Lmax?

[munchiedude]

hi,

just got a spam email from a brokerage called LMAX that claims to offer straight through DMA processing with tight spreads, does anyone have any experiences or can shed any light on this one?

 

[Rugby Trader]

It's owned by betfair.
I know nothing about the platform itself.
I have seen they're offering a free £100 at the moment

 

[6am]

I would not trust betfair
http://www.casinomeister.com/forums/casino-complaints-bonus-issues/41102-betfair-bonus-fiasco.html

 

[munchiedude]

lol, good video link! thanks for the update on the background of this LMAX, there are not many uk based ECN/DMA brokers so here i was wondering they could be gooooooood..but anything with a £100 bonus, im dubious of!

 

[twinj]

Hello, everyone. I am currently confused with their service. Please could you shed some light. I have been led to believe that I can be a market maker. My definition of market maker: Buy at the bid, sell at the ask. So if quick enough, I can profit from the bid ask spread. Are there places that have such a service for retail investors? Or is this sort of thing exclusively for big banks?

This is not the way it is at LMAX it appears. I have been told that if I want to buy at the bid price, I would have to wait for the ask price to fall to that level. Then I asked about market orders. Say I want to buy at the bid and a huge market sell order arrives. I have been told that my order would not be executed only until the ask price dips to that level.

It is still vague at the moment even after a phone call from them. I know that as a market maker, I have to quote on both sides of the market which is understandable. I did not get a clear answer as to whether I would then be filled by market orders or not.

any help would be appreciated.

 

[6am]

I have been told that if I want to buy at the bid price, I would have to wait for the ask price to fall to that level.

This is an incorrect information. You can become a market maker if you wish.

To become a market maker you have to become what they call a "liquidity provider".

Here is a list of current members http://mtf.lmax.com/membership/current-members.html

And here is an application form http://mtf.lmax.com/membership/becoming-a-member.html

Hope it helps

 

[twinj]

Thanks for your info 6am. I think the crux of the matter is whether I can buy at the bid and sell at the ask and have a chance at getting the bid-ask spread as profit.

 

[twinj]

A retail trader cannot become a market maker using LMAX. So I cannot buy at the bid and sell at the ask. So in this respect, LMAX is no different to other CFD and spread betting providers. The biggest advantage I see with them is for large orders since the commission you pay is little compared to at least spread betting companies. But I was only interested with them because they were offering mini-lot sizes (so like one pound per pip). If someone can tell me whether they are competitive at 1 lot size against the likes of currenex, it would be interesting.

 

[munchiedude]

hi twinj,

im not totally convinced that you would be able to trade mini lots as competitve as offered on currunex rates as from my brief encounters with currunex providers, they usually demand a larger deposit amount as currunex is typicall used by major instititions. the kind of amounts that i have seen has been around £50,000 but im sure that it varies.

wrt your question regarding market makers, my understanding is that retail traders cannot be market makers. market makers are typically companies that offers a bid-ask spread and make their money on the spread. they effectively "make the market" i.e. they set the bid offer prices that retail traders can choose to take or not and the spread is what the spread betting/market making company makes. retails traders cannot become market makers.

traders typically do not prefer market makers as their fx broker on the basis that you are taking bets with the market maker and not the fx market directly and in some bad companies, if they see you winning a lot, there is talk of them "stop-hunting" and taking positions against you if you are a losing trader. that causes a conflict of interest so effectively, your broker is not working in ur best interests.
thats my understanding but anyone can correct me if im wrong here.

 

[twinj]

Hi munchiedude,

Thanks for your comments. I naively thought that with a slogan like "Make your own market", it seemed to me that they are offering retail traders market maker privileges. It is interesting to contemplate the effects on the spread with everyone allowed to become market makers. Maybe that is the next step in CFD companies.

 

[AUM: £233.54]

twinj, I think you may be confused.

A market maker is someone who operates mostly via limit orders. He therefore injects liquidy.

When you say you want to buy at the bid and sell at the ask to be a market maker, this has to be via (passive) limit orders. Then when a trader comes to sell his shares, he sees your bid quote and he sells his shares to you. Then in effect you buy at the bid, and the active/aggressive trader sells at the bid.

When you asked LMAX about buying at the bid and selling at the offer, I think LMAX thouht, you meant active (aggressive or any other name) buying and selling orders, in which you come to the market, see the orderbook and make your trade. You take away liquidity. In this case, you indeed buy at the offer/ask of the market maker and sell for the bid of the market maker.

So actually, you can be a market maker at LMAX. They offer you an API, which is a way to submit orders autmatically and quickly instead of clicking manually.

But, you have to note that Goldman, JPMorgan, and Optiver, are also on the LMAX. These firms both offer the liquidy by posting limit orders and they take it away via aggressive orders. The difference is that LMAX does not allow these firms to trade with each other. Thus they trade with retail traders only. They also have a much faster access to the computer of LMAX where orders are matched (lower latency than you, for sure). Thus, the most profitable arbitrage setups are pretty much out of your reach. You will be too late.

Additionally, you pay 0.0025% commission of the notional you trade. Goldman, Optiver, and JPMorgan most likely have a better cost structure.

In short, you can be market maker in some sense, though you will not have the priveleges as a real LMAX market maker.

 

[AUM: £233.54]

I have to add that I am not sure whether General Members at LMAX actually CAN take away liquidity with activer orders... I'll update when I know more.

EDIT: apparantly the goldman, optiver and jpmorgan can only provide liquidity, not take it away.

 

[twinj]

Thanks for your comments AUM.

I was not talking about market orders. I was talking about limit orders. This was my experience. I thought that some fx pairs like the EURAUD are very wide so I could place a limit order say on the bid side wanting to go long. I expected the limit order to be executed when the bid price reached my designated price. However, it failed to. I was told by LMAX that my limit order will only be executed when the ask side reaches that price. Then to confirm, I said that that is the same as any other CFD or spread betting company and that is indeed the case apart from of course the neutrality bit and the liquidity monitoring.

I focus mainly on FX these days but a while back, I traded direct market access FTSE100 stocks. Here I think everyone is in a great position where you can buy at the bid and sell at the ask.

I really thought that LMAX had brought this functionality to FX but alas not. Please correct me if I am wrong since it would really be wonderful to buy at the bid and sell at the ask.

Until LMAX introduces such functionality to retail clients, I cannot see it becoming very popular. They have introduced a trial period of commission free limit orders but I don't think it will help much.

Perhaps this functionality is not available to retail clients as it would impact the large market makers and so would be difficult to attract them. If only LMAX realise that they are so close to being the first true centralised market place for FX.

Cheers

 

[AUM: £233.54]

I really don't get this part: "I expected the limit order to be executed when the bid price reached my designated price."

Let's use an example. Suppose you submitted your bid at say 1.45 and the current best bid is 1.46. Suppose the 1.46 bid is filled. Then you move on top of the order book. Is that what you mean that the bid price is equal to the designated price? To continue, even though you have now the best bid, it still takes an active counterparty to fill your order: either a market sell order or someone who sumbits an offer at 1.45. so LMAX is partially correct, your order will be filled when the ask reaches your bid. I am not sure whether it will also be filled when you have the best bid and someone submits a market sell order.

I will ask LMAX and report back.

 

[AUM: £233.54]

Ok, I got response from LMAX.

My story seems to be correct. They function like a normal order book with first price and then time priority. If your limit buy order is at the top (both price and time), then it will be executed if someone sends a market sell or if the ask goes down and hits your bid.

Twinj, the reason your order may not have been executed could be because even though the price was the same, someone may have placed an order before you at the same price. This trader therefore has time priority over you. To be honest, it would be really weird if they functioned like you told. Maybe even unique. How many trades did you make with them that went "wrong"?

 

[AUM: £233.54]

Twinj, you confuse the hell out of me when you say "buy at the bid and sell at the ask". When you say you buy or sell you imply active order, and in an active order you buy at the ask and sell at the bid. Thus you lose the spread.

You gain spread when you post bid and ask (passive order), but you have no guarantee both your bid and ask will be filled, and so you will not always capture the spread.

 

[twinj]

Hi AUM, when I write buy at the bid and sell at the ask, I mean limit orders or what you call passive orders. I enter the order book a limit order to buy. Then if my price is not best I will be below the best price somewhere. Now, from my discussions with LMAX staff, my price may become the best price but it will still not execute. My limit order will only execute once the ask best price reaches my limit order price.

This was clearly visible with EURAUD because the spread is 6pips or so. When I saw the best bid price falling below my limit order price, I wondered what was going on. I hope this is clear now.

cheers

 

[AUM: £233.54]

How often did it happen that your orders were ignored? when did it happen?

Can you copypasta the part of LMAX email that confirms your story + the name of the customer service rep?

 

[twinj]

Just once and I decided to give it a rest.

I tried to get someone to reply to me by email but they phoned me to clarify the situation. A lady higher up than the rest seemed to be the one that explained it to me in the end.

AUM, do you work for LMAX?

 

[AUM: £233.54]

Lol no. I have invited them to this thread to clear up confusion, but it is easter so it may take couple of days. They have been extremely helpful to me, giving very clear answer to most technical questions. And I haven't even deposited yet.

The way they work as you describe just does not make any sense... I am not blaming you, maybe the lady was wrong. There can always be a misunderstanding. I can forward you all their emails where they confirm my story. Just PM me your email.

Have a nice easter.