Tuesday, June 26, 2007
stock Exchange
Currency stock exchanges function in a number of the countries with transitive economy. The functions of currency stock exchanges include realization of a currency exchange for legal persons and formation of a Forex exchange rate. The state usually actively adjusts a level of the exchange Forex rate, using compactness of the exchange market
Forex broker firms
Their function includes meeting of the buyer and the seller of a foreign currency and realization between them conversion or credit-depositary operation. For the intermediary broker firms raise the broker commission in the form of percent from the sum of the transaction.
Retail forex brokers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
In the retail Forex industry market makers more often than not run two separate trading desks- one that they use to actually trade foreign exchange (sometimes called a "non-dealing desk" and essentially serving as a proprietary trading desk) and one that is set up for the expressed purpose of off-exchange trading with retail customers (called the "dealing desk" or "trading desk"). Despite various' market makers claims to "offset" clients' trades on the interbank market (the market maker takes the same position that its clients take), there are many reasons why this is implausible, foremost being that the vast majority of retail currency speculators are novices and not profitable. [2] This being the case, if all trades were offset, market makers would simply be giving up substantial profits to the interbank market. Offsetting almost certainly does occur, but only when the market maker judges its clients' net position as being exceedingly risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, those coming in from the interbank system and displayed at the non-dealing desk, are adjusted to incorporate spreads that safegaurd the bank's (in this instance the market makers's) profit before they displayed in the lobby (at the dealing desk) to the retail customer. Dealing desk pricing is, therefore, not a direct reflection of the currency exchange but artificial pricing created and controlled by the originating broker.
The existence of somrtimes off-market pricing on retail trading platforms means that arbitrage opportunities may exist, but retail market makers have become highly efficient at removing arbitragers (commonly referred to as "pickers") from their systems or severly limiting their trading activity.
There are only a limited number of retail Forex brokers offering consumers direct access to the interbank Forex market, the vast majority do not for two apparent reasons. First, the number of clearing banks willing to process the orders of private investors is extremely limited so most brokers couldn't offer traders direct access if they wanted to. More importantly, the dealing desk model (e.g. that which is employed by firms such as Gain Capital, SaxoBank, FXCM, GFT, and FX Solutions) is decidedly more profitable, as a large portion of retail traders' losses are directly turned into market maker profits.
Whereas a retail non-dealing desk broker's income is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits and to take advantage of internal and external trading opportunities. As evidence of this, some traders point to the aˆ?reorderaˆ? or "requote", a market maker counteroffer that is issued in response to a trader's execution order. Instead of the filling an order based on displayed terms, the market maker rejects the order, issuing one that detractors believe favors the market maker's interests.
Perhaps more important is the simple fact that the "rules of the game" for retail speculators are highly disadvantageous. Many lack trading experience and are attracted to the market due to the potential for large returns. Most are severly undercapitalized (account minimums at some firms are as low as 250-500 USD). This is compounded by minimum position sizes, which on most platforms ranges from 10,000 to 100,000 units, forcing some traders to take imprudently large positions. What is perhaps the greatest disadvantage and most dishonest practice of retail Forex firms is defaulting of accounts to extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
Dealing desk brokers are market makers. They not only create and manage artificial, off exchange trading environments (markets), they also function as market makers for the interbank system and, thereby, serve as independent and competing sources of liquidity for participating banks. This dual capacity is seen by many as posing an inherent conflict of interest because there is nothing to prevent brokers from taking out (spiking or stop hunting) off-exchange trades.
Like the rebellion that started over a quarter of a century ago that led most small investors to abandon large stock brokerage firms in favor of discount, on-line brokerage firms like Schwab, E-trade, Ameritrade, Datek, and Fidelity, there are those who think retail Forex trading will go much the same way. Investors abandoned large stock brokerage firms not only because the trading costs were lower but because their stockbrokers were more interested in making markets for themselves (churning accounts) and their corporate partners rather than serving the financial needs of the individual trader. Similarly, dealing desk brokers may inevitably be forced to abandon their artificial trading platforms, offering traders direct market access through their non-dealing desks.
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams.
Retail forex brokers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
In the retail Forex industry market makers more often than not run two separate trading desks- one that they use to actually trade foreign exchange (sometimes called a "non-dealing desk" and essentially serving as a proprietary trading desk) and one that is set up for the expressed purpose of off-exchange trading with retail customers (called the "dealing desk" or "trading desk"). Despite various' market makers claims to "offset" clients' trades on the interbank market (the market maker takes the same position that its clients take), there are many reasons why this is implausible, foremost being that the vast majority of retail currency speculators are novices and not profitable. [2] This being the case, if all trades were offset, market makers would simply be giving up substantial profits to the interbank market. Offsetting almost certainly does occur, but only when the market maker judges its clients' net position as being exceedingly risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, those coming in from the interbank system and displayed at the non-dealing desk, are adjusted to incorporate spreads that safegaurd the bank's (in this instance the market makers's) profit before they displayed in the lobby (at the dealing desk) to the retail customer. Dealing desk pricing is, therefore, not a direct reflection of the currency exchange but artificial pricing created and controlled by the originating broker.
The existence of somrtimes off-market pricing on retail trading platforms means that arbitrage opportunities may exist, but retail market makers have become highly efficient at removing arbitragers (commonly referred to as "pickers") from their systems or severly limiting their trading activity.
There are only a limited number of retail Forex brokers offering consumers direct access to the interbank Forex market, the vast majority do not for two apparent reasons. First, the number of clearing banks willing to process the orders of private investors is extremely limited so most brokers couldn't offer traders direct access if they wanted to. More importantly, the dealing desk model (e.g. that which is employed by firms such as Gain Capital, SaxoBank, FXCM, GFT, and FX Solutions) is decidedly more profitable, as a large portion of retail traders' losses are directly turned into market maker profits.
Whereas a retail non-dealing desk broker's income is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits and to take advantage of internal and external trading opportunities. As evidence of this, some traders point to the aˆ?reorderaˆ? or "requote", a market maker counteroffer that is issued in response to a trader's execution order. Instead of the filling an order based on displayed terms, the market maker rejects the order, issuing one that detractors believe favors the market maker's interests.
Perhaps more important is the simple fact that the "rules of the game" for retail speculators are highly disadvantageous. Many lack trading experience and are attracted to the market due to the potential for large returns. Most are severly undercapitalized (account minimums at some firms are as low as 250-500 USD). This is compounded by minimum position sizes, which on most platforms ranges from 10,000 to 100,000 units, forcing some traders to take imprudently large positions. What is perhaps the greatest disadvantage and most dishonest practice of retail Forex firms is defaulting of accounts to extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
Dealing desk brokers are market makers. They not only create and manage artificial, off exchange trading environments (markets), they also function as market makers for the interbank system and, thereby, serve as independent and competing sources of liquidity for participating banks. This dual capacity is seen by many as posing an inherent conflict of interest because there is nothing to prevent brokers from taking out (spiking or stop hunting) off-exchange trades.
Like the rebellion that started over a quarter of a century ago that led most small investors to abandon large stock brokerage firms in favor of discount, on-line brokerage firms like Schwab, E-trade, Ameritrade, Datek, and Fidelity, there are those who think retail Forex trading will go much the same way. Investors abandoned large stock brokerage firms not only because the trading costs were lower but because their stockbrokers were more interested in making markets for themselves (churning accounts) and their corporate partners rather than serving the financial needs of the individual trader. Similarly, dealing desk brokers may inevitably be forced to abandon their artificial trading platforms, offering traders direct market access through their non-dealing desks.
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams.
Interbank Brokers
Until recently, foreign exchange brokers were doing large amounts of business, facilitating interbank trading and matching anonymous counterparts for comparatively small fees. Today, however, a lot of this business is moving onto more efficient electronic systems which function as a closed circuit for banks only. Still, the broker box providing the opportunity to listen in on the ongoing interbank trading is seen in most trading rooms, but turnover is noticeably smaller than just a year or two ago.
Customer Brokers
For many commercial and private clients, there is a need to receive specialised foreign exchange services. There is a fair number of non-banks offering dealing services, analysis and strategic advice to such clients. Many banks do not undertake trading for private clients at all, and do not have the necessary resources or inclination to support medium sized commercial clients adequately. The services of such brokers are more similar in nature to other investment brokers and typically provide a service-oriented approach to their clients. Saxo Bank belongs to this group of companies.
Private Persons
Physical persons spend a wide spectrum of uncommercial operations regarding foreign tourism, translations of wages, pensions, fees, purchases and sales of cash currency. In 1986 with introduction of margin Forex market trading physical persons had an opportunity to invest free money resources in Forex market with the purpose of profit reception.
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