Forum on trading, automated trading systems and testing trading strategies
newdigital, 2013.07.01 07:19
Just next educational article about ECN and so on - Market Makers Vs. Electronic Communications Networks
The foreign exchange market (forex or FX) is an unregulated global market in which trading does not occur on an exchange and does not have a physical address of doing business. Unlike equities, which are traded through exchanges worldwide, such as the New York Stock Exchange or the London Stock Exchange, foreign exchange transactions take place over-the-counter (OTC) between agreeable buyers and sellers from all over the world. This network of market participants is not centralized, therefore, the exchange rate of any currency pair at any one time can vary from one broker to another.How Market Makers WorkMarket makers "make" or set both the bid and the ask prices on their systems and display them publicly on their quote screens. They stand prepared to make transactions at these prices with their customers, who range from banks to retail forex traders. In doing this, market makers provide some liquidity to the market. As counterparties to each forex transaction in terms of pricing, market makers must take the opposite side of your trade. In other words, whenever you sell, they must buy from you, and vice versa.The exchange rates that market makers set, are based on their own best interests. On paper, the way they generate profits for the company through their market-making activities, is with the spread that is charged to their customers. The spread is the difference between the bid and the ask price, and is often fixed by each market maker. Usually, spreads are kept fairly reasonable as a result of the stiff competition between numerous market makers. As counterparties, many of them will then try to hedge, or cover, your order by passing it on to someone else. There are also times in which market makers may decide to hold your order and trade against you.There are two main types of market makers: retail and institutional. Institutional market makers can be banks or other large corporations that usually offer a bid/ask quote to other banks, institutions, ECNs or even retail market makers. Retail market makers are usually companies dedicated to offering retail forex trading services to individual traders.Pros:
How ECNs WorkECNs pass on prices from multiple market participants, such as banks and market makers, as well as other traders connected to the ECN, and display the best bid/ask quotes on their trading platforms based on these prices. ECN-type brokers also serve as counterparties to forex transactions, but they operate on a settlement, rather than pricing basis. Unlike fixed spreads, which are offered by some market makers, spreads of currency pairs vary on ECNs, depending on the pair's trading activities. During very active trading periods, you can sometimes get no ECN spread at all, particularly in very liquid currency pairs such as the majors (EUR/USD, USD/JPY, GBP/USD and USD/CHF) and some currency crosses.Electronic networks make money by charging customers a fixed commission for each transaction. Authentic ECNs do not play any role in making or setting prices, therefore, the risks of price manipulation are reduced for retail traders. (For more insight, see Direct Access Trading Systems.)Just like with market makers, there are also two main types of ECNs: retail and institutional. Institutional ECNs relay the best bid/ask from many institutional market makers such as banks, to other banks and institutions such as hedge funds or large corporations. Retail ECNs, on the other hand, offer quotes from a few banks and other traders on the ECN to the retail trader.Pros:
The Bottom LineThe type of broker that you use can significantly impact your trading performance. If a broker does not execute your trades in a timely fashion at the price you want, what could have been a good trading opportunity can quickly turn into an unexpected loss; therefore, it is important that you carefully weigh the pros and cons of each broker before deciding which one to trade through.
The USD/CAD pair rose during the course of the week, but found enough
resistance at the 1.14 level to turn things back around and form a
shooting star. However, the previous two weeks formed hammers, so we
feel that the market is essentially going to consolidate in this general
vicinity. We do not anticipate any type of selling to occur, so
therefore we are going to step on the sidelines in order to avoid a lot
of the potential volatility and grinding type of action that we are
going to see.
EUR/USD Technical Analysis: Short Trade Entry Sought (based on dailyfx article)
The Euro moved higher against the US Dollar as expected
after prices produced a bullish Piercing Line candlestick pattern.
Near-term resistance is at 1.2852, the 23.6% Fibonacci retracement, with
a break above that on a daily closing basis exposing the 38.2% level at
1.3070. Alternatively, a reversal below the October 13 close at 1.2750
opens the door for a test of the October 1 close at 1.2619.
AUDIO - Weekend Edition with Prof. Patrick Barron
Merlin Rothfeld, John O’Donnell and Patrick Barron
talk about several key issues facing our markets including fractional
reserve banking and the European Union. Professor Barron points to his
article about the demise of the euro, and discusses how the breakup
could lead to a new world reserve currency.
if actual > forecast (or actual data) = good for currency (for CNY in our case)
[CNY - GDP] = Change in the inflation-adjusted value of all goods and services produced by the economy.
China GDP Rises 7.3% On Year In Q3
China's gross domestic product expanded 7.3 percent on year in the
third quarter of 2014, the government said on Tuesday - topping
expectations for an increase of 7.2 percent but slowing from 7.5 percent
On an annualized quarterly basis, GDP was up 1.9 percent -
also beating forecasts for 1.8 percent and down from 2.0 percent in the
previous three months.
The government also said that industrial
production climbed 8.0 percent on year in September, beating
expectations for 7.5 percent and up from 6.9 percent in August.
sales climbed an annual 11.6 percent, just shy of forecasts for 11.7
percent and down from 11.9 percent in the previous three months.
asset investment jumped 16.1 percent on year, also missing expectations
for 16.3 percent and down from 16.5 percent in the three months prior.