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.
Markets To Watch In The Week Ahead (based on the article)
"The April crude oil contract rallied sharply from Wednesday's low at $51.86 on news that the OPEC measures to reduce production are actually working. Crude sill closed the week a bit lower so this week's close will be important."
"The Comex gold futures have rallied $100 from the mid December lows and have retraced 50% of the decline from the July highs. The former support, line a, is now important resistance. It is in the 1284 area along with the weekly starc+ band and the 61.8% resistance level."
USD/JPY Intra-Day Fundamentals: Japan Gross Domestic Product and 27 pips range price movement
2017-02-12 23:50 GMT | [JPY - GDP]
if actual > forecast (or previous one) = good for currency (for JPY in our case)
[JPY - GDP] = Change in the inflation-adjusted value of all goods and services produced by the economy.==========
From japantimes article:
USD/JPY M5: 27 pips range price movement by Japan Gross Domestic Product news event
EURUSD - bearish ranging within hihh/low of the last weekly bar waiting for the direction of the strong trend to be started (based on the article)
Daily price is located below 100-day SMA/200-day SMA reversal levels: the price is on breaking low of the last weekly bar at 1.0607 to below for the bearish trend to be resumed. Alternative, if the price breaks last weekly bar high at 1.0790 to above so the secondary rally within the primary bearish market condition will be started.
USD/CNH Intra-Day Fundamentals: China Consumer Price Index and 29 pips range price movement
2017-02-14 01:30 GMT | [CNY - CPI]
if actual > forecast (or previous one) = good for currency (for CNY in our case)
[CNY - CPI] = Change in the price of goods and services purchased by consumers.==========
From rttnews article:
USD/CNH M5: 29 pips range price movement by China Consumer Price Index news event
GBP/USD Intra-Day Fundamentals: U.K. Consumer Price Index and 73 pips range price movement
2017-02-14 09:30 GMT | [GBP - CPI]
if actual > forecast (or previous one) = good for currency (for GBP in our case)
[GBP - CPI] = Change in the price of goods and services purchased by consumers.==========
From official report:
GBP/USD M5: 73 pips range price movement by .K. Consumer Price Index news event
Intra-Day Fundamentals - EUR/USD, NZD/USD, and Dow Jones Industrial Average: U.S. Producer Price Index
2017-02-14 13:30 GMT | [USD - PPI]
if actual > forecast (or previous one) = good for currency (for USD in our case)
[USD - PPI] = Change in the price of finished goods and services sold by producers.
EUR/USD M5: 14 pips range price movement by U.S. Producer Price Index news events
NZD/USD M5: 11 pips range price movement by U.S. Producer Price Index news events
DJIA M5: range price movement by U.S. Producer Price Index news events
Apple (AAPL) - Warren Buffett has been buying shares of Apple hand over fist (based on the article)
Apple shares broke 122.32 resistance level to above for good breakout: the price broke 132.93 resistance level as well for the long-term bullish breakout to be continuing.