Professional Vs. Home Forex Traders

I don't understand why spreads in FX are quite so variable.

For example on cable avg spreads.
Barclays 6 pips
Anglo Irish 2.4 pips
There are some banks at 10 pips and even one at 1 pip.

In a very liquid market where dealing between all the participants is possible why don't the spreads
even out a bit more?
 
Thanks,I've read lots of threads about forex and that's the first post I've seen by someone who obviously knows what they're talking about from the bank side.Looks like I'll be sticking to Globex EUR.Would you mind if I copied and pasted that post to the 'how to trade forex' thread at the top of the forum?It would help many a newbie forex trader when they come across these interbank/brokerage threads (they wouldn't have to read them).
 
EBS prime is on its way and again non banks will be able to trade on it.


Barclays standard inter-bank quote for cable is 2-3 pips, btw.
 
Barclays standard inter-bank quote for cable is 2-3 pips, btw
Click to expand...

What system are you seeing that quoted on?
I am seeing 6 pips on my feed for Barclays London.
 
GammaJammer said:
Well I think you're talking at cross purposes here.
1Bn transactions themselves aren't that uncommon (although The largest I've had to do is a few hundred million and that was hairy enough) but actual speculative positions of that size are pretty rare. The average interbank trader on a medium size desk might run their own positions in say 5 - 50 Million bucks or so (and more often than not nearer the former than the latter).

As to the rate change story, no idea. Sounds a tad far fetched to me. Most banks don't let their traders have positions large enough to 'luck out' into a profit quite that large (as they would be mortified if it went the other way). A million maybe, but probably not 150 Million.

GJ
Click to expand...

That is true, I think 10 Million is the standard interbank traded size. It is common, at least in the places I worked for, to have a daily and a cummulative stop loss for each trader. Thus, if a trader exceeds the daily stop loss , then no more speculative trading for the day. The daily losses are added and if the monthly cummulative stop is reached then no more speculation for the rest of the month. There is also a "you are fired" cummulative stop loss but that varies and it is not stated in advance for obvious reasons.

Alexander
 
There's a 'usual size' scroll down list in the bottom left hand corner of one of the slides of the EBS spot/prime online demo.'Regular amounts' (slide3)
 
A couple of questions:

Am I right in thinking InterBank trading, despite the large amounts involved, and sophisticated technology/software/ "genius" brainpower deployed is still a zero sum game?

How accurately do the data feeds for the retail houses reflect the interbank rate, and by what percentage could these guys deviate from the true market before getting red flagged? I am relatively new to trading and I get the impression they could quite easily rig the data to blow away margin accounts at their mercy or is this being paranoid?
 
GJ - thanks

JP1966 - thanks for the post - I just received this from EBS re: EBS Prime...

currently EBS prime is only available to hedge funds and CTA/s, not private investors......hedge funds can access the EBS market via a prime bank utilising their credit lines and trade on the interbank prices via an automated API..........minimum size is 1 mio.
Click to expand...

Steve
 
To be honest anyone doing reasonable size in the UK should have set up a company to trade through.

The mem and arts of the company should state trading as its purpose and hence the banks will classify you as a non-regulated financial insitution and not a private investor. You will therefore be able to approach banks and use them as your prime broker. You will then be able to access platforms like lava, EBS Prime, Hotspoti and Currenex.
 
No one HAS to stick a bid or offer in the machine if they don't want to. That's why spreads can vary, both during the day, and also across banks (JMREEVE - does that answer your question as well?)
Click to expand...

This is of course true, but doesn't explain the static differences in spread unless the particular bank just
doesn't want to trade in the currency at all. It appears the spread that Barclay's quote to the world is not the same as the spread quoted to other banks with established credit lines so some of the discrepancies I am seeing may not be real.

The mem and arts of the company should state trading as its purpose and hence the banks will classify you as a non-regulated financial insitution and not a private investor.
Click to expand...

I was not aware that non-regulated financial institutions could exist.
Are these totally unregulated?
What are the limitations and advantages of creating such a trading vehicle?
 
FYI - out of interest...

Outside of non-regulated financial institutions, EBS have since clarified the chances of EBS Prime being made available to the private investor:

I think its unlikely at this point....allowing access to the hedge fund community has taken years, private investors could be a while away
Click to expand...

Cheers,
Steve
 
To be honest anyone doing reasonable size in the UK should have set up a company to trade through.

The mem and arts of the company should state trading as its purpose and hence the banks will classify you as a non-regulated financial insitution and not a private investor. You will therefore be able to approach banks and use them as your prime broker. You will then be able to access platforms like lava, EBS Prime, Hotspoti and Currenex.

Sounds like he's done it?
 
Hedge funds are not regulated in the UK and is one of the reasons you wil never see an advert for one asking for investors. Ineed a hedge fund is an example of a non regulated financial insitution.

As for setting up your own company. If you set up a company and it is your trading vehicle and you have not applied for FSA registration then by definition it must be a non regulated fininacial insitution/company. It sounds far grander than it is.

The advantage is mainly a tax one and also the fact that it is possible to deal with ECNs etc as it is easier for banks not toclassify you as a private investor.

All banks/Prime Brokers want as much business as possible but live in fear of their compliance departments. As soon as Mr Bloggs comes along to open an account they know it is very hard to get a line passed. If Mr Bloggs happens to operate a company called "The Euro Dollar Trading King" then things become much easier. I have over simplified things but this is the reality.

In response to another question. I do trade via my own company and of all the people I know who trade full time for their own benefit Iam not aware of one person who does not do it this way.

I hope I have managed to clarify a few points but apologies if I have not explained myself very well.
 
jonnyy40 said:
The mem and arts of the company should state trading as its purpose and hence the banks will classify you as a non-regulated financial insitution and not a private investor. You will therefore be able to approach banks and use them as your prime broker. You will then be able to access platforms like lava, EBS Prime, Hotspoti and Currenex.

Sounds like he's done it?
Click to expand...

I'm not sure setting up a company and trading through banks will get you better spreads. As a matter of fact most banks have a markup fee. Then, why using a bank as a broker? Why let those pros know how much you got in your account and what your positions are? It seems to me you get more privacy being a part of a pool, like IB or Refco.

Most traders I know who dealt directly with banks at one point or another had some major problems with the whole thing.

I believe that unless you are a counterparty risk to them you are going to face problems sooner or later.

What are your thoughts on this?

Alexander

.
 
Ineed a hedge fund is an example of a non regulated financial insitution.
Click to expand...

As far as I was aware hedge fund managers do need to be FSA regulated if they operate a fund
from this country. Is this not correct?
 
I think you may be right. It has been a long day though so not sure now!

In response to Alex the point is that you will not be able to trade very easily through most ECN's as a non bank if you do not have a Prime Broker. To have a Prime Broker is virtually impossible for an individual but if he operates through a company (usually his own) then it is feasible and much easier.
I was not advocating trading directly with banks.
 
GammaJammer said:
My thoughts are basically that forex is NOT a zero sum game. Reasons are detailed elsewhere (touched on it in my knowledge labs article and therefore not gonna re visit old ground)
Click to expand...

Could you post a link to that article?

It depends how you look at it though . One fact: is that the sum of winnings equals the sum of losses at any given time. This is the primary requirement for a game to be zero-sum.

There are other requirements but even if not met, every game can be turned into zero-sum by introducing dummy variables.

IMO forex is fundamentally a zero-sum game. But I will look at your article and then reply in more detail.

Alexander
 
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