A Day in the Life ... does GammaJammer's forex ecommerce engine fill my IB orders?

[Adamus]

Just wondering where the world of spot forex desks at the big banks intersects with the retail small fry such as myself.

In his article, GJ mentioned the max limits that his bank's trading computers will accept, but he didn't mention any lower limits. So I was just wondering if my little order for £100,000 will go through there from Interactive Brokers.

And if not, then what happens to it? Do you think IB does any taking the other side with its customers, or is there another section of the forex market where these small trades are automatically matched?

In case you don't know IB, they actually have 2 markets for trading forex, one is IDEALPRO where you can do your real trades, and one is IDEAL and you can't trade more than a certain size there, it's just for offsetting your own secondary currency positions when you trade in multiple markets.

I'm just wondering what the implications might be, plus of course GJ's article has raised my curiosity.

I had heard that some of these systems don't even have market orders - so a market order from me would be emulated by IB somehow, algorithmically chasing a bid or an ask for a fill.

 

[GammaJammer]

I don't know precisely the mechanics of IB as it differs from any other retail channel. There are a few subtly different business models for the retail shops to use, but in general avenues open to them to pursue liquidity include;

1) a total 'white label' solution - they literally take an entire out of the box solution from someone and dress it up as their own;

2) Sole pricing - they hook up with one liquiduty provider (a bank most likely) and take a stream of their pricing, most likely either slightly widening out around it, charginga per trade / per round trip comission or even both in order to make their money

3) They connect to one of the wholesale ecns (Currenex / Laha / Hotspot etc) and see both some bank pricing and some 'interest' pricing from their peers

4) They buy / build a liquidity aggregator which sees feeds from several of these types of places. It may even have dedicated single bank price feeds in the mix as well.

To answer the specific question, the different banks and ecns have different ideas on lower trade size limit. Some (the traditional interbank venues such as EBS and Reuters D3) say it must be a 'market amount', which means a million units of base currency. Others such as Lava and Hotspot have it at zero. You can literally do a trade for pennies. Some have this as an option but the price provider on the other end of the price can shoose whether or not to accept trades for 'shrapnel'. Say for example you have a smart order routing algorithm trying to sell a million usdjpy for you. Algo detects that the flow appears to be in Currenex for now, looking like there's an interest to buy sitting on the bid. Algo therefore routes the offer to Currenex. But then a retail account pays it, for tiny only, and now the offer remains, but it's for $999,900 say. It is now not eligible to be pulled from Currenex and moved to, say EBS if that's the right thing to do if no-one else wants it on Currenex, which is totally concievable. So it's a pain in the @rse.

But the single bank offerings are a different proposition and far more of them are just happy to see any and all trading on their prices.

But like I said, there's a finite (but extremely large) liquidity pool out there, and assorted ways to access it. As many different approaches as there are credit lines and business models. That's why when someone posts here and says something like 'all my trading would be better if I had ecn access' it's not as simple as that. Depends whose prices you're seeing through the ecn and how they behave.

That help?

Sorry it's a bit long winded but sometimes this stuff isn't a one line answer.

GJ

 

[Rossini]

''In his article, GJ mentioned the max limits that his bank's trading computers will accept''

What article was that?

Cheers

 

[Trader333]

''In his article, GJ mentioned the max limits that his bank's trading computers will accept''

What article was that?

Cheers

The two that appeared on the homepage during the last two weeks called:
A Day in the Life of a FX Spot Desk Trader



Paul

 

[Adamus]

Rossini, hang your head in shame. Your avatar says you are a forum guide - how come you missed the headline article for the last 2 weeks? Do you never use the home page?

GJ, that's v. interesting re minimum amount. I'll have to ask IB what their setup is and who they link into. Regarding trade mechanics, is it true that the you have to hit a bid or an ask?

It looks like a slightly different paradigm that I'm coming from, trading mechanically. I have to code my system to either buy, buy limit or buy stop. It sounds to me like these kind of trade types are pure retail trading lingo - in your article I never heard you say "buy at 0000 limit" or "sell 0000 stop".

So if I put in my order as EnterLongLimit(1.3535) (ninjascript) or Buy at 1.3535 limit (tradestation) then IB will wait until it sees offers at 1.3535 - or it will put in a bid at 1.3535.

And if I put in a 'market' buy order, IB will just hit the first ask that it can?

Do you mean your ECN operates this way?

Interesting stuff. You probably find it boring as pants but I'm intrigued.

Thanks!

 

[meanreversion]

For your info, the roll charges for FX are the same at IB as at IG and City Index, roughly about 2 pct / year, or one pip a night in EUR/USD.

You're much better off speculating in currency futures, no roll charge there.

 

[arabianights]

You're much better off speculating in currency futures, no roll charge there.

You ever wondered why the futures aren't the same as spot...?

 

[meanreversion]

There is a difference between roll charge (the spread above and beyond normal financing rates) and interest rate differential. Roll charge is always detrimental to your account, whereas interest rate differentials will benefit your account if you're long the higher yielder/short the lower yielder.

For example, let's say UK and US rates are the same, then there should be no cost or benefit of being either long or short GBP/USD. However, IG and City Index will charge you a pip a night, irrespective of whether you are long or short.

The two concepts are different and totally unrelated. With futures, you at least eliminate the roll charge.

 

[GammaJammer]

Rossini, hang your head in shame. Your avatar says you are a forum guide - how come you missed the headline article for the last 2 weeks? Do you never use the home page?

Well it's possible. I personally don't use the home page, ever. I go directly to 'new posts'. Plus I have an odd setup because I prefer the discontinued, unsupported 'experimental skin' which has as a bug that you can't see the home page, can't see knowledge lab etc. I just find it less garish. Would have black and white if I could.

GJ, that's v. interesting re minimum amount. I'll have to ask IB what their setup is and who they link into. Regarding trade mechanics, is it true that the you have to hit a bid or an ask?

No idea - never traded in IB. But even if it does allow you to post bids and offers that doesn't necessarily mean you have graduated from being a price taker to a price maker. If eur/usd is 1.3350/52 for example, and you enter a limit bid at 1.3349, you may not get filled until the market is 1.3347/49, in which case it'ss no different to waiting until it gets there and just paying the offer. However if you're able to get given at 1.3349 when the market never goes below 1.3349/51 then you are truly getting DMA. Whether or not this happens depends on the nature and origin of the prices with which you are interacting. It's not rocket science but it's not a one word answer either (as I hope the stuff I write demonstrates).

It looks like a slightly different paradigm that I'm coming from, trading mechanically. I have to code my system to either buy, buy limit or buy stop. It sounds to me like these kind of trade types are pure retail trading lingo - in your article I never heard you say "buy at 0000 limit" or "sell 0000 stop".

So if I put in my order as EnterLongLimit(1.3535) (ninjascript) or Buy at 1.3535 limit (tradestation) then IB will wait until it sees offers at 1.3535 - or it will put in a bid at 1.3535.

And if I put in a 'market' buy order, IB will just hit the first ask that it can?

Do you mean your ECN operates this way?

Interesting stuff. You probably find it boring as pants but I'm intrigued.

Thanks!

My article was written from the point of view of a market maker. It's not that the terms you used make no sense whatsoever (I understand you) it's just that for realism I'd prefer a more 'colloquial' style. No-one really talks the way you wrote it on an interbank desk. Even nowadays (some might say especially nowadays).

make sense?

GJ

 

[Adamus]

No idea - never traded in IB. But even if it does allow you to post bids and offers that doesn't necessarily mean you have graduated from being a price taker to a price maker. If eur/usd is 1.3350/52 for example, and you enter a limit bid at 1.3349, you may not get filled until the market is 1.3347/49, in which case it'ss no different to waiting until it gets there and just paying the offer. However if you're able to get given at 1.3349 when the market never goes below 1.3349/51 then you are truly getting DMA. Whether or not this happens depends on the nature and origin of the prices with which you are interacting. It's not rocket science but it's not a one word answer either (as I hope the stuff I write demonstrates).

Food for thought. Definitely. Unfortunately IB cut all sorts of corners with their quotes and their times & sales so I've heard. Maybe I'll stick to the simulation account

I just heard the IB was meant to be DMA but I didn't know that implied I could buy at the ask, although I'd heard (again second hand) that the slippage on limit orders is less than market orders, which implies I might not be paying the spread.

Thanks for the info!

 

[GammaJammer]

slippage on a limit order by definition is zero. Unless what you mean by 'limit order' is different to what everyone else means....

 

[Rossini]

''Rossini, hang your head in shame. Your avatar says you are a forum guide - how come you missed the headline article for the last 2 weeks? Do you never use the home page?''

Ha my bad, but not surprising I missed it, I rarely visit the home page as my T2W tab on chrome is set to General trading chat, not the home page...

 

[pssonice]

did u ever earn any money by reading articles ?

.

 

[Adamus]

slippage on a limit order by definition is zero. Unless what you mean by 'limit order' is different to what everyone else means....

in the context of a mechanical trading system, i have to know or at least estimate what price I will execute at compared to the price that has triggered my system to trade.

so for limit orders, I admit you're right but there is the added complication that I might not get filled at all if the price is just touched. so what does a mechanical trader do with that situation in the backtesting and simulation runs? Make it a market-if-touched limit order? Probably doesn't occur frequently enough to worry about. Not a problem you have to worry about as a dealer anyway, I guess.


ps what's the comment 13 about? is that spam or is that a relevant question with implied opinion?

 

[meanreversion]

I recently had an instance of positive slippage on a limit order (yup) ... a sell order in cable was filled 26 pips better than the rate I left it at, due to a gap opening in spot on a Monday (the weekend following the first announcement of a bail out for Greece). I have a rule for what to do with negative slippage, but did not have one for this situation. However, as it's probably the only time in my life it will happen, I'm not going to worry too much about it.