Forum on trading, automated trading systems and testing trading strategies
Sergey Golubev, 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.
Intra-Day Fundamentals - EUR/USD, and GBP/USD : ADP Non-Farm Employment Change2016-11-02 12:15 GMT | [USD - ADP Non-Farm Employment Change]
if actual > forecast (or previous one) = good for currency (for USD in our case)
[USD - ADP Non-Farm Employment Change] = Estimated change in the number of employed people during the previous month, excluding the farming industry and government.
From official report:
EUR/USD M5: 13 pips range price movement by ADP Non-Farm Employment Change news events
GBP/USD M5: 32 pips range price movement by ADP Non-Farm Employment Change news events
Intra-Day Fundamentals - EUR/USD, USD/CAD and NZD/USD : Federal Funds Rate and Federal Open Market Committee Statement2016-11-02 18:00 GMT | [USD - Federal Funds Rate]
[USD - Federal Funds Rate] = Interest rate at which depository institutions lend balances held at the
Federal Reserve to other depository institutions overnight.
EUR/USD M5: 29 pips range price movement by Federal Funds Rate news events
USD/CAD M5: 19 pips range price movement by Federal Funds Rate news events
NZD/USD M5: 28 pips range price movement by Federal Funds Rate news events
AUD/USD Intra-Day Fundamentals: Australia Trade Balance and 34 pips range price movement
2016-11-03 00:30 GMT | [AUD - Trade Balance]
if actual > forecast (or previous one) = good for currency (for AUD in our case)
[AUD - Trade Balance] = Difference in value between imported and exported goods and services during the reported month.
AUD/USD M5: 34 pips range price movement by Australia Trade Balance news event
USD/CNH Intra-Day Fundamentals: Caixin Services PMI and 34 pips range price movement
2016-11-03 01:45 GMT | [CNY - Caixin Services PMI]
if actual > forecast (or previous one) = good for currency (for CNY in our case)
[CNY - Caixin Services PMI] = Level of a diffusion index based on surveyed purchasing managers in the services industry.
USD/CNH M5: 25 pips range price movement by Caixin Services PMI news event
GBP/USD Intra-Day Fundamentals: Bank of England Official Rate and 72 pips range price movement
2016-11-03 01:45 GMT | [GBP - Official Bank Rate]
if actual > forecast (or previous one) = good for currency (for GBP in our case)
[GBP - Official Bank Rate] = Interest rate at which the BOE lends to financial institutions overnight.
GBP/USD M5: 72 pips range price movement by Bank of England Official Rate news event
Quick Technical Overview - S&P 500: daily bearish reversal with 2,084 support (adapted from the article)
D1 price broke 200-day SMA to be reversed to the primary bearish market condition. The price is testing 2,084 support level to below for the bearish trend to be continuing.
Intra-Day Fundamentals - EUR/USD and USD/CAD : The Institute for Supply Management Non-Manufacturing PMI2016-11-03 14:00 GMT | [USD - ISM Non-Manufacturing PMI]
[USD - ISM Non-Manufacturing PMI] = Level of a diffusion index based on surveyed purchasing managers, excluding the manufacturing industry.
"The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI®
registered 54.8 percent in October, 2.3 percentage points lower than
the September reading of 57.1 percent. This represents continued growth
in the non-manufacturing sector at a slower rate. The Non-Manufacturing
Business Activity Index decreased to 57.7 percent, 2.6 percentage points
lower than the September reading of 60.3 percent, reflecting growth for
the 87th consecutive month, at a slower rate in October."
EUR/USD M5: 16 pips range price movement by ISM Non-Manufacturing PMI news events
USD/CAD M5: 17 pips range price movement by ISM Non-Manufacturing PMI news events
AUD/USD Intra-Day Fundamentals: Australia Retail Sales and 34 pips range price movement
2016-11-04 00:30 GMT | [AUD - Retail Sales]
if actual > forecast (or previous one) = good for currency (for AUD in our case)
[AUD - Retail Sales] = Change in the total value of sales at the retail level.
AUD/USD M5: 34 pips range price movement by Australia Retail Sales news event
Trading News Events: U.S. Non-Farm Payrolls (adapted from dailyfx)
Bullish USD Trade: Employment Climbs 175K or Greater, Jobless Rate Narrows to 4.9%
is located below Ichimoku cloud in the bearish area of the chart. The price is on local uptrend as the bear market rally to be started on Monday for 1.1125 resistance level to be testing for the secondary rally to be continuing. Ascending triangle pattern was formed by the price to be crossed to above, Trend Strength indicator and Absolute Strength indicator are estimating the trend as the rally with the possible daily bullish reversal.