Will the Brokers go broke?

[tsarin]

Hi,

It seems to be a great time to be a 5% trader these days but here is a question that I wonder if anyone has an opinion on. How will the Brokers cope in the current financial environment? There bussiness is particulary strongly built on solid liquidity flows of capital and that is at the very heart of the crisis issue. To me they seem to be at serious risk.

I ask this not because I care about them but because we need to them to trade. Not sure if this will happen here but I seem to have been banned at FF for this question:!::!:

Thanks

 

[Prescient]

The Bucket Shop are mostly gone. Brokers make the money on the spread. 100,000 single lot rounds + per day and climbing. Do the math. They're making more money than ever.

 

[tsarin]

The Bucket Shop are mostly gone. Brokers make the money on the spread. 100,000 single lot rounds + per day and climbing. Do the math. They're making more money than ever.

Hello Precient, thanks for the reply.

Unfortunately people are getting me wrong. I understand totally that the brokers are
making a killing out of the spread, my question is aimed rather at the financial machinery that they are based- there lines of credit. It doesn't matter what there capitalisation is, (I would still argue that allot of them are still undercapitalised), they need lines of credit (capital liquidity or whatever you want to call it) to fund those
100,000 lots per day. Also, as someone said at FF, they need to perform risk management, once again I totally understand this and in fact this is an issue that makes things worse. When you trade the broker needs to take the opposite to counter risk. What does that counter trade need, more capital. So your 100,000 lots per day approaches 200,000 lots per day. When one does the math, they need access to allot of capital I ask if there a systemic risk in that?

Thanks,

 

[Prescient]

Hi tasarin,
Recently, our company had a 2 day full on meeting with the 3rd largest broker in the FX. I'll not mention their name as I don't want to give the impression that I'm advertising for them. I can't reveal to you everthing that was discussed as much of it was given in confidence. But as it relates to your concerns, here's the scoop: There are premium quality fixed price, highly capitalized brokers out there. This type of broker has an established relationship with 5-6 of the major banks around the world for their price feeds and supply and these brokers are the real "market makers". In that regard, they'll take your buy or sell nearly 100% of the time because their risk model is managed by a computer that has pre-calculated their risk in taking the other side of your position. They essentially are holding both your and their position in a hedge and this puts them in a "market neutral position overall. In essence, it's like you being flat. Same thing for them only they're in the market as a simultaneous buy / sell at the exactly the same price, it cost them nothing to do this other than their feed to the banks but they get to keep the spread which with 100,000 full lot rounds per day, generously pays for all their other operation cost plus a pile.

There are several well capitalized brokers out there right now who have been in the game for years, are CFTC compliant here in the States. It's just a matter of choosing one that you like and developing a close relationship with one. Hope that helps.

 

[tsarin]

Hello Prescient,

Thanks, I was just wanting to strike a debate about whether the Crunch "could" effect the
brokers, anyway the banking sector looks like its turning around so its enough of that.

On a more serious side, I was wondering since you have such in-depth dealings with your
broker, is it possible to PM me who they are, it would be much appreciated.

Thanks

 

[Prescient]

Hello Prescient,

Thanks, I was just wanting to strike a debate about whether the Crunch "could" effect the
brokers, anyway the banking sector looks like its turning around so its enough of that.

On a more serious side, I was wondering since you have such in-depth dealings with your
broker, is it possible to PM me who they are, it would be much appreciated.

Thanks

FXDD. We have our own Charting Software and have developed a relationship with them. Rather than us taking IB money, FXDD pays back money into our Chart users account. Pays for the Charts and FXDD clients pick up extra pips each month as a result. Good solid people. We looked long and hard for a Broker relationship that worked on the best interest of the Trader. These guys have proven themselves with a level of integrity that we both appreciate and admire. Will meet with them again in November to look at broadening our relationship for the further benefit of our Chart users.

Hope that helps.