Professional Vs. Home Forex Traders

[s-a]

Hi Alexander,

Maybe GJ is talking about his Knowledge Lab article:
http://www.trade2win.com/knowledge/forex/articles/general articles/fx-market-participants

MK

 

[samtron]

OK


3) But I think you are indeed being paranoid. Arbitrageurs would cane the retail bookies if they were that far out of line.

Sorry to be a pain GammaJammer, but "Arbitrageurs" (with a capital A) who are these people, and have they in actual fact got teeth sharp enough to hurt any retail house that steps out of line?

I too like alexander have yet to read your article, but at the moment find it hard to believe its not a zero sum game (banks using the interbank for trading) because basically money cannot be produced out of thin air (I realize this is most probably a very naive view and that your knowledge on the subject is unquestionable)

Thanks for your help

 

[jmreeve]

It's a very good article.
I think there is too little educational information about the structure of the industry so articles like this are very useful.

The part about high value private clients is predictable but slightly concerning.

Rarely a market mover in themselves, they are worthy of note mainly because the majority of traders with this size of account have a greater degree of trading acumen than the average retail trader and their activities are often watched with great interest by the banks with whom they have relationships.

Why do these high net worth individuals trade like this if they are going to be watched and have the banks front run their orders?

I have often wondered how much tracking goes on in retail brokers.

 

[c6ackp]

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.

I think you're essentially correct Alexander but, as usual, I think the devil is in the detail. Only very simple, closed systems can be consistently zero-sum. There's always a cost of doing business: even casino poker is not zero-sum since the total pool of funds is being eroded by the fee to the casino (per deal).

If the fx market is expanding (like now) then I think that it's a +ve sum game as there are more funds to be won going forward. This means that the winners should be winning more (regardless of real money, m&a activity, hedging, etc.).

This should be evident from hedge fund forex P/L (for winning hedge funds, of course).

The total pool of resources available to the fx market is, of course, being systematically eroded by the market makers and all the other costs of doing business (trader salaries & bonuses, IT infrastructure, admin, etc.).

This means that, at some point, for whatever reason(s), the fx market will start to contract (like any market) and -ve feedback will start to be applied to the system. This will put the less efficient operators out of business and start to reduce the total pool of funds available.

I think the forex market is only zero-sum at some point during this transition between these expansion and contraction phases.

Having said that this explanation could be a load of dollox

I have often wondered how much tracking goes on in retail brokers.

Apparently, Capital Spreads admit to doing this. But, for a successful trader, this is a good thing, because the s/b company is then benefitting from your success and therefore has every incentive to allow you to trade unencumbered (rather than having a broker who only entertains losing accounts).

Cheers,
Steve

 

[alexander]

I think you're essentially correct Alexander but, as usual, I think the devil is in the detail. Only very simple, closed systems can be consistently zero-sum. There's always a cost of doing business: even casino poker is not zero-sum since the total pool of funds is being eroded by the fee to the casino (per deal). Steve

I'm afraid I won't agree. I argue that the size of the pool of funds has nothing to do with the zero-sum game nature. The key question is whether in FX some participants that actually lose money benefit for other reasons and/or some participants who win do not benefit. But such effetcs are so called "external benefits", like for instance the benefit of learning how to trade and in that case the trader is willing to pay for education through her loses.

However, and this is the key, unless these ecternal factors are considered FX is purely a zero-sum game. The fact that the size of the poll varies does not change the primary fact that sum(winning) = sum(loses) even at every tick.

The so called "zero-sum fallacy" IMO does not apply to FX trading. IMO the fact that the payout is not constant as a function of time and number of participants does not change the fact that at any given time the payout is only determined by the closing of positions and remains constant as it cannot be altered by someone pooring or draining funds because such action is prohibited by the structure of the market.

This, I conclude, the issue lies in how you define the game. The fact that new participants come in or pool size is reduced (which has not been the case till now) cannot alter the reality that future influx or outflux of funds can do nothing to change your odds of winning at present and also the reality of what you win or lose is lost or won (respectively) by someone else.

The same applies to futures trading. Thus, in summary, if P/L is only what matters to participants, FX and futures trading is zero-sum game at any given moment.

Alexander

 

[c6ackp]

I argue that the size of the pool of funds has nothing to do with the zero-sum game nature.

Yes! I can't disagree with anything you've said. Of course the game is essentially, at any instant, zero sum. At the same time it's not quite, due to the cost of doing business (it's always the guys selling the picks and shovels that get rich in any gold rush - e.g. market makers, retail brokers, etc.). Fortunately, the numbers (for winning fx funds) are so large that the costs of doing business become, largely, insignificant.

Cheers,
Steve

 

[alexander]

GammaJammer.

If external benefits are taken into account in, you are of course correct, FX is not a zero-sum game, it can be +ve or -ve sum.

But from a professional trader's point of view, where all that matters is P/L, FX is a zero-sum game. Any trader who enjoys benefits other than increasing his/her wealth is not professional but recreational.

So IMO FX is a different short of game for different participant types. To me is zero-sum because I trade to profit and I know that every time I win someone else lost and vice versa.

That is my 0.02 euro

Alexander

 

[Hayek]

Lottery is an obvious negative-sum game but millions of people enjoy it. Similarly, thousands of small newcomers can afford to lose their several 0.1K~10K dollars for a dream to be a mushroom in forex venture. That is what the retail forex business is designed for and why it is successful practically.

My 0.02 yuan.

 

[jmreeve]

Wish I could collect all these 0.02s as they would start to build into a nice profit. :cheesy:

 

[philhackett]

City traders use sotware to establish congestion and probable breakout areas which is why the market will often breakout of a range and retrace after 30 pips which is the tdaily target for most of them, bearing in mind that they are trading large amounts. I have been trained by a famous trader and I can tell you that, as an eperienced MSTA and full time Forex trader, the Barrow Boys do not know what they are doing for most of ther time and do not understand technical analysis. View the software which the City uses here.http://www.traderhouseglobal.net/


Phil

Could someone please answer the following queries, which have been rattling around in my head for a few months now...

How much do city fx traders rely on the infrastructure of the bank, in which they work, to be profitable?

What opportunites (apart from matching client orders for no risk & cheaper execution) exist for the professional trader which are not available to the home trader?

What proportion of city traders are "allowed" to trade their own account directly against the market?

What would the maximum pip stake be for a very consistent professional fx trader who has no involvement with clients but trades only against the market? Up to £500/£1000+ per pip?

I have a friend who is head of a front office equities department in a city bank. I mentioned to him a while ago that I was interested in forex. His game is equities, but he made the following comment:

"...fx traders are animals - we stick them in the basement. When they see one of our major competitors, ABC bank, buying heavily, say Yen, we sell like mad to try to squeeze ABC bank out of their position..."​

I understand that all the legendary plays on the stock market have involved price manipulation and competitors squeezing each other to force them to sell for a loss, but I would be slightly surprised if this technique is used routinely in forex. Is this for real? Also, given that the large banks have unlimited access to Ivy league/Oxbridge rocket scientists + IT infrastructure, why resort to such a crude strategy, when, presumably, they have the best models and the most experience to beat the market?

Is this "squeezing" part of the reason for the incessant & aggresive retracement in forex?

Now the markets are wide open with easy and efficient access why are city traders staying in the banks, getting up @ 5am, putting up with all the corporate nonsense, etc?

Is it because:

a) they like the kudos of working for ABC,
b) they couldn't be profitable at home,
c) they can't make as much money at home,
d) there's too much totty on the trading floor,
e) other?​

Given access to 100k and an IB account trading GBP futures for 1 week, who would win, the top city or top home trader?


Thanks,
Steve

 

[ebob]

Interbank trading

Been reading through the exchanges and thought id post some brief comments

I currently use Currenex via Refco - this enabled me to open an account for $100K - if i had approached directly it would have been more like $500K, which i thibk if memory serves me is about the same as fxall. The refco fees for everything comes to about $25/trade which given the size im trading is sod all. Of course to avoid this the best strategy is to get credit lines with banks but this is just prohibitive. I trade eurusd and gbpusd and trade size is 1mill/trade, with the recent currenex update the speed of fills is superb. Spreads at 1 pip eurusd and 0.5 on eurgbp are unbeatable, that said, you have to be careful to not become an uberscalper give the narrow spreads.

In terms of size traded it depends entirely on the currency, in eurusd and usdjpy you get larger orders and this makes fills easy. if someone has a large order they'll stagger it anyhow. on others, for instance nzdusd banks can suddenly stop quoting or widen spreads to 30 pips. you can also see depth in the market on bid/offer and of course see who is the counter party at key levels.

Lastly, the last post, whilst ive used pronet the spreads on traderhouse are like the disgraceful bucket shops at 3-5 on eurusd.

happy trading

 

[JP1966]

Can I ask about your experience on currenex through figures. I am led to believe that it goes very wide on any figure and that it is almost impossible to trade either side of any announcement. Is this your experience?

 

[ebob]

like any platform there will be extreme volatility around key numbers, but its of course better than any alternative. yes the spread can widen a little but you'll find that anywhere, never found execution a problem.