing into a sort of Global Area ECN - or what I call, a GAECN.
I'm not entirely ashamed to admit that such a Global Area Electronic Exchange System would be a supremely bad idea, as it would go a very long way in eliminated currency price extractions (spikes) that are being caused precisely for the reasons outlined above (and other reasons). It would provide Global Transparency and a Price and Time concept currently missing from our Industry. Bad brokers would be gone (not all but most) and it would then turn the focus for Forex Intermediaries onto building genuine trading applications with built-in trade execution logic as a way of differentiating themselves from one another. Thus, we would all benefit from more robust, flexible, logical and creative trading platforms.
From 2004 to 2007, this market has grown by more than 60%. From just over $1 Trillion to $3.4 Trillion
daily in transactions within the same time-frame. If the same growth rate is seen for 2007 to 2010, the next report should show the Currency Markets now producing more than $5 Trillion
daily transactions and by the year 2016, it will produce almost $14 Trillion
daily turn-overs, which is on par with the current U.S. GDP. With an industry growing that rapidly, it will attract many forms of scams and schemes. Thus, not placing the industry under something like a Global Area Electronic Exchange System, could have deleterious effects on the global economy itself.
The title of this tread is: "Market Maker or ECN?"
Clearly, one should be able to see where my vote would go on the question itself. Private ECN? No. A Global type ECN with global regulatory authority at the helm? Most likely, yes. Will it take a G7 meeting for something like this to get done? I don't know - but, I'd certainly like to be the one who gives the presentation to the G7 if and when it does happen.
Just my 2 pips worth.
