FXCM Discussion

This is a discussion on FXCM Discussion within the Forex Brokers forums, part of the Commercial category; Hi Everyone, I have created this thread to answer any questions about FXCM and forex trading. Please feel free to ...

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Old Mar 3, 2010, 4:05pm   #1
 
Jason Rogers's Avatar
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FXCM Discussion

Hi Everyone,

I have created this thread to answer any questions about FXCM and forex trading. Please feel free to post any questions and I will do my best to answer them. I cannot publicly discuss the details of any clients trading activity, so please privately message with regards to personal issues.

Kind Regards,

Jason Rogers
FXCM
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Old Mar 3, 2010, 4:07pm   #2
 
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Joined Jun 2009
Re: FXCM Discussion

Jason Rogers started this thread
Quote:
Originally Posted by TraderNumber7 View Post
No dealing desk on what FXCM calls its "Mini Account" since 2006, when FXCM has been in business - how long exactly? - is nothing to pound your chest about. At the same time, you never mentioned the so-called "Standard Account" or the 100K account. Is that No Dealing Desk execution, too - 100% of the time? Back-To-Back Off-Setting? Who are you kidding, here - me? You know perfectly well that if it were true STP then there are no such deals sub-lot deals, don't you. Interbank does not deal in partial lots, Jason. So, this brings us back full circle to the question of whether or not your firm "Intervenes" at the 100K (Standard Lot) level?
Hi TN7,

Your information here is incorrect. The banks providing liquidity to FXCM take mini lots of 10k in addition to 100k standard lots. Your statement may have been correct in the early 2000’s when you traded with FXCM, but this is no longer true. Technology progresses.

I’m happy to announce that we are also preparing to offer No Dealing Desk execution for our micro clients as well. When we first launched FXCM Micro, we planned to offer No Dealing Desk execution. However, the banks would not stream prices in micro lots. This was simply unheard of in the foreign exchange industry. Our FXCM Micro traders have since placed over 30 million trades totaling 200 billion in notional volume, and the banks have changed their minds. Where there’s a will, there’s a way, and the banks have realized the opportunity in taking even these trades. As one of the largest forex brokers, the amount of volume we bring to the table allows us to negotiate this type of service to pass along to our traders.

Quote:
Let me ask you this, Jason, since Drew is not here right now; is there an inbound Pricing Algorithm that drives any of the outbound Bid/Ask prices shown on the FXCM Trading Platform, that in anyway shape or form, alters Interbank Bid/Ask levels from Liquidity providers that make up the pool FXCM uses to satisfy order requests from its customers? Yes, or no.



If the "Best Bid Engine" is not manipulating the prices your customers see in their FXCM Trading Platform (the one I know nothing about) then what does the word "Manipulation" really mean, Jason?
Do you think the best bid and offer price magically sorts itself out on its own and then displays this information on the platform? Of course not, the pricing engine looks at the 10 bid and ask prices being quoted, and then the best bid/ask price is streamed onto the platform.

Quick example. Let’s suppose there are 2 banks (to keep things simple) each providing liquidity in GBP/USD.

Bank A is quoting 1.5043 bid and 1.5045 ask
Bank B is quoting 1.5042 bid and 1.5044 ask

So the best bid/offer engine sees two prices being quoted on each side (bid and ask). It then identifies the best price out of the selection which is 1.50430 bid from Bank A and 1.50440 from Bank B. The spread is 1 pip. At this point, a fixed pip mark-up is added to the bid/ask and streamed onto the platform. Assuming there is a 1 pip mark-up on GBP/USD, the final pricing you see on the platform would be 1.5042/1.5045 for a 3 pip spread on GBP/USD. FXCM is compensated for it’s services through a mark-up on the spread as explained on the website and what you pointed out. This is the fee paid for using FXCM’s services.

On the FX Trading Station II, this entire process in the pricing engine occurrs with 10 separate banks providing liquidity. I’ll go into further detail about the off-setting process of No Dealing Desk execution further below.

Quote:
Here is another question, Jason - if I were an FXCM customer having just placed an order with FXCM through the FXCM Trading Platform, does the platform send my order Straight Through to Interbank for direct counter-party off-setting, without my order being constrained, amalgamated and/or consolidated with ANY other FXCM order from ANY other FXCM customer and/or ANY other block of capital originating from within FXCM itself?
I’ll give a detailed example of how NDD execution works on the backend.

Suppose you want to buy GBP/USD and the current market price you see on the platform is 1.5045 and assume that the mark-up on the buy price is 1 pip. Therefore bank A is offering to sell GBP/USD at the price 1.5044 and FXCM is charging and additional pip so you see the price 1.5045 on the platform.

When you press the buy button, the order is sent to FXCM, and FXCM routes the order to Bank A to execute a trade at the price 1.5044. If liquidity is still available at that price the trade is executed. Confirmation is sent back to the platform and you see an open long (buy) position at the price 1.5045. The bank has a short position at the price 1.5044 and FXCM has made a pip on the trade.

If your trade can’t be executed with Bank A at the price you clicked on, then one of two things can happen: slippage or trade rejection (depending on the type of order submitted). Let’s assume this is an At Best market order which will be filled at the best price available. If Bank A sends back a message that the order can’t be filled at the price 1.5044, then the order will be executed at the next best available price. Bank B is offering to sell to you at the price 1.5045. The order is sent to Bank B and executed at the price 1.5045. You have a long position at 1.5046 (due to the 1 pip mark-up), Bank B has a short position at the price 1.5045, and FXCM made 1 pip on the trade.

Regardless of the amount you make or lose on the trade, FXCM is left with 1 pip. Your profit or loss is not FXCM’s loss or gain since we are not acting as a market maker on No Dealing Desk execution. Neither is slippage an additional gain for FXCM since the same pip amount is paid.

Quote:
No dealing desk on what FXCM calls its "Mini Account" since 2006, when FXCM has been in business - how long exactly? - is nothing to pound your chest about. At the same time, you never mentioned the so-called "Standard Account" or the 100K account. Is that No Dealing Desk execution, too - 100% of the time? Back-To-Back Off-Setting?
If checking the website, one would discover there is no separation between mini and standard accounts. This is why I didn’t mention standard vs. Mini accounts. Since the banks will accept both mini and stanard lots on No Dealing Desk execution, there’s no need to separate the two accounts types. You can trade either lot size and combinations of the two from the same account. I imagine the same will occurr with micro lots once NDD goes into effect.

Quote:
When you are done with that, we can also talk about the other statement on the FXCM website called: "No Entry-Order Restrictions," where at the bottom of the same webpage in the finer print it gets revealed that: "FXCM Trading Station allows for order sizes up to $50 Million per trade" as the maximum Order Entry. Well excuse me! Precisely what does "No Entry-Order Restrictions" mean if I can't execute via single-click on a lousy $50MM notional trade? That is a rather small trade size for some of us, Jason.
It says no entry order restrictions because you can place it within 1 pip of the forex market. Here’s the exact quote from the FXCM UK website “Place Entry Orders and Stops/Limits within 1 pip of the forex market. Any order whether it be market order or entry order has a restriction of 50 million notional per trade. Why is this the case? There is not unlimited liquidity at each price. If you place an order for 50 million, chances are you will be slipped. Just take a look at the depth of market on the Active Trader platform, and it will give you an idea. Banks are managing their risk as well by charging a higher price for trading as they take on the risk of a larger trading size. Most profesional traders will instead scale into their positions even if it’s 10 million at a time so as not to show their entire “hand” on what they are doing to the market.

Restrictions on stops, limits, and pending entry orders often occur with market makers or dealing desk brokers. This occurs because bank spreads are variable, while dealing desk market makers are normally fixed. Therefore, if a bank provides a 5 pip spread and the dealing desk broker is guaranteeing a 2 pip spread, the dealing desk broker will lose 3 pips on each trade. To mitigate this risk, restrictions on orders may be imposed. If the dealing desk broker chooses a restriction of 5 pips then they have mitigated their risk to 7 pips (5 pip restriction + 2 pip spread). Unless bank spreads widen past 7 pips, the dealing desk broker is protected. During news events and volatile markets, bank spreads can easily widen beyond this amount, which is why dealing desk brokers may heighten restrictions when the market is likely to move.

Quote:
Now, holding a Trading Conference in New York City, would even bring me out to the party, Jason. That is precisely the kind of environment where serious minded Traders go to hold such conventions. Certainly, not Vegas. This is a serious business to some of us. Many of us don't treat our Trading business as a gambling venture - though some do.
I completely respect your opinion. Our decisions on the expo location are made on accessibility for our traders.

-Jason


PS. This response is a reply to this post http://www.trade2win.com/boards/fore...ml#post1069828
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Old Mar 5, 2010, 5:54am   #3
 
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Re: FXCM Discussion

Quote:
Originally Posted by Jason Rogers View Post
Your information here is incorrect. The banks providing liquidity to FXCM take mini lots of 10k in addition to 100k standard lots. Your statement may have been correct in the early 2000s when you traded with FXCM, but this is no longer true. Technology progresses.
This has nothing to do with "technology," Jason. I said that Interbank does not deal in fractional lots and the don't - nothing has change there.

Are you saying that FXCM offers Straight Through Processing to Interbank for its customers? We already know that's incorrect. Why? Because I've already pointed out that FXCM manipulates the inbound Bid/Ask to fuel its revenue model. FXCM makes revenues by artificially widening the Bid/Ask to install its "commission like" fee. Yet, FXCM Advertises that it does not charge a commission. Not only is this confusing to the Newbie, it is flat out incorrect in at least two (2) dimensions:

a) Cost Structure of the Trade to the Newbie.

b) Whether or not the Newbie is actually dealing direct with Interbank through its Intermediary via STP.

In the case of FXCM, neither can be true, as I will demonstrate later in this thread with some simple math and some rather interesting facts about the market players and what their turn-over is in this business.


Quote:
Originally Posted by Jason Rogers View Post
Im happy to announce that we are also preparing to offer No Dealing Desk execution for our micro clients as well....
The reason that it was and is still unheard of in the Forex, is that the real Interbank System, composed of some of the world's largest banks, model funds and commercial financial institutions (just to name a few), have never dealt in fractional lots - period. This entire concept of fractional lot transactions, is based entirely on the fact that "Brokers" are manipulating incoming prices seen by their Customers on their respective trading platforms (FXCM included) to include a "mark-up" and to business proposition for what had not been in existence just 18 years go, called the Retail Forex Spot Market/Industry.

You've found a way to carve out a niche and execute a business case. I've got no problem with that. What I have a problem with, is the fact that you've been telling people for years that FXCM carries its Customer direct to Interbank, which is totally incorrect. There is no "Mini Lot Notional Value" concept and/or language being used between the institutions that make up Interbank and that deal with each other daily. The primarily deal in fractions of Yards not Mini Lots.

Firms like FXCM and others, take multiple positions from various customers and push them through an aggregation algorithm that consolidates desperate customer positions into singular blocks that can be transacted in the real Interbank market. If you don't do this or can't do this, then you are forced to either build your own proprietary pool of liquidity and then market the heck out of it as "Bank" driven, or you must reside your firm to being a PayPal Bucket House and exploit other marketing niches such as the Mini and Micro Lot worlds, where the people you engage don't typically have a clue about what they are doing and/or why they are doing it.

This means that BEFORE any individual FXCM customer gets off-set anywhere near Interbank, FXCM must either 'batch' the trade into an aggregate and THEN pass it along as a block [if calculations permit], or trade against it as the in-house counter to the customers position. That Trader has no idea that their trade has been "pooled," "aggregated" and/or "transformed" into a larger block, with their original trade often times never seeing the light of day at the actual Interbank level on an individual basis and I can think of one of your current ASP customers right now who does this very thing to their own Customer transactions.

Now, this "Mini Lot" concept that FXCM offers, is made possible not because Interbank deals in "Mini Lots," but because FXCM "might have" worked a deal with its proprietary pool members, to accept smaller fractional sizes. But, FXCM does not make a market for every single player in Interbank, not even close. FXCM has a proprietary list of liquidity providers under its own platform and many of them are NOT large scale Interbank players, while some, I am sure, might be.

Do you think that I can enter a trade on Deutsche Bank's Autobahn FX platform, or the UBS FX Trade platform, or the Barclays BARX platform, or the HSBCnet FX Network platform, or the Standard Chartered CT platform; in fractional, so-called "Mini Lots?" To the contrary, FXCM and the rest of the firms like it, have put together a proprietary pricing pool, that in no way should be confused by the Newbie as having much to do with Interbank pricing depth and breadth. FXCM has put together and maintains a Retail FX Price Pool. That is not - I repeat - not truly representative of Interbank in any real depth or dimension.

Of course, simply posting the full names of the "Banks" that FXCM uses, would be a good start to ending this debate. But, how many times has that request been completely ignored.


Quote:
Originally Posted by Jason Rogers View Post
Our FXCM Micro traders have since placed over 30 million trades totaling 200 billion in notional volume,
Hello? That's approximately 0.00015 trades per notional dollar. Do you see anything wrong with this picture?


Quote:
Originally Posted by Jason Rogers View Post
...and the banks have changed their minds. Where theres a will, theres a way, and the banks have realized the opportunity in taking even these trades. As one of the largest forex brokers, the amount of volume we bring to the table allows us to negotiate this type of service to pass along to our traders.
Ok, fine - but stop tell the Newbie that you are offering STP to Interbank, that's all! Stop telling them this because it is not true. You take positions in-house against your customers and/or you manipulate the Bid/Ask of your proprietary liquidity pool, before you extract your "commission like" cut and pass their trade on for proprietary off-setting within your proprietary liquidity pool. But, to continue to author the story as if FXCM was just like UBS or Standard Chartered Bank, is simply not correct and it confusing the heck out of the Newbie trying to wrap their head around this subject for the first time.


Quote:
Originally Posted by Jason Rogers View Post
Do you think the best bid and offer price magically sorts itself out on its own and then displays this information on the platform? Of course not, the pricing engine looks at the 10 bid and ask prices being quoted, and then the best bid/ask price is streamed onto the platform.
Well, sure - after you "mark-up" the spread to collect your "acts like a commission" cut, while never once marketing FXCM as a commission based FX Broker. That's my point, Jason. You don't offer Level and Transparent type pricing with market depth and market breadth that shows the FXCM customer where the "best Bid" price is located along with its real volume. This is what a Broker attempting to offer real clarity would offer its Customers, IMO.


Quote:
Originally Posted by Jason Rogers View Post
Assuming there is a 1 pip mark-up on GBP/USD, the final pricing you see on the platform would be 1.5042/1.5045 for a 3 pip spread on GBP/USD. FXCM is compensated for its services through a mark-up on the spread as explained on the website and what you pointed out. This is the fee paid for using FXCMs services.
Yeah, well - I don't buy the "Fixed Pip" argument - not for one millisecond. Where is it fixed? How does FXCM determine what the "Fix" should be? And, define "Fixed" anyway, Jason? I mean, is it fixed for "today" but not "tomorrow?" Is it fixed for "this week" but not "next week?" Is it fixed for "this hour" but not during the news driven hour? Who fixes the "mark-up" at FXCM, exactly?

Fee for Service? Sure, I've got no problem at all with FXCM making an honest buck. My problem comes when you Broker's widen the spread near the Stop on purpose, just so the Stop itself gets triggered when you took the other side of the trade. Look, I'm not one of these Stop Hunting Theorists. That makes no sense to me. However, I do believe in Stop Trigger Approximations (my term, don't bother looking it up) by Brokers who see a clustering of Stops at or near a specific location/level, and then who use their so-called "Trade Management" Add-On (server side model) to "Widen The Spread" at or near the "cluster" to take-out what the actual Interbank market NEVER ticked.

Now, FXCM might not be a "Stop Hunter," but are you telling me that FXCM is not a Stop Trigger Approximation artist in disguise? You can deny it if you want - I would not be surprised if you did. I'm just here to let the Newbies in on what I think after many years in this business - that's all.


Quote:
Originally Posted by Jason Rogers View Post
On the FX Trading Station II, this entire process in the pricing engine occurrs with 10 separate banks providing liquidity....
Can you name these "Banks" so I can verify their Charter and their existence in the BIS triennial report?


Quote:
Originally Posted by Jason Rogers View Post
Suppose you want to buy GBP/USD and the current market price you see on the platform is 1.5045 and assume that the mark-up on the buy price is 1 pip.....
Why not simply code the platform to show the Trader what each of your proprietary liquidity providers (you call a "Bank") is offering and THEN show the FXCM "mark-up/commission" next to it? That would offer the Trader a much better idea of where the broader market might be headed, what the real cost of the trade looks like and depth and breadth confirmation prior to execution. All things any good Trader should know and understand prior to execution. A real trading platform worth its weight in salt would offer this, or at least something approximating this with no questions asked.


Quote:
Originally Posted by Jason Rogers View Post
When you press the buy button, the order is sent to FXCM, and FXCM routes the order to Bank A to execute a trade at the price 1.5044.
This is incorrect as far as I am concerned, not to mention very deceptive for the Newbie.

a) How does the Newbie know that "Bank A" still offers the best price at time of execution, if the Trader can't see depth, breadth and volume offered by the proprietary FXCM pool? The Trader, will have to assume and accept that the FXCM algorithm is working in their (the Trader's) best interest and accurately providing "Best Bid."

b) Is that a realistic assumption that Trader's should be asked to make in this seriously flawed FX Broker environment where scams are the rule rather than the exception?

c) Why not simply code the platform to SHOW the Trader what "Best Bid" looks like and WHERE "Best Bid" originates? That would demonstrate real transparency on the part of FXCM, if it would do that.

d) Since you argue (above) that FXCM offers STP to Interbank, I will ask you yet again, how is it possible for FXCM to pass through fractional lots to a system that's been around far longer than FXCM and that does not deal in fractional lot sizing? Are you possibly confusing Interbank with FXCM's Proprietary Pool of private players?

I'm sorry, but 10 banks does not make-up even the tiniest of majority of the Interbank pool of liquidity. So when you say "Best Bid" - how does FXCM have the slightest clue what "Best Bid" truly looks like juxtaposed against the real Interbank global network?


Quote:
Originally Posted by Jason Rogers View Post
Regardless of the amount you make or lose on the trade, FXCM is left with 1 pip. Your profit or loss is not FXCMs loss or gain since we are not acting as a market maker on No Dealing Desk execution. Neither is slippage an additional gain for FXCM since the same pip amount is paid.
Sure, if it were true No Dealing Desk AND FXCM were offering STP to the actual Interbank market - but that is not the case because 10 Banks is not full Interbank spectrum - not even close. Which, of course, continues to beg the question that I ask above regarding Proprietary Pools -vs- Real Full Spectrum Interbank Liquidity.


Quote:
Originally Posted by Jason Rogers View Post
If checking the website, one would discover there is no separation between mini and standard accounts.....
Not if the deal is being done at true Interbank levels. Again, you keep saying "the Banks will" this and "the Banks will" that. The entities that you call "Banks" have yet to be revealed either on the FXCM website (like some of your competition does) nor inside this thread.

Again, Newbies need to fully understand the differential between a Market Makers Proprietary List of Business Partners (some of which will be banks and some will not) -vs- the real Interbank market, which is Global in scope with a very high spectrum of variability in pricing and volume available.



Quote:
Originally Posted by Jason Rogers View Post
It says no entry order restrictions because you can place it within 1 pip of the forex market. Heres the exact quote from the FXCM UK website Place Entry Orders and Stops/Limits within 1 pip of the forex market. Any order whether it be market order or entry order has a restriction of 50 million notional per trade.
Then why does the Front page of the FXCM main website say that there is No Deal Size Limitation - period?


Quote:
Originally Posted by Jason Rogers View Post
Why is this the case? There is not unlimited liquidity at each price.
Oh, I see.

Jason, this was a $3.2 Trillion per day market in 2007, with a 3 year growth rate of approximately 69% and no end in sight for that rate of growth. It was projected to be over $5.4 Trillion per day at the end of 2010, by a very reputable source. So, let's do some fairly uncomplicated mathematics here, shall we.

Using $5 Trillion per day, $50 million yields a quotient of precisely 0.00001% of total daily notional turn-over. Now, before you go math guru on me, let me adjust this figure DOWN by saying that of course, not all $5 Trillion turn-over in FX is strictly pair/spot based transaction totals. Excluding swaps (because they represented more than half the growth rate between 2004 to 2007), outright forward contracts (which grew by 80% internally the same period), hedging activity, etc.; you are left with just spot, which grew by itself by 59% for the exact same period of 2004 to 2007, setting the stage for the 2010 expectations. Note that spot growth was greater from 2001 to 2004, than from 2004 to 2007. [I'm presenting all values in USD for ease of use.]

Let's move on to Banks - real Banks, Jason.

In 2007, the dispersion of FX turn-over with the Banks that make up the vast majority of real liquidity in the Interbank system, shows that the U.K., Hong Kong, Singapore and the United States, led the turn-over activity with 75% of the total turn-over being led by Banks from ten (10) different countries. Not merely "10 Banks" but 10 different countries. In 2007, the four most turned-over currencies were the: USD, EURO, JPY and the GBP with NZD, CAD, CHF, CNY and a few others picking up the rear.

The Daily turn-over by pair was as follows for 2007, Jason:

EURUSD = $840 BLN per day
USDJPY = $397 BLN per day
GBPUSD = $361 BLN per day
AUDUSD = $175 BLN per day
USDCHF = $143 BLN per day
USDCAD = $115 BLN per day

Excluding EURJPY, EURGBP and EURCHF (the Triple "A" Ball Club) whose grand total Daily turn-over for 2007 was a combined $188 BLN per day alone and the remaining USD/Other and EUR/Other whose Daily grand total turn-over was a "tiny" $684 BLN per day, you are left with a boiled down representation of mainstream FX Daily turn-over of a very "small" $2.031 Trillion PER DAY.

Now, all joking aside about small numbers. If you scale that number up by approximately 59% growth [projected], you end up with between $2.031 to $3.229 Trillion PER DAY being traded in FX Spot ONLY between 2007 and the projected 2010 event horizon.

Now, can you explain to us exactly WHY FXCM, with its "Banks" offering the best liquidity anywhere in the Retail FX business food chain, has decided to classify a lousy $50 million notional, as something that would most likely trigger a "slip and fall" merely because it was clicked into the market at one time? Given the scope of the numbers just put up here, does this make any sense to you?

$50MM is approximately 0.000024% of $2.031 Trillion. So, you are saying that FXCM's "deep pool of liquidity" is not capable of a singular transaction that nets less than a fraction of a fraction of a fraction of 1% of the total spot market? And, that if you attempted to enter the market at one time with such massive sums, it would immediately trigger not "Apocalypse Now" - but Apocalypse Right Now among the "Banks" in the FXCM pool?

Is this proof positive that FXCM is mostly a Bucket Shop and not a real STP Interbank Intermediary? Have I not just driven the last nail into the coffin of FXCM being a true STP "FX Broker?" What's the other logical alternative explanation for why FXCM considers $50MM to be Apocalyptic and virtually guaranteed to trigger a "slip and fall" routine?


Quote:
Originally Posted by Jason Rogers View Post
If you place an order for 50 million, chances are you will be slipped.
Yes, indeed. Slipped right into no execution land. And, WHY? Because FXCM can't handle 0.000025% of the total spot market? Is that a justification for getting "slipped," or an excuse for getting "slipped?" Or, maybe it is just more proof that when you trade with FXCM, you can't possibly be trading the real Interbank market to anywhere near its depth, breadth and/or liquidity.


Quote:
Originally Posted by Jason Rogers View Post
Most profesional traders will instead scale into their positions even if its 10 million at a time so as not to show their entire hand on what they are doing to the market.
Professional Traders. Are you certain about that?

We are not talking about Cost Basis (equity) here. The numbers that I refer to above are taken straight from BIS and they represent notional value in USD not individual transaction Cost Basis to make the deal. So, "scaling" a lousy $10MM notional is definitely not the same thing as scaling $10MM Cost Basis with its associated leverage.

Tell me, who would possibly be so overly concerned with somebody coming to market with a small $50MM notional at one click, other than Bucket Shops and Brokers taking the other side of your trade?

Do you think Citibank cares about my $50MM notional coming to market in one click? These guys are tossing around billions per day. So, how is it that FXCM, with all of its glorious "liquidity" can't manage a drop in the proverbial "Bucket" with a singular click - unless it had to balance its own books with the opposing risk involved in the trade itself? Sooner or later, you were going to walk right into this trap.


Quote:
Originally Posted by Jason Rogers View Post
Restrictions on stops, limits, and pending entry orders often occur with market makers or dealing desk brokers. This occurs because bank spreads are variable, while dealing desk market makers are normally fixed. Therefore, if a bank provides a 5 pip spread and the dealing desk broker is guaranteeing a 2 pip spread, the dealing desk broker will lose 3 pips on each trade. To mitigate this risk, restrictions on orders may be imposed.
Which is some of the finest nonsequitur reposition that I've seen from you yet in this thread, as it has absolutely nothing to do with the mathematics that I just put before you and the viewers of this thread.


Quote:
Originally Posted by Jason Rogers View Post
If the dealing desk broker chooses a restriction of 5 pips then they have mitigated their risk to 7 pips (5 pip restriction + 2 pip spread). Unless bank spreads widen past 7 pips, the dealing desk broker is protected. During news events and volatile markets, bank spreads can easily widen beyond this amount, which is why dealing desk brokers may heighten restrictions when the market is likely to move.
Translation: Bucket Shops that trade against you, will widen the spread such that it prices the Trader right out the door, "when the market is likely to move."


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Originally Posted by Jason Rogers View Post
I completely respect your opinion. Our decisions on the expo location are made on accessibility for our traders.
I still prefer the Broadmoor over the Vegas strip for serious minded business. And, I respect the fact that at least you opened up this thread and was willing to take some criticism on behalf of your employer. However, I think that I have sufficiently proven beyond a shadow of a doubt, that FXCM is a Bucket Shop. A gloriously decorated Bucket Shop, but a Bucket Shop nonetheless.

Thank you for dropping your quarter in the machine and selecting my favorite tune - The Forex! I look forward to your many replies as this is getting really good!
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Old Mar 5, 2010, 6:03pm   #4
 
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Re: FXCM Discussion

Jason Rogers started this thread
Quote:
Originally Posted by TraderNumber7 View Post
Are you saying that FXCM offers Straight Through Processing to Interbank for its customers? We already know that's incorrect. Why? Because I've already pointed out that FXCM manipulates the inbound Bid/Ask to fuel its revenue model. FXCM makes revenues by artificially widening the Bid/Ask to install its "commission like" fee. Yet, FXCM Advertises that it does not charge a commission. Not only is this confusing to the Newbie, it is flat out incorrect in at least two (2) dimensions:
Hi TN7,

I’m saying what was explained in the previous detailed post and example. FXCM’s platform receives liquidity from 10 banks. As someone places a trade, each order is individually executed back to back through an affiliate with one of those banks. The orders are not aggregated as you incorrectly described. (More thoughts further below in my post on why I think your use of the term "Interbank" as a noun is misleading, as compared to the interbank market which is not a centralized location or platform with which you can offset trades).

On any page of FXCM’s website where it says there are no commissions, it also states that FXCM is compensated through the spread. And it also states there is a mark-up no the spread which is how FXCM is compensated http://www.fxcm.co.uk/execution-advantage.jsp.

Quote:
Do you think that I can enter a trade on Deutsche Bank's Autobahn FX platform, or the UBS FX Trade platform, or the Barclays BARX platform, or the HSBCnet FX Network platform, or the Standard Chartered CT platform; in fractional, so-called "Mini Lots?"
Each bank or institution can setup minimum trade sizes or balance amounts on their own platform whether it be EBS, Reuters, Autobahn, etc. These aren’t platform for the average retail traders. If FXCM wanted to set a minimum trade size of 1 million per order for traders to execute via NDD, we could as well. But our platform doesn’t restrict this. We have agreements with each of the banks individually on the lot sizes they will accept, liquidity, and spreads offered. That is how we are able to offer No Dealing Desk (or STP if you may) execution on lot sizes as small as mini lots and soon to be available on micro lots as well. You reference “the Interbank” as though it is a specific platform or centralized exchange where the rules are setup for minimum trade size and that’s final. If you’re trading through a specific platform that requires this, then I agree with you. However, we deal on an individual basis with the banks in the interbank market to provide liquidity on the platform.

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Ok, fine - but stop tell the Newbie that you are offering STP to Interbank, that's all! Stop telling them this because it is not true. You take positions in-house against your customers and/or you manipulate the Bid/Ask of your proprietary liquidity pool, before you extract your "commission like" cut and pass their trade on for proprietary off-setting within your proprietary liquidity pool.
No where do we say the trades are going to “Interbank” because this is not a centralized market and the interbank market is a collection or network of banks. Neither have I used it in my explanation because it’s not a centralized location or platform. Out of the banks providing markets FXCM deals with 10 banks which provide liquidity for our NDD execution. And your statement that FXCM takes positions in-house against customers is not true for NDD execution. On NDD, whether a trade profits or loses does not have an impact on our bottom line. Please see previous post again for detailed explanation on step by step how NDD execution works and how FXCM is compensated.

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Can you name these "Banks" so I can verify their Charter and their existence in the BIS triennial report?
Personally I think it’s a good suggestion and I look forward to the time when it happens. At the moment, non-disclosure agreements prevent us from doing so. Until then, if you would like to see the liquidity provided at each price point, I would suggest taking a look at the Active Trader platform. It has level II type depth of market for you to see the total amount of liquidity being provided by specific banks at specific price points quoted on the FXCM Active Trader platform.

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Now, can you explain to us exactly WHY FXCM, with its "Banks" offering the best liquidity anywhere in the Retail FXbusiness food chain, has decided to classify a lousy $50 million notional, as something that would most likely trigger a "slip and fall" merely because it was clicked into the market at one time? Given the scope of the numbers just put up here, does this make any sense to you?
TN7, your post leads one to believe that the “Interbank” is somewhere you can open an account and automatically gain access to $2.9 trillion a day in notional volume. This centralized location doesn’t exist. I would agree with you that a large amount of volume is transacted on platforms where banks trade with each other excslusively or on other platforms where you have to have starting amounts in the millions and minimum trade sizes above 100k. However, those same banks also provide liquidity to additional platforms such as FXCM’s FX Trading Station II. The market is decentralized which means the banks aren’t providing liquidity through one exclusive location or platform restricting minimum trade size. Therefore FXCM can make exclusive arrangements. FXCM’s No Dealing Desk execution enables you to have your trades, even 10k mini lots, offset against multiple banks rather than trading directly against your broker.

No Dealing Desk executions eliminates the conflict of interest caused when you trade directly with a market maker taking the opposite side of your position. When trading with a market maker, there’s the potential for the broker to profit directly from your losing trades which means it’s in your brokers best interest for you to lose money.

No Dealing Desk execution offsets each trade directly with a bank or financial institution eliminating this conflict of interest. Instead revenue on FXCM’s NDD execution is driven by volume and not client losses. Each time a trade is placed, we earn a mark-up through the spread. The more you trade, the more mark-ups we make. If you wish to call it a commission so be it; however, no additional commission is charged beyond the spread as you may have in other markets. Our cost is incorporated into the spread (Note: the active trader setup provides reduced spreads with a commission instead).

-Jason

Last edited by Jason Rogers; Mar 5, 2010 at 6:09pm.
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Old Mar 6, 2010, 7:46am   #5
 
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Re: FXCM Discussion

Quote:
Originally Posted by Jason Rogers View Post
Hi TN7,

I’m saying what was explained in the previous detailed post and example. FXCM’s platform receives liquidity from 10 banks.
Good Evening Jason!

You keep referring readers to the United Kingdom. FXCM is not based in the United Kingdom. FXCM is based in the United States and subject to CFTC rules and regulations.

Try this website: http://www.fxcm.com. Go look at the marketing copy and read it carefully. "No Dealing Desk Means No Dealer Intervention." No Entry Order Restrictions." "No Conflict of Interest Between You and FXCM - We Want Profitable Traders!" Then read the tiny print Daggers and Bullet Points at the bottom of the site.

This is ALL deceptive Marketing no matter how much you attempt to nonsequitur your way out of this. And, nobody understanding anything about this business is in agreement to the contrary.


Quote:
Originally Posted by Jason Rogers View Post
Each bank or institution can setup minimum trade sizes or balance amounts on their own platform whether it be EBS, Reuters, Autobahn, etc. These aren’t platform for the average retail traders.
Well, no kidding (lol). Tell me, do you think these Banks with FX trading platforms have a reason, or no reason at all, for not allowing fractional lots in the form of "Mini" and/or "Micro" on to their systems?


Quote:
Originally Posted by Jason Rogers View Post
If FXCM wanted to set a minimum trade size of 1 million per order for traders to execute via NDD, we could as well.
No FXCM can't - and do you want to know why?

At $1MM notional, all it would take is 50 traders entering the market at roughly the same time (what are the odds of that happening) to run the FXCM maximum size limitation through to its trigger. Another 50 traders (total 100) and you've got double the trouble of getting these people filled. Triple it, quadruple it, etc. Get the picture.

The little Dagger Fine Print text at the bottom of the www.fxcm.com website, telling people that there is a $50MM notional single order limit, is not there merely because the order comes from a singular trader. It is there for a completely different reason. Therefore, what's the difference is one (1) trader executes on $50MM notional at once -vs- 50 traders executing on $1MM notional, likewise, at once - on the exact same pair? Liquidity is not allocated per trader - there is no headcount given to liquidity, is there. The first traders to the party, get the fresh pumpkin spice - the rest get what others pick over. Otherwise, why place any limit at all on single click orders?

Now, I know what your answer is going to be before you give it, so let me do the honors for you.

You were about to say: 'Well, just because the platform has a $50MM notional limit per click, does not mean that our Banks don't can't handle more volume. It simply means that our Banks don't typically take the opposite side of positions larger than $50MM notional at one time. That's why you have to enter another Market or Entry Order, if you intend to get filled in excess of $50MM notional.'

How did I do? Pretty good? Yeah, well - here's the problem with that:

The Daily turn-over by pair was as follows for 2007, Jason:

Quote:
Originally Posted by TraderNumber7 View Post
EURUSD = $840 BLN per day
USDJPY = $397 BLN per day
GBPUSD = $361 BLN per day
AUDUSD = $175 BLN per day
USDCHF = $143 BLN per day
USDCAD = $115 BLN per day .....

Now, can you explain to us exactly WHY FXCM, with its "Banks" offering the best liquidity anywhere in the Retail FX business food chain, has decided to classify a lousy $50 million notional, as something that would most likely trigger a "slip and fall" merely because it was clicked into the market at one time? Given the scope of the numbers just put up here, does this make any sense to you?
now, until you answer this question, all else is nonsequitur reply. This was the central, most compelling dagger in the side of FXCM not being a Bucket Shop, by logical extension and you just blew right by it, like it never even existed.


Quote:
Originally Posted by Jason Rogers View Post
But our platform doesn’t restrict this. We have agreements with each of the banks individually on the lot sizes they will accept, liquidity, and spreads offered.
Well, if this is true, then it only helps to further explain why your limited notional value exists and why FXCM is closer to a Bucket Shop, than a true STP FX Intermediary. If you have such agreements, then by logical extension you must (mathematically) also have reduced liquidity per pair, at any given size and at all times.

By your own definition, some of your liquidity providers are offering less volume per pair, which only makes it harder to provide enough liquidity to handle singular trades in excess of $50MM notional. Yet, this still soars in the face of a market with more than $2.031 Trillion in combined turn-over (not including the projected increases for 2007 to 2010) in spot alone!

So, all you FX Brokers out there with notional value restrictions on single trades, are going to have to go back to the drawing board and derive a different excuse for why you are restricting single order trades down to $50MM notional, because claiming that 0.000025% of the total market, is somehow going to cause a "liquidity problem," stretches incredulity to say the least.

The fact of the matter is that $50MM notional is a tiny trade that in no way should automatically trigger the a "slip." FXCM boasts that it offers the most liquidity among all FX Brokers. Yet, it has difficult not slipping a tiny order of $50MM notional. That is logically unsustainable.


Quote:
Originally Posted by Jason Rogers View Post
You reference “the Interbank” as though it is a specific platform or centralized exchange where the rules are setup for minimum trade size and that’s final. If you’re trading through a specific platform that requires this, then I agree with you. However, we deal on an individual basis with the banks in the interbank market to provide liquidity on the platform.
I think I defined what I mean by Interbank with this earlier statement:

Quote:
Originally Posted by TraderNumber7 View Post
The reason that it was and is still unheard of in the Forex, is that the real Interbank System, composed of some of the world's largest banks, model funds and commercial financial institutions (just to name a few), have never dealt in fractional lots - period.
So, in that definition, I don't think I made a reference to a "central clearing." In fact, later in the post, I made clear that the Currency Market has no central clearing and no time & sales. I'll stick with my original definition.


Quote:
Originally Posted by Jason Rogers View Post
No where do we say the trades are going to “Interbank” because this is not a centralized market and the interbank market is a collection or network of banks.
You should have continued by saying: '...that provide the vast majority of Forex liquidity for turn-over by retail traders in retail currency transactions.' Then your statement would have been more complete. Claiming that the "Interbank is not a centralized market," does nothing to remove its existence from reality. Of course, it exists. In fact, you defeated your own statement at the end when you declared the Interbank to be a "network of banks." I think you might be splitting hairs here.

The overriding implication for any FX Intermediary to any prospective new customer (Newbie Trader), is that they (the FX Intermediary) will carry their customer's trade to the Interbank System. I mean, really. If that is not the overwhelming suggestion and understanding that traders have coming into to this business, then what else could be. For the Retail Trader, Interbank is synonymous with Forex.

However, historically, Interbank transactions excluded Retail turn-over and predominantly included Bank-to-Bank turn-over.[/b] In fact, if you read (and I strongly suggest that you do) the BIS report, you will not that these types of Bank-to-Bank transactions account for approximately 50% of all currency turn-over in 2004 and actually increased as a percentage in 2007.

However, for the majority of the Banks that make up the Interbank System, Interbank is indeed much more of a "noun" than you might think. Inside Banks (if you have ever worked in one) this term is often times used just like a "noun" between the Bank's various trading desks, or between one Bank branch and another, who might be engaged in trading with each other.


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Originally Posted by Jason Rogers View Post
Neither have I used it in my explanation because it’s not a centralized location or platform.
Well, maybe should have used it in your explanation, because FXCM most certainly uses the term "Interbank" the same way I do here (Paragraph 2, Sentence 3): http://support.fxcm.com/fxts/user-guide. It reads: Size and Sophistication dictate a Market Maker's access to Interbank prices.

Now, that was taken directly from the FXCM User Guide on your Web Portal. FXCM, clearly is telling its users by logical implication and extension that their orders are being taken to the Interbank System. Did you think I was just making this stuff up? I pulled it directly from the FXCM site. FXCM, does sell the notion, concept and the implication, but it does not deliver on the promise. How do we know? Because you can't fill an order that represents a lousy 0.000025% of the total Interbank Market. That - is how I know. If FXCM was truly taking the Newbie to Interbank, then this trade size would be no problem at all, single click, or a hundred clicks, it would not matter at 0.000025%.

Again, what FXCM is selling is logically unsustainable given the mathematics.


Quote:
Originally Posted by Jason Rogers View Post
And your statement that FXCM takes positions in-house against customers is not true for NDD execution.
There is no such thing as Spread Manipulated Non-Dealing Desk FX Brokers. Either charge a straight commission and step out of the way as you pass the order through to Interbank, or manipulate prices inbound from liquidity sources, take positions against your customers because you don't have access to enough liquidity and simply be Bucket Shop by definition. Either way, I'm ok with it, just tell the truth about it.


Quote:
Originally Posted by Jason Rogers View Post
Personally I think it’s a good suggestion and I look forward to the time when it happens. At the moment, non-disclosure agreements prevent us from doing so.
Having an NDA with a Bank that provides market liquidity to your trading platform, that states: "FXCM shall not disclose the identity of The Bank of New York, Melon Bank" at any time during the lifetime of this contract," is a very convenient way of getting out from under the question, but not a very thoughtful one.

Were you aware FXCM's competition and the fact that they actually embed the list of banks that provide liquidity to their platforms into the face of their website? Why don't these FX Intermediaries have NDAs that prevent them from informing their customers who they do business with? Again, logically unsustainable and really, in truth, this one makes no sense at all. If your competition can do it, then you can do it.


Quote:
Originally Posted by Jason Rogers View Post
Until then, if you would like to see the liquidity provided at each price point, I would suggest taking a look at the Active Trader platform. It has level II type depth of market for you to see the total amount of liquidity being provided by specific banks at specific price points quoted on the FXCM Active Trader platform.
Yes, I did actually look at FXCM's ATP and you know what struck me the most? The total lack of liquidity! I then compared the FXCM ATP liquidity to two of your competitors that also offer some DOM-'like' features and FXCM was lagging far behind on most clicks in the liquidity department. I then thought about how many times I've heard the phrase: 'FXCM offers some of the most liquidity in the Retail Forex industry...' I realized, after seeing the DOM, that FXCM offers no more (sometimes less) liquidity than some of your competitors. So, yes, I did go check out ATP and while the look & feel might attract the Newbie Scalper, I found the Order Ticket functionality to be sincerely lacking.

Even at the Retail level, you should be offering: If Then, Or, And, Not and Else logic to your OCO order ticket functionality. This should not have to be considered Robot and/or EA territory requiring a full blown API intervention. Things like this would support the new statement on the FXCM website, that FXCM seriously wants "Profitable Traders!"


Quote:
Originally Posted by Jason Rogers View Post
I would agree with you that a large amount of volume is transacted on platforms where banks trade with each other excslusively or on other platforms where you have to have starting amounts in the millions and minimum trade sizes above 100k.
No - make that $300k to $500k. Deutsche Bank would only have a phone conversation with me about Autobahn FX and wanted $25MM to open an account - I'm a few Mio short right now (at this very moment). Also talked to Barclays about BARX and they indicated that they have some small accounts in the $300k to $400k opening balance range, but they typically don't want that business - they prefer at least a couple Mio. I'm presently waiting on call backs from UBS and Standard Chartered, to see what their requirements are and I have not yet made any contact against New York Melon, but plan to as well.


Quote:
Originally Posted by Jason Rogers View Post
However, those same banks also provide liquidity to additional platforms such as FXCM’s FX Trading Station II.
Not at $1BLN notional per trade. I'm certain this is not the case on FXCM II and I don't even have to recheck my homework on that one.


Quote:
Originally Posted by Jason Rogers View Post
Therefore FXCM can make exclusive arrangements. FXCM’s No Dealing Desk execution enables you to have your trades, even 10k mini lots, offset against multiple banks rather than trading directly against your broker.
LOL - come on, Jason. I like you, Ok. You've won my respect, you really have! But, seriously, don't sell me on the idea that "NDD" is real to the Interbank level through FXCM Trade Station II! I'm sorry, FXCM does not have arms that reach that high, Jason. Don't let them brainwash you over at Old Slip Road. You walk right in there tomorrow and straight the entire office out.

BTW - does Leticia still work for you guys, or did you send her back to Paris and hire Timothy instead?

Look, here's the deal. You were one of the first on the Retail block - I'll give you that, congratulations! You went out and acquired more traders than most, initially. You made some "promises" to some "commercial and institutional sources of liquidity," that you would deliver the goods. Some stayed with you over the years and some left you (I bet you did not know that I knew that). You obtained more credit from some banks and eventually told them that you wanted to build more deposits and the only real way to do that, would be to declare FXCM as the new No Dealing Desk King of the world.

So, you got a Bank or two, or three, or four together (10, I'm not buying it, yet) and sold them on the idea that this could be a way for them to tap into the "Retail" space, where they don't already have Retail Trading platforms or the back-office ramped up to handle the load themselves. So, they "extended" you some "favors" but limited and restricted the liquidity to the Nth degree. You got to call yourself "NDD" and they go to tap into the "Retail" without the upfront cost of developing that market on their own.

Now, Jason - if you try to rebut that basic story line in any real significant way, your stock price will drop like a rock with me, personally - because I really do like your attitude and disposition.

Face it! The story outline I just wrote, is most likely spot on, is it not? You get a "little" and they get a "little." Quid pro quo, but certainly NOT Interbank grade business, Jason - most certainly not.


Quote:
Originally Posted by Jason Rogers View Post
No Dealing Desk execution.....
No Dealing Desk, No Dealing Desk, No Dealing Desk, No Dealing Desk - come on, Jason. It is like Vaporware was to the old software industry. We are talking Tiny Town, here. If you say, No Dealing Desk, one more time, I'm going to puke.

It is NOT broad Interbank, Jason and it does not scale. That is the entire point of this exercise for me. To make sure the Newbie does not run off half cocked, thinking that they are actually out there trading with real Interbank rates that are not being manipulated with widening spreads and aggregation algos. Just like I said in the other thread - there are three markets levels here we call Forex:

Hybrid
High Retail Mark-Up, Lots of Scams with Little Pass Through to Interbank, if at all (Tiny Town).

Commercial
Wholesale Mark-Up, Business/Commerce Transactions. (Where the Adults Live & Work)

Interbank
Par Based Bank Hedging against Massive Dissimilar Portfolio Holdings Across the Board. (Where Entire World's Collide - Literally)

These are the most fundamental layers of our industry, Jason. FXCM's product line fits the Tiny Town model - pure and simple.
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Old Mar 6, 2010, 5:00pm   #6
Joined Nov 2009
Re: FXCM Discussion

Very interesting discussion. I do tend to agree with a lot of TradeNumber7's points that FXCM are being somewhat misleading. However, in this day and age, it seems standard to exaggerate what you're offering and then cover your ass in the small print.

I am curious about your maths on volume TradeNumber7, so perhaps you will explain to me, because I have also asked a question about why the volum ein forex is touted as so large, yet appears relatively small. I'm in no way an expert on this, and 10m notional is far more than I trade in one go, never mind 50m. But back to the maths. Suppose we take Cable, and you suggest it has/had notional volume 360 billion per day. Lets also suppose for simplicity that we will consider 20 hours of trading in the day. This leaves a notional volume of 18 billion per hour, which leaves a notional volume of 300 million per minute, or 50 million every 10 seconds.

Now in light of this maths, the 50 million limit seems more than reasonable. After all, FXCM only claim to have 10 banks as liquidity providers, and not all business is done electronically, an old fashioned phone call accounts for a large % right? 50m every 10 seconds is the average done for the ENTIRE market. Of course I understand there will be greater liquidity at different points in the day and at particular price levels, it is not evenly distributed. But you can click in one second. Several traders can all trade at once. Why do you consider 50m as a paltry sum under these considerations? How much is really offered on the interbank market at one click?

I am confused, because like you tradenumber7, I imagined the market to be huge, and a typical retail trader shouldn't be reaching the max trade size so soon, but then given the maths divided down over time, and the number of trades out there I'm surprised they can even offer as much as 10m in one go.
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Old Mar 8, 2010, 2:55pm   #7
 
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Re: FXCM Discussion

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Originally Posted by SimpleTrader09 View Post
I am curious about your maths on volume TradeNumber7, so perhaps you will explain to me, because I have also asked a question about why the volum ein forex is touted as so large, yet appears relatively small. I'm in no way an expert on this, and 10m notional is far more than I trade in one go, never mind 50m. But back to the maths. Suppose we take Cable, and you suggest it has/had notional volume 360 billion per day. Lets also suppose for simplicity that we will consider 20 hours of trading in the day. This leaves a notional volume of 18 billion per hour, which leaves a notional volume of 300 million per minute, or 50 million every 10 seconds.
Hi SimpleTrader,

The forex market is not traded over one central exchange, so your access to that liquidity is dependent on the amount of liquidity being offered through the platform you are using. Also, I understand how you divided average liquidity to equally spread it out; however, volume will be higher during peak trading hours so it will not always be so evenly divided.

-Jason
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