Hi Darren, JonnyT,
what sort of discrepancy are you lookin for?
well, if there was at least 3-5 pips (
at least!), I could talk and argue with broker, but since I have seen lows of 77 and 78 on Refco charts, saxo charts and couple more - well, I have no case here.
the inter bank market participants (ie banks) have access to true market prices/ spreads which can vary according to liquidity
Yes, its usually 1-2 pips on inter bank or when trading with bank like UBS, and it can vary...but when there is a high volatility, broker platforms are not perfect as well...
The various fx brokers that offer the rest of us access to the fx market also have access to the inter bank rates and base their quotes on this, but as I understand it, have to offer fixed spreads
correct
They make their turn on the generally 1 to 2 pips they make on each transaction?
No, you see it depends. I am no insider in broker manipulations, but most (actually I think all) of the trades you execute are executed with the broker - that's what market maker means, and they have the balance on the look. So its not 1-2 pips, as they don't take prices to inter bank - its all 3/4 or 5 pips - all the difference is theirs.
When I mean balance - I mean they are looking at total shorts and longs on particular pair. Most of the time its more or less same balance - that's the nature of the market, but when there is a high volatility and "one way game" - those are the hard times for brokers. Dealers are sitting on the watch to find any orders they can and so on... Naturally, if they have imbalance in some currency - for example, they have too much longs accumulated on USDCAD - and by far not enough shorts to neutralize the longs - that's the time when they can turn to their bank and go to inter bank market by taking part of those longs out to real market...
You will just never hear broker saying that when you execute a trade, broker is the counter party - its no good for them, as all the "stop hunting" and "playing against you" questions pop up, and they are relevant... so brokers claim they have banks that they trade through...that is part of the truth.
However, the price you and I deal at is the brokers price, which could vary from the inter bank market, particularly at times of low liquidity? Consequently, the price that each fx broker offers can vary between each other?
If prices can vary between brokers/ data sources, would you be able to hold your broker to a price offered by another broker if you found there was a discrepancy?
Well, there is a limit to what self-respecting broker would do. If all the sources show low was 82 and your broker claims it was 78, you have a case, but as you see, I don't in this situation.
You see, even when you are on real inter bank - there is no "global" quote at any given time. That is the difference compared to other markets that have physical locations through which trades go. Here, we have several big electronic trading platforms that gather largest FX market participants like FXall, bloomberg, EBS and have a gathered orders and prices flow - but each and every of these platforms are apart, and can have different prices. Except for that there are also other inter bank transactions that form the FX market prices...and so there is no real "last" quote, as then you'd have to ask "last quote where?".
Same with brokers - not exact prices, but it makes a difference if its 1-2 pips, or more. If there is more - you can always request a true confirmation of transaction if you work with a REAL Bank and on real inter bank market, because the transaction should be showing somewhere. But with Brokers...
you know how it works - you agree that they can quote you by any price they want (according to agreement each trader signs)...
I suggest you reading of this topic - it was a long time ago, but I searched for it and found it for you and others who are interested. Thread is called "How do Market Makers actually work?" :
http://www.moneytec.com/forums/_showthread/_s-/_threadid-3494
Its in some way related with our issue, and even much more.
Is my understanding correct? If so, is there any regulation within the fx market to ensure the correct prices are offered in line with the inter bank market?
I think the answer is obvious now: no, there is no way to see what were the "EXACT" prices at any given second, but it shouldn't vary more that 2-3 pips tops from bank to bank (broker to broker). But I should add one
"but" here
: when there is an extreme volatility on the market - a huge selloff or rally, those 2-3 pips may turn to 20-30, and that is exactly what on real market happens, so...that's the way t works...
And 2 words on futures: Last time I looked on currency futures chards (year 2000), I remember there were lots of gaps - maybe it became more stable and liquid now, but for me - I prefer the streaming 24h FX market. I don't know - I am not saying which is better for sure, but spot is my preference.
Sorry for the long post guys,
Great trading,
Rezo
