Trading without the middle man?

[matt101uk]

Hi all,

Is there a place where one can spreadbet or trade CFDs without the middleman taking their large cut? I guess LMAX was an attempt at this, but you need huge amounts for an account. Or is this simply not viable due to lack of liquidity? I.e. you'll need a huge amount of people to start off? Is there no type of "people's exchange" out there? Does it work? Could it work?

 

[NVP]

you'll need a silly colour jacket and a badge

 

[gle101]

Yes brokers take commission (so does LMAX) and market makers take the spread.

 

[Martin Kong3]

you'll need a silly colour jacket and a badge

You forget to mention about travelling to New York or Chicago!

 

[Vasco da Banana]

Take a lifejacket.

 

[moka2]

Matt there are Exchange Traded CFDs on the ASX.. but you are still paying the Exchange and your broker
A public Exchange is Betfair it has few financial bets where people can trade against each other but again winnner pays a fee

 

[matt101uk]

Thanks. Seems everyone wants to charge - which I guess is their business model. Perhaps I'll don a Joseph Jacket and do my own!

 

[moka2]

Thanks. Seems everyone wants to charge " ??? what did you expect? you woudl charge a fee too if you were an exchange won;t you?

 

[matt101uk]

Yes, realize they have to charge, but it does seem to be a bit steep sometimes. You either pay through commissions, spreads, re-quotes, financing, or all of the above.

Surely charging less commission (commission is always there despite 'Zero Commission') and looking for the masses and let people drive the liquidity would be a good idea. Not quite sure why LMAX haven't capitalized on this more....?

 

[instant]

LMAX (when you add the comms charge) is often wider than the fixed spreads ... margins are quite high as well

making a £1 trade generates $0.40 a side in comms charges which is 0.8 of a point before you have even started. So what if the spread is 0.5 or 0.4 ... it still works out as wider than my spread bet company.

placing a trade in the FTSE gets me a .5 a tick charge (i.e 1 point round trip) so the fact that the 'spread' is 0.7/0.8 at good times is academic as this works out as 75/80% wider than the spread of capital spreads / IG index etc

if i trade bigger sizes and/or more frequently i get a better comms rate ..... surely an inducement to overtrade and anyway hardly treating small clients fairly

the fact that i am trading with other market participants is not a good enough 'come on' to pay such a price.

 

[gle101]

LMAX (when you add the comms charge) is often wider than the fixed spreads ... margins are quite high as well

making a £1 trade generates $0.40 a side in comms charges which is 0.8 of a point before you have even started. So what if the spread is 0.5 or 0.4 ... it still works out as wider than my spread bet company.

placing a trade in the FTSE gets me a .5 a tick charge (i.e 1 point round trip) so the fact that the 'spread' is 0.7/0.8 at good times is academic as this works out as 75/80% wider than the spread of capital spreads / IG index etc

if i trade bigger sizes and/or more frequently i get a better comms rate ..... surely an inducement to overtrade and anyway hardly treating small clients fairly

the fact that i am trading with other market participants is not a good enough 'come on' to pay such a price.

Yes at a low entry level of stake size SB and CFDs is quite unbeatable.

 

[matt101uk]

Certainly some good points. You're right, spreads tend to be smaller on a market making provider. If you get a good spread at your provider and don't get put to dealer then it's certainly handy. However a lot of people on this forum have been put to dealer in the past because they started to make some money. If the market maker gives you a price on the platform and you trade on it that should be the price you get. Not... oh dear.. that wasn't right... let's cancel you.... No point having small spreads if when you click the button it's not allowed..... So, just need small spreads, small commission, and fast execution with no requotes, no cancellations and an open API maybe?! So that would leave....... ummm...... anybody?!?!

 

[gle101]

Certainly some good points. You're right, spreads tend to be smaller on a market making provider. If you get a good spread at your provider and don't get put to dealer then it's certainly handy. However a lot of people on this forum have been put to dealer in the past because they started to make some money. If the market maker gives you a price on the platform and you trade on it that should be the price you get. Not... oh dear.. that wasn't right... let's cancel you.... No point having small spreads if when you click the button it's not allowed..... So, just need small spreads, small commission, and fast execution with no requotes, no cancellations and an open API maybe?! So that would leave....... ummm...... anybody?!?!

Take Capitalspreads for instance, very few problems with prices and no slippage. The real market DMA will at times give you slippage and the entry level will be much higher as you probably will be trading futures. Prospreads might be a middle path that might suit your trading requirements.

 

[moka2]

"the fact that i am trading with other market participants is not a good enough 'come on' to pay such a price."

But with MM model you are trading against the house with LMAX ( or other True Exchanges) you are not

 

[gle101]

"the fact that i am trading with other market participants is not a good enough 'come on' to pay such a price."

But with MM model you are trading against the house with LMAX ( or other True Exchanges) you are not

You pay a price where ever you trade and the MM model does not mean the market maker is your enemy. That you are trading against the house is not correct description of the MM model. In fact they provide liquidity at a very low entry price. Sure one can trade the futures, but you have to invest more. Take your pick, but either way you have to pay out in order to get into the game.

 

[moka2]

"MM model does not mean the market maker is your enemy"
Only true if
A) Market maker is able to match you with another client thus have no exposure and does not care if you win or loose
B) Hedge you position in real market ( Hence the rise of DMA model)
However your still exposed to Counterparty risk as comapred to Exchange Traded Product where the Exchange "Novates" your trade

This is the suttle diff in risk that many avaerage investor not likely to know and surely MM does not tell you that unless you realy push and ask
.. and when you day they downplay

SO True exchange and Exchange alikes like LMAX and Betfair are your only option to cut the MM issue

 

[tar]

I think problems arise when you trade short term with big size , another thing to note here is that OTC markets is bigger than exchange traded markets , ie : forwards , swaps , forex , derivatives ... etc .

 

[moka2]

Big or small , short term or long term at the end of the day Broker/ Counterparty risk is stil a risk that one does not want to have on top of Market risk

derivatives .. you mean Options and Futures .. they are mainly Exchane Traded
not OTC !

May be only FX and that too is getting more in to ECN/ DMA method as people don;t like the MM risks
If a MM broker is big and has enough liquidity on both sides the Counterparty risk does go down .. but one day Broker running away with your cash is still there
Wheer as if you re trading Equity and Euity Options on a SIPC covered system you are protected from such silly risk

 

[tar]

Big or small , short term or long term at the end of the day Broker/ Counterparty risk is stil a risk that one does not want to have on top of Market risk

derivatives .. you mean Options and Futures .. they are mainly Exchane Traded
not OTC !

May be only FX and that too is getting more in to ECN/ DMA method as people don;t like the MM risks
If a MM broker is big and has enough liquidity on both sides the Counterparty risk does go down .. but one day Broker running away with your cash is still there
Wheer as if you re trading Equity and Euity Options on a SIPC covered system you are protected from such silly risk

Agree in general but OTC is a huge market not only Forex you have a huge list of derivatives besides Futures and Options are traded OTC , for example : non deliverable forwards , swaps , CDO , CDS ,exotic options , synthetic products .... and much more , so the OTC market is bigger , and hedge funds and professional investors trade the OTC market . As for the protection it depends with whom you trade , in the UK for example you have some protection , for futures and forex in the US you don't ... etc .

 

[instant]

i have to say that some of the experiences here are very alien to my knowledge.

i trade mainly with Capital Spreads but also with IG . have done so for many years. reasonably profitable over all that time but much better in recent months.

neither company has ever put me onto a dealer.

i think that people are rather odd when it comes to exchanges .... whatever exchange/FX platform you trade on the vast bulk of the liquidity in the indices/FX/commodities is provided by "market makers". Clients do not generally 'add liquidity' they trade on the prices provided by the 'market makers'. You can place an order, of course, but you can on a spread bet platform as well.

even for the big players i would have thought that the 28% saving on CGT is tough to beat using an exchange.

i can see that High Frequency Traders would probably not use a MM platform but aside from them i really struggle to see a genuine advantage in 'not knowing' who your counterparty is.