Forex Magnates

[miko432]

MetaTrader 5 Review: It's Much More Than Just An MT4 Upgrade

This is the first in a 5-part series on MetaQuotes upcoming release of the MetaTrader 5 trading platform. The new MT5 platform is not an upgrade of MT4 but rather an entirely new client terminal, written from scratch. As I wrote in a previous Forex Magnates post, MT5 will feature:
5 order types and 4 execution modes available for trading
Implements practically any trading strategies
Built-in reports on all trading activities
Built-in indicators and graphical objects
Allows quicker analysis of quotes and trade decision making
3 chart-types, 21 timeframes and over 70 analytical tools
High performance and outstanding speed
Strategy tester MetaTrader 5
This week I will try to give some insight into what these features really are and how they might impact your trading.
Up first, the new Depth of Market (DOM) feature. What DOM affords a stock trader is a view of current market activity for a particular stock. Market depth information is generally not available for retail Forex traders because their is no central exchange from which to derive the data. The best a Forex broker can do is provide a mechanism to show a consolidated view of available orders from their liquidity providers. A small broker, for example, with only one liquidity provider is more restricted in what they can offer a trader. Since their pool of orders is smaller, the trader may not get an order filled at the price requested. A broker with more liquidity providers will have a larger pool of orders from which to match a trader’s order and trading generally runs smoother. Fewer requotes and less slippage.
Tradeview Forex’s Platinum trading platform offers DOM information, but market depth data has been generally unavailable to retail traders up to this point. MT5 will change all that. Here’s an example of how it might help you as a retail trader.
Let’s say, for example, that you want to place a buy order for 1 lot EUR/USD and the market depth window on the platform indicates that, on the buy side, there are 10 lots available at 1.4000. Knowing this information, you can feel assured that your request to trade 1 lot can be guaranteed an immediately filled at 1.4000. There’s no requote and no slippage. You should then see the DOM window reflect the change in buy-side order availability. With your current MT4 broker, and no market depth information, the retail trader really has no idea of what the market conditions really are other than what is evident from analyzing the trading chart.
Access to market depth information can take a lot of anxiety out of the trading environment and potentially change a lot of traders’ strategies.
In part two, I’ll try to shed some light on MT5’s 21 timeframes and how this feature could make a big difference in your trading.

Tom
http://www.forexturtle.com

 

[miko432]

MetaTrader 5 Review: Part 2/5

MetaTrader 5 has been under development for two years and beta testing will finally begin this summer. MT5 is a complete rewrite of the MetaQuotes platform and is not backward compatible with MT4. So if you purchased expert advisors to trade on MT4 and you plan to use MT5, you might as well throw those MT4 EAs away. They won’t work on MT5.

MetaTrader 5 offers several new features that may make it necessary for retail traders to adjust to new terminology and, possibly, a new way of thinking about order processing and trade management.
First, a new order type - Exchange - will now enable trading of stocks, futures and options directly from the MT5 platform in addition to the Forex order to which MT4 traders are already accustomed.

Tom,

http://www.forexturtle.com

 

[miko432]

CFTC about to change the US Forex industry,brokers – it’s worse than you expected

Few days ago Commissioner Jill E. Sommers from the CFTC gave a speech at the FIA/FOA International Derivatives Expo in London and besides thanking and flattering half of the world’s regulators he also managed to outline the regulatory roadmap and mentioned a few of the most critical issues that the CFTC is going to handle in the near future.

The topics mentioned by Sommers might prove what I’ve been suspecting for a quite a while: Forex trading in the US is on the road to become an exchange just like the equities and futures are centrally traded. This would probably take a while to materialize and several steps would need to happen first, but it seems that more regulation is the likely outcome of the steps CFTC is aiming to undertake.

However there are also several good things that this will create: a big emphasis on STP processing of orders meaning traders will trade with other traders big or small and not against its own broker, which clearly has other interests. OTC products (Forex is probably one of them) are also going to be much more transparent and reporting will become a bigger issue than what it is now.

Michael

 

[miko432]

Saxo Bank walks the walk: continues expansion in Europe and Middle East

It appears that Saxo Bank finally realized that the market won’t remain in its hands forever. From being one of the leading Forex firms Saxo became a pretty boring and content regional player over the past few years. Unlike FXCM and Gain who understood well enough that the market is shifting, changing and moving and you “either keep up with the pace or drop out of the race” Saxo realized this fact only recently.

I speculated that it might make sense for Saxo to dispose of its retail assets and stick to its core institutional clients completely; however Saxo had something else in mind. Last month Saxo announced the establishment of its Dubai office as well as several Eastern European offices. A few days ago it also announced the acquisition of Capital Four Management and 51 % of the share capital of Global Evolution to develop its activities in asset management and added ~$2.65B to its asset management division.

Yesterday it announced plans to expand into Saudi Arabia as alternative investment vehicles grow. Saxo Bank expects to invest as much as $50m in the region over the course of three years.

Michael

 

[miko432]

FXCM breathes down Saxo Bank’s neck: makes a Northern Europe move

Looks like FXCM is not giving up to Saxo that easily. In the following press release FXCM announced that it has added 10 different Krone crosses to its current selection. The only two reasons for that move could be either a strong local client base demanding to trade its own currencies or intent to tap into this market.
As I speculated earlier Saxo might want to consider disposing of its retail assets and focusing on its institutional client base as it doesn’t really makes sense for it to deal with retail forex. FXCM on the other hand is a much more aggressive and effective firm in that market segment.
A few days ago Saxo made moves in two directions: one involved expanding its asset management clientele by acquiring two asset management firms and in the second they announced plans to expand in the Middle East where it has strong retail demand.
Knowing FXCM I’m sure this won’t the last move in that direction that it makes. It remains to be seen who’s going to make the next move in this intriguing race.

Michael

 

[miko432]

Hedgestreet re-brands as Nadex, offers simplified derivatives trading

Nadex (The North American Derivatives Exchange) is a very interesting concept allowing you to trade stock indices, commodities, forex, and economic events with Limited Risk in a transparent, regulated market.
Nadex, Inc. is a retail-orientated exchange offering simplified derivatives contracts on the world’s markets. Nadex is subject to regulatory oversight by the CFTC.
It is also a subsidiary of the UK’s IG Index, a leader in simplified trading and spread betting. This also explains why IG Index kept its US presence so far. It also is a market maker in a way, because another fully owned IG Index’s subsidiary serves as a market maker for this exchange, ergo: trading with Nadex is trading with a market maker, just like in stocks and similar to Forex.

Michael

 

[miko432]

A Brokers Guide explaining what Market Maker, STP and ECN brokers really are

As I promised last week here goes the hopefully useful explanation about the various types of retail Forex brokers. Ever wanted to understand the difference between a DD, NDD, STP, MM, and ECN? Then this post should answer most of your questions.
First of all you need to understand that in this complex Forex world the word ‘broker’ has a double meaning. Unlike your typical equities broker like E-Trade, which only gives you an access to the market, Forex brokers often ARE the market.
Please also note that the Forex ‘market’ discussed here is much different from the typical stock market – there is no central Forex exchange, although CFTC might be working in that direction. When a Forex market is mentioned typically what is meant is access to a limited inter-banking market where several banks or other institutions display orders and deals – and there are several of these. This is also often called liquidity pools or clearing houses.
Wikipedia:
· A broker is a party that mediates between a buyer and a seller.
· A market maker is a firm that quotes both a buy and a sell price in a financial instrument or commodity, hoping to make a profit on the bid/offer spread, or turn.
What that basically means is that a Forex broker can be either a broker per-se (just a channel between you and the actual market) or a market maker (the one who buys from you and sells to you) or even both! Confused? Let me explain this further.
Forex Market Maker (MM) is a firm that both buys from your lots and sells to you. This is also called a Dealing Desk (DD) firm.
Your orders are never quoted on the market, simply because the Broker IS the market. When you read about brokers ‘trading against you’ this is what people actually mean, although they are partly wrong – brokers don’t necessarily ‘trade against you’, they are simply the counterparty to your trades. Of course they have an obvious interest for you to lose money but when people go out and point at brokers saying they steal your money or trade against you most of the time this only serves for marketing purposes and as a promotion for other ‘non market making’ brokers.

Michael

 

[miko432]

A Guide to Forex Brokers: what Market Maker, STP and ECN brokers really are

Yesterday I talked about Market Making brokers today I’ll discuss STP and ECN brokers.
Forex Broker, which is not a Market Maker, is either a Straight Through Processing Broker (STP) or an Electronic Communications Network Broker (ECN). These types of brokers are typically (and sometimes erroneously) called Non Dealing Desk brokers.
ECN Brokers:
ECN Broker is a broker per-se, one who gives you a direct access to display your order in the market. This broker’s income comes from a certain mark-up on the spread displayed to you: for instance if the current actual spread on a EURUSD pair is 0.2 pips, this broker might display you a 0.5 pips spread making 0.3 pips on every trade you make.
There are several ECN brokers out there with Swiss Dukascopy being one of the most recognized with the ECN execution model.
For a retail trader ECN execution is often beyond reach: due to its inter-banking nature, traders are typically required to trade very large lots and minimum deposit requirements are somewhere from $50,000 to $100,000. FXOpen recently tried to cover this gap by offering a MT4 ECN platform, not very successfully or transparently in my opinion.
STP Brokers:
STP Broker is a type of a Market Making broker. This broker, most of the time, displays its own quotes (which are correlated to the actual inter-banking quotes).
Now here is the real complexity: sometimes this broker routes your orders to the market (acts as an STP broker) but sometimes it doesn’t (acts as a Market Maker).
For instance, successful traders or successful trading algorithms will be automatically routed to the market while small or losing clients will not. This way the broker profits twice: once by clients’ losses and another by not losing money to successful traders (of course this never works 100% but it does most of the time).
This way the STP broker’s commission comes from two sources: unsuccessful clients’ losses and commission arbitrage on routed orders – when you trade at 2 pips with this broker for example, it routes your orders to another broker or the inter-banking market thus making 1 pip without assuming any risk.
This model is also responsible for all the re-quotes and order rejections. When you open a large order the broker routes it to the market, but the prices there might have already changed (the market does move very fast sometimes) – so the broker is faced with two options: either rejecting the order asking for you to adjust prices or completing the order by taking the risk that it might end up a successful trade meaning the broker will have to pay you from its pockets (Nostro).
So how do you as a trader distinguish between a MM, STP or ECN broker?
Well, it’s easy to recognize an ECN broker: the minimal capital requirements and the ability to see not only the bid and ask prices but also the amounts on either side of the price (Depth Levels) is the most notable ECN feature.
Can you tell the difference between MM and STP? Probably not.
It’s very hard to distinguish between these two and most of the time the brokers use a hybrid model anyway. As I mentioned in the first part: most of US and UK regulated brokers will not ‘trade against you’ in the way that will make you lose money, not because they are moral but because this might cause problems with their license.
So to sum this up:
Market Maker – is the market, profits from losses and spread, typically never re-quotes
STP – sometimes is the market, profits either from losses or spread or both, re-quotes
ECN – route to the actual market, requires big accounts, plenty of re-quotes

Michael

 

[miko432]

Saxo Bank makes another blunder, this time makes a move into Japan

I’m sure that when a book on retail Forex will be written a few years from now one of the biggest flops mentioned will be Saxo Bank.

Saxo Bank, as I have extensively covered and claimed in the past, should have become a leading Forex brokerage company a long time ago. Instead Saxo reached the top and then just stagnated for years and years without making any real progress. Saxo should have been much more aggressive by buying other brokers and establishing new subsidiaries years ago. However, I guess the executives were satisfied with their ostensibly leading position in the market and made little or no use of the large investment they received from a Portuguese bank.

Saxo Bank has finally woken up, but it might be too late. Saxo is chasing after FXCM’s tail wherever it goes - first in Dubai then in Asia, AND losing ground in Western Europe which should have been its stronghold plain and simple.

A few days ago Saxo announced the acquisition of a Japanese Forex broker and establishment of Forex service to Japanese clients. This move is nothing shy of a complete fiasco. It resembles the last minute move Alpari’s made, creating a US subsidiary. This move came few weeks or months before the new NFA requirements were announced which made it virtually impossible to operate a Forex brokerage in the US.

Alpari is surely sorry for the hasty step it made and Saxo will be sorry for its Japanese move sooner rather than later too.
First of all the Japanese market is already crowded with FXCM, Gain and IG Index controlling a pretty large portion of the market, but that’s not enough reason by itself. What’s making this move really disastrous is the new upcoming Japanese regulation which looks to reduce Forex leverage to 1:50 in the first step and then 1:25. Does this remind you of some other unbalanced regulator?

Michael

 

[miko432]

Estimated daily retail forex trading volume was $128 billion

Every month I’ll be preparing a report with a volume survey of as many retail forex brokers as possible. The report I released in May estimated the total daily volume at over $105B. June’s report estimates it at $128B, the increase is mainly due to several more brokers being added to the list.

The largest retail Forex broker, as you probably already know, is FXCM with Oanda coming in second. It looks like FXCM’s world Forex domination is all but complete and all that is left for others is the competition for 2nd and 3rd places. Good luck Oanda, Gaitame, Gain, Saxo and GFT.

Several major differences from the previous survey: Oanda was upgraded to reflect its volume more accurately (though their exact numbers are very hard to find), Gaitame the leading Japanese firm was added and FXOpen a leader in Middle East and Asia was added as well. Avafx was downgraded to reflect its known volume and Easy Forex was added.

The numbers were officially, and to some extent unofficially, released by the brokers themselves or are educated estimations based on industry rumored figures:

Michael

 

[miko432]

FXOpen’s MT4 ECN is much better than originally thought

A few weeks ago I covered the FXOpen’s ECN platform and was a bit skeptical because I had experienced problems with my Windows XP software (unrelated) and because I questioned who the liquidity providers were for execution.

A few days ago I received a personal tour and had a chance to review the company’s technology as well to see how the liquidity is provided (can’t say who the liquidity provider is for now, but it’s big, very big).

Being the skeptic that I am, it takes me a while to getting fully convinced that what I’m seeing is the next step in Forex trading evolution. But this time it might be the case.
Instead of making brokers waste time and money on its useless regulation requirements, the NFA should have made the most important step of them all: requiring all brokers to shift to ECN trading which would have solved any and all transparency issues with Forex trading.

As I explained in one of my posts earlier: ECN trading is basically a Forex marketplace where Buyers and Sellers can enter orders and trade with each other rather than trading with their brokerage firm or being routed to the market.

And now back to FXOpen’s platform.

FXOpen managed to utilize MT4 and to display an ECN feed and market depth details, while executing orders according to this feed directly on the market. Unlike most brokers, this totally removes the dealing desk. This must have cost a lot of time and money, and is definitely a Forex industry revolution.
Currently, when you trade MT4, the feed you see is what you get and most of the time you never know what is behind the displayed quotes. With FXOpen’s ECN platform you now get to see exactly what is behind the currency pair’s Bid and Ask: you actually get to see the five best Bid and five best Ask orders in the market, real time.

Michael

 

[miko432]

Traders: NFA makes fun of you. And of itself

NFA’s efforts to ridicule the mandate it has been given by the CFTC have finally reached the point where it simply becomes absurd. It appears that the agency has no idea what it should be doing or what the results of its actions are.

If I wasn’t sure that the NFA could care less about whether its requirements are what the market really needs or whether it harms the traders more than it benefits them, now I’ve become confident that the NFA has completely lost it. They have absolutely no idea what forex is or what its role as a regulator should be.

In another chapter that will surely be written in a book about one absurd US regulatory agency, it will say that not only the NFA imposed a completely nonsensical requirement (FIFO) but that it also had no idea how to make sure it was implemented correctly, moreover it had no idea that basic knowledge of forex is required in order to regulate forex.

NFA has sent out a raging email to US brokers complaining that they have disseminated ‘false’ and ‘misleading’ information about its recent requirements. DOH! What did you expect would happen? The only thing the NFA did to make sure brokers knew what the hell they wanted was to send a laconic document explaining the reasons for the decision. This ridiculous document had absolutely no explanation of how this should be implemented and had absolutely no understanding that demanding FIFO compliance would result in Stop and Limit Orders being severely affected as well?
Wouldn’t it have been much easier to gather all the brokers and explain to them that you would like to stop the hedging practices and ask them what would be the smartest way to do that? Or maybe you should have sent an email telling the brokers to stop accepting hedging orders instead of inventing the first in first out requirement which seems nice on paper but in fact caused a software fiasco?

This is the email the NFA sent to US brokers. Read it yourself and cry or laugh or whatever you think is appropriate:

Communication with the Public Relating to NFA Compliance Rule 2-43
NFA has become aware of false or misleading blog entries and e-mails to customers stating or implying that NFA has banned stop orders and limit orders. As you know, Compliance Rule 2-43(b) does not prohibit either type of order but simply requires that executed stops and offsetting limit orders be applied to the oldest open position or, at the customer’s direction, to the oldest open same-size position.
Please ensure that neither your employees nor any firms or individuals that introduce forex business to or manage forex accounts carried by your firm are spreading misleading information about the effect of Compliance Rule 2-43. As you are aware, under NFA Compliance Rule 2-36(d), an FDM is subject to discipline for the activities of persons who solicit, introduce, or manage customer accounts. Therefore, NFA will not hesitate to file an enforcement action against any FDM with an introducer or account manager that initiates, spreads, or condones statements that convey false information.

Michael

 

[TradeProvider]

Re: CMS is enroute to become one of the largest brokers, and ponders a UK subsidiary

Michael,

CMS has opened a UK office to bring their services to the Eurozone and time zones outside US hours. We have moved away from any market maker type systems and have embraced the ECN/STP model. This means clients can confidently trade with us and know we will be giving them the best bid/offer prices from the banks (we are a price aggregator) and DO NOT take any positions against the client.

In an email sent to its clients few days ago CMS celebrated its 10th anniversary as well as announcing a plan to open a UK office which doesn’t make any sense unless it will serve hedging clients efforts to escape the NFA’s reach.

All in all it seems CMS is on the right path to become one of the more dominant Forex brokers in the US due to its strong trading platform and millions of cool features that it offers. CMS must become much more aggressive in marketing and acquisitions just like FXCM in order to dominate the Forex market.

Michael

 

[nidayaqoob1230]

One thing I dont understand when currency trading.

take AUD/USD for example. If I say, go long 1m AUD/USD, that means I'm buying one million of AUD and selling 1,027,050 of Aussia dollars (assuming an exchange rate of 1.02639) - please correct me if this is wrong.

Why is it then, then the P&L is based on the settlement currency i.e. USD and not the quote currency i.e. AUD? I'm tryingto understand why its 100 units of the secon currency pair per 10 pip movement and not the quote/first currency.

Thanks