Binary option system 498: How do forex market makers trade

What is a Market Maker.

and Why Market Making?

Market Makers vs Brokers vs ECNs.

Retail forex trading can be broadly grouped into three categories: market makers, brokers and electronic communications networks (ECNs). The difference between the three is how they provide currency rates to the retail trader.

Market makers make the rates. In most cases they are banks, hedge funds or in this case, MahiFX Brokers pass on the customer's trade to a market maker and charge a commission or fee on each trade. ECN’s blend rates from both brokers and market makers, and like brokers, charge per trade.

What is a market-maker?

A market-maker is typically defined as a broker-dealer firm that publicly quotes both a buy and sell price for a currency or commodity that is traded on a regular and continuous basis. Market makers compete with one another to offer the best prices for their customers.

Market-makers exist in order for traders to be able to buy or sell immediately, rather than having to find someone to buy from, or sell to. The broker-dealer firm is ready at any point during trading hours with an ask and bid price. This means that when you place an order to buy or sell, the market-maker will either buy from you or sell from their own inventory; they are literally ‘making a market’ for the stock.

Why trade with a market maker?

Market makers, like MahiFX, can offer tighter spreads, which is the single most important factor in improving your returns. MahiFX don’t add a commission or a spread to the institutional rate and can offer consistently better pricing than a middleman passing on liquidity from a bank or hedge fund.

Our Promise.

Real pricing.

Many brokers and ECN’s promise low spreads, or sometimes even no spread at all. However, as with many things, there’s a catch. What % of the time do you actually see these spreads? Do they publish their fill rates? Do they have minimum trade and account sizes? Our goal is to offer you pricing consistency and total transparency and will never offer ‘from’ rates or try to mislead you.

Humans, not machines.

As the institutional FX space has grown so has the emergence of computer generated algorithmic trading. Machines hook up to ECN’s and trade at alarming speeds. Trading like this requires that rates move at machine speeds and causes something known as ECN flicker, where rates move around so fast its virtually impossible for a human to click on them. You are human, and we think it’s important you have access to tight pricing that you actually click on and access consistently.

Fairness and transparency.

Order confidentiality is paramount and our pricing engine is completely separate to the order book so it cannot anticipate client orders. Orders are executed on a neutral, fair price stream, which is constructed by dispassionate machines with no human intervention.

The big FX myth.

Do Market Makers trade against me?

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High Risk Investment Warning : Trading FX carries a high level of risk to your capital and you should only trade with money you can afford to lose. It is possible that you could lose more than your deposited funds. Before deciding to trade the products offered by MahiFX you should carefully consider your objectives, financial situation, needs and level of experience. You should be aware of all the risks associated with trading with leverage. The contents of this website should not be construed as personal advice.

Please view our Australian Product Disclosure Statement, Australian Financial Services Guide, New Zealand Product Disclosure Statement (NZ PDS) & NZ PDS Supplementary Document before deciding to enter in any transactions with MahiFX Ltd. The information and products on this site are not directed at or available to residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

MahiFX is a New Zealand incorporated company that conducts business in New Zealand and Australia. If you are not based in one of these countries, it is your responsibility to ensure that use of our services and/or platform in your jurisdiction is legal. MahiFX is regulated by the Australian Securities and Investment Commission (Australian registered body number (ARBN): 152-535-085; Australian financial services licence (AFSL) number: 414198) and the New Zealand Financial Markets Authority (New Zealand Business Number (NZBusNo) 9429031595070; NZ financial services provider register (FSPR) number: FSP197465).

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MahiFX Limited is registered in New Zealand (Company no. 2446590, NZBusNo 9429031595070) and Australia (Australian registered body number ARBN 152-535-085). MahiFX Limited is authorised and regulated under the Australian Securities and Investment Commission (AFSL number 414198) and the New Zealand Financial Markets Authority (FSPR number FSP197465).

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The big FX myth. Do Market Makers trade against me?

When you trade on a market maker's rate they are taking the risk into their own book. The purpose being to facilitate client's business and offer the best possible spreads - see our blog on why dealing direct with the market maker is the best option for trading FX - but some of our broker competitors have propagated the idea that market makers 'trade against you'. The suggestion is obviously that you should trade with them. The difficulty there is that, if they are acting exclusively as a broker and taking no risk, they need to pass the risk directly on to someone who will i. e. a market maker and they need to take a brokerage or markup. So the risk generally ends up with a market maker anyway AND with an additional layer of cost.

But the idea is out there, so let's have a close look at it. First lets look at why market makers take risk on to their books. A market maker publishes a continuous two way rate, allowing clients to trade at the time of their choosing. Assume a market maker has a number of clients. Client one sells to the market maker, thinking the market goes down. The market maker could at this point turn around and sell to the market, as a broker would. But then he cannot profitably show the market rate - buying from his client at the market rate and then selling at the same rate doesn't create a sustainable business, one that can continue to add value to its clients.

If the market maker takes client one's trade into his book, there is now a window in which another client may show up and buy on the other side of the spread. That is why market makers take risk into their books - it is to open a window in which buyers and sellers can match off across time, allowing the market maker to capture spread as compensation for providing their service, and show a better rate than brokers. It isn't to trade 'against' their clients.

Let's look a little more closely at the period between clients one and two trading. If there is anything that gives the 'trading against' nostrum its superficial appeal, it is this period where the market maker is long and the client is short. Surely this is zero sum? If the market goes up the market maker wins and the client loses, and vice versa. Surely the market maker is trading against client one? Well, not really. The market maker temporarily has an opposing position from facilitating client ones ability to trade on the best rate. But he is not married to it. He would like to see another client show up or a passive hedging order fill as soon as possible after client one trades to neutralise his risk. And so we come to the issue of horizon.

Differing horizons - or holding periods - is what makes the relationship between market makers and their clients work, and gives the lie to the idea of trading against clients. Different parties can win to a trade, so long as they have different holding periods. Lets say the market maker is publishing a rate of 20/21 when client one sold. So the client is short and the market maker long at 20. The market maker is then paid three minutes later at 21 on a passive order. Another three minutes passes and the market falls to 17/18. Client one buys back his short, earning two pips. The market maker earned his spread and the client was right about the market's direction and locked in his profit.

So the market maker and client can in fact have a symbiotic relationship, and the market maker can facilitate the clients ability to express his trading ideas without the layers of costs of any of the alternatives.

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Market Maker Forex Brokers.

Trading foreign currencies has garnered enormous popularity across the globe over the past decade. In previous times, individual retail forex traders were few and far between. The forex arena was the private playground of major global banks, commingled funds, and those individuals with the wherewithal and financial resources to trade very large lot sizes. Average transactions in those days were for $1 million positions and up, not exactly an environment that fostered the retail trading frenzy that exists today.

What happened to change things? Forex brokers saw an opportunity and did what brokers do – provide access to a market for clients by providing reasonable terms that are both acceptable and convenient. Their chosen activity, however, was not exactly like a market maker in the stock world. They were not selling title to an actual asset where ownership issues were involved. Their job was to provide Bid/Ask quotes, and, as with stocks, be prepared to be the buyer or seller of last resort, if the market liquidity became an issue.

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Market liquidity in the forex world, however, is never an issue, at least for major currency pairs. At a daily turnover rate in excess of $4 trillion, the forex market is the largest and most liquid market in the world. No market maker in this arena would ever have to worry about building an inventory of unsold shares and then wait for the opportune time to unload them on the market.

The forex market maker actually buys and sells his own positions in the background from chosen liquidity providers in the Interbank market, and then offers positions at Bid/Ask prices that work to his benefit. As a middleman, the broker deals with banks or other brokers on one end, while managing the “over/unders” for each currency pair from retail traders on an aggregated basis. In other words, there remains a basic conflict of interest for all market makers. Unscrupulous brokers can easily manipulate spreads to their benefit over time, leaving their clients to accept their behavior or move on.

The market makers in the forex community of brokers, at least the vast majority of them, are legitimate and would never do anything like manipulating spreads to their immediate benefit. They are more concerned about pleasing and retaining their clients. Competition is too fierce, and regulators provide much more oversight in this day and age. Like it or not, however, ECNs, the other type of broker that passes orders straight through to their liquidity providers, waste little time in their marketing campaigns emphasizing that market makers trade against their clients in the back-office. There are pros and cons for each broker set up, and these depend on what your individual needs happen to be.

What exactly is a forex market maker broker?

Here is one definition of a forex market maker:

“A broker-dealer firm that accepts the risk of holding a certain number of forex positions on its books for a particular currency pair in order to facilitate trading in that currency pair. Each market maker competes for customer order flow by displaying buy and sell quotations that it will honor if acted upon in a timely manner. Once an order is received, the market maker typically aggregates its net positions and immediately places an offsetting order in the market with its liquidity provider. This process takes place in mere seconds.”

In other words, a market maker does exactly what the term implies – it makes a market for the applicable currency pair, often without going to any trading floor or electronic exchange. Nearly all forex brokers operate in this fashion for retail forex trading.

The opposing type of broker, the ECN or “Electronic Communication Network” uses a special set of financial software protocols to link up with a host of large liquidity providers and funnel the orders directly through, posting only the Bid/Ask spreads that are provided to it. Variable spreads and commissions, however, can be confusing, and this trading modality is designed more for commercial, institutional, and large balanced professional traders. It is not for novice traders focused on small positions. It is comprised of high volume trades with high transactional values. If you want to start trading with an ECN broker we recommend FXPro. Open a demo account here or read the FXPro review.

How do you recognize an unscrupulous forex market maker?

All forex traders should be constantly on the lookout for the tell-tale signs of fraudulent business practices. Manipulating Bid/Ask spreads is one of the more common abuses. It serves as a hint that you should be skeptical and beware. Constant re-quotes or “slippage”, the practice where your execution occurs at a different rate than what you expected, are emblematic that a broker may not be on the up. Also, if you see a flat market, then a sudden swing of 25 or 30 pips to sweep away stop loss orders, and then a return to the previous level, the broker may once again be guilty of poor business practices. Read more about questionable forex broker practices here.

What are the pros and cons for forex market makers?

Market makers provide a wealth of support in the form of online live charts, technical analysis, market news and commentary, and a variety of educational materials from ebooks to online tutorials; More user-friendly and popular trading platforms like Metatrader4 are available and supported; Spreads are fixed, not variable, and no commissions are applied; Volatility can be somewhat lower, as the market maker tries to stabilize the view of the market for the trader.

Manipulations may occur in the form of re-quotes, slippage, and sudden moves to clear stop loss orders; Spreads may not be as tight, as with an ECN; Servers may freeze up when major news releases occur, causing more slippage; Limitations may apply for scalping strategies, EAs, and automated trading.

Concluding Remarks.

If you want to act like a “heavy-hitting” professional trader, then a market maker may not be the best fit for you. Most brokers are, however, of this genre, and it is unfair to label the majority as always trading against you. If you are a novice or like to trade smaller lots, then a market maker may be best. ECNs may be the wave of the future, but they may not be suited for everyone’s trading needs or approach.

How do Forex market makers work?

The Forex market straddles the globe.

It is a 24-hour market with no single central location of operation.

Trading Forex itself is a reasonably straightforward affair for any single participant…

. but the overall interaction between the various players adds up to a complex affair.

You see, the Forex market breaks down into a large number of players of varying sizes.

This article is going to look at a key type of operator in the Forex market:

. the role of Forex market makers.

They play a significant part in the FX prices.

To better understand how market makers fit into the overall picture, we need to take a quick look at the market as a whole.

Market structure.

At the top of the tree sits the interbank Forex market.

The interbank Forex market comprises the transactions conducted between the major banks.

One way of describing it is as the wholesale level at which currencies are exchanged.

It is here where we can see the core role of the FX market maker.

Each bank has dedicated market makers for each major currency pair.

They provide prices at which the bank commits to buy and sell currencies from their peers in the interbank market.

Though these prices are intended for the interbank market…

. they effectively permeate their way to the retail side of the market, as we shall discuss later.

Therefore, we can say the institutions that comprise the interbank market are the primary market makers in the FX market.

So what does a market maker do?

The name is largely self-explanatory.

A market maker quotes two-way prices in a certain currency pair, thereby making a market.

A Forex market maker essentially does three things:

sets bid and offer prices in a certain currency pair commits to accepting deals at these prices within certain constraints takes the resulting exposure on to their own book, at least initially.

What are the constraints mentioned in the second point above?

Basically the quote may only be good in a certain minimum or maximum size…

. and the price will only be good if dealt on in a timely manner.

The third point establishes that a market maker is a counterparty to a Forex trade.

In other words, they are not matching the trade with another party in the way that a broker would.

In terms of taking this exposure on to their book:

. a market maker may subsequently choose to hedge the exposure with another bank, if they are able to gain a favourable rate.

How quickly or slowly or how much risk they lay off will be at their discretion.

One way a market maker makes profit is by seeing two-way business.

If they see enough flow at both sides of their quote, they can simply collect the bid offer spread while netting off their exposure.

Now, the large banks see huge flows of foreign currency transactions from their operations around the world.

Because of this, they can achieve significant profit simply from collecting this spread day after day.

Of course, a dealer may also choose to take a position in a currency at their discretion.

They can do this by either:

making a trade with another bank or by pricing accordingly in order to attract trades in a certain direction.

The Forex market makers method – how do they set their prices?

Bank dealers weigh up a number of concerns when making their prices.

the prevailing rates being quoted elsewhere their own exposure – what positions they already have on their book their view on the future performance of the currency pair volumes available at the prevailing market rate and the volume of the deal they are quoting for.

Retail FX pricing.

The trades between the large banks forms the core of the FX market by volume.

There's more, though:

. banks' continuous commitment to buy and sell currencies is a cornerstone of all pricing in the FX market.

Despite the huge volumes that go through the interbank market, a large portion of Forex participants do not have direct access.

One of the foundations of the interbank market is the credit relationships that the largest banks have between each other.

The banks buy and sell currencies between each other on this credit basis alone.

Furthermore, deals in the interbank market are typically very large.

These aspects combine to preclude most players from directly accessing the interbank market.

Indeed, there was a time when the FX market as whole was only really the preserve of banks, institutions and the very wealthy.

That has all changed, of course.

Retail clients now readily access the Forex market.

They do this via FX firms that directly or indirectly tap into prices made by the large banks.

This trend has been aided by improvements in technology.

Progress in this areas has led to a variety of excellent electronic trading platforms.

One of the most popular retail FX platforms is MetaTrader 4…

. and perhaps the most advanced plugin available for that platform is MetaTrader 4 Supreme Edition.

MT4SE offers a host of useful features, including the professional-style Trade Terminal that allows multi-currency trade management.

What is the upshot of these platform advances?

The gap between the trading experience of institutional investors and that of retail clients has narrowed over the years.

Retail clients now have access to very competitive Forex spreads and trading became extremely convenient.

So how do FX firms offer prices to retail clients?

To answer this question, we need to be careful with our terminology.

You see, some of these firms are sometimes referred to as market makers…

. but in fact, they do not really perform all of the core functions of a true market maker.

The way FX firms operate varies, but pricing tends to ultimately derive from the same familiar players.

Namely, the large banks who operate as prime brokers for these firms.

Some firms may operate effectively as a broker, hedging off their exposure immediately with their liquidity provider.

Others may take some of the exposure on to their own book.

But here's the key part:

. generally, they do not make their own prices as a true market maker would.

For any particular currency, a retail FX firm might offer an aggregate price.

This would essentially be the best bid/offer that they have access to via the market making counterparties that they hedge with.

An alternative way that firms grant their clients access to the FX market is via Electronic Communications Networks , or ECNs.

An ECN aggregates bids and offers from banks, institutions and other traders into an order book.

If you place a trade, the ECN will match you against the very best price available.

ECNs are typically extremely fast and transparent systems with very tight spreads.

Pros and cons of market makers Forex prices.

Some people dislike the notion of a market maker, taking the view that they are somehow calling the market against them.

Obviously, a market maker is not going to quote a price that doesn't suit their own position…

. but they ultimately quote a two-way price.

This means there is an extremely limited amount that the price can be skewed before an arbitrage opportunity opens.

The overarching European Markets and Financial Instruments Directive (MiFID) means that UK FX firms are committed to offering the best execution on their clients' behalf.

Before this standard came into play, some firms might have tweaked their price in order reflect their book position, but this cannot happen under best execution.

When discussing market makers, the bottom line is that they are the pillar that the FX market is built upon.

Beyond this fundamental contribution of effectively enabling the FX market to function, they do offer some other benefits as well.

They offer consistency and liquidity to the market with their continuous commitment to take the opposite side of any deal.

A market maker Forex price is at root made by a human:

. someone somewhere is literally deciding the bid/offer price.

This might seem an odd point to make, but you can use this aspect to inform your market maker trading strategies.

Nearly all technical indicators rely on a belief that price action is guided by human behaviour, as opposed to being a random walk.

That there is such a large human element in the prime making of prices would tend to lend credibility to the efficacy of technical indicators.

The human element also means there is less volatility in comparison to ECN prices.

ECNs allow automated trading systems to plug directly in and trade at near instantaneous speeds.

This can lead to rates fluctuating at such rapid rates that it makes it less easy to use.

We should also note, though, that ECN's are very suited to high frequency trading strategies and scalpers.

Market makers provide prices in good faith as a basic component of the effective functioning of the market, but in my experience they dislike being scalped.

There are market makers in the stock market as well as the FX market, and both help to provide liquidity.

So how do these different types of market maker compare?

Well, a key way in which the FX market differs from the stock market is that Forex transactions are less transparent.

Stocks trade on exchanges where trade information is made publicly available.

That means the price and volume data are readily available for stock trades.

This is not the case for the Forex market, though.

Flows of FX business seen by the large banks is considered proprietary information and there is no requirement for this information to be disclosed.

Market makers at the major banks are aware of large, and therefore potentially market-moving trades, before the wider market.

This, in theory, gives them an advantage over other traders.

The kind of information to which a market maker may be privy but is unavailable to the market as a whole may include:

institutions rebalancing portfolios hedging requirements changes in risk appetite.

Such flows may influence the short-term trend of FX prices.

Some view this as giving an unfair advantage to market makers.

A market maker would argue this aid to their trading strategy is a benefit that stems from the service they provide.

Choosing an appropriate Forex market maker strategy.

Whether you prefer the consistency of pricing from a market maker or the variable spreads of an ECN is up to you.

You may find your strategy or style of trading dictates which you use.

If you are a scalper or an algo-trader, you may find that ECN pricing suits you better, for example.

One way to access real live market prices is with Admiral Markets demo trading account.

This offers the benefit of allowing you to trade without taking on any risk.

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Binary option system 498

вторник, 22 мая 2018 г.

How do forex market makers trade

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вторник, 22 мая 2018 г.

How do forex market makers trade

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вторник, 22 мая 2018 г.