Can you explain this ? ( Strategy tester ) - page 2

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If this is a high frequency scalper, the backtester will become more useless the smaller your typical profit it. From what I hear you'll definitely need forward testing.

Regarding the brokers, there are many brokers wo really don't like scalping ... you'll probably find out that they will delay the fills of your orders or even switch you to manual execution.


Markus

Are you trying to say Markus, that in the MT4 environment you can get bumped out by broker if you are using high speed execution?
In other words a broker can dictate to you how the Expert should execute orders?
Would the Interbank FX be one of them?
 
I don't have experience with MT brokers. But I know that there are brokers out there who discourage scalping (e.g. I have hear of one where orders can be cancelled if you make more than a certain percentage of your winners with less than 10 pips or so). Same goes for news trading (opening orders with small gains during fast moves) ... I think Refco has such regulations.

This probably mostly applies to brokers who do fill their orders manually rather than routing them to the interbank market electronically ... I would expect that such brokers would not offer APIs. Other than that, technically brokers should be happy for every half turn or round turn since that's how they make their pips from the spreads.

As said, most of that is from hearsay ... but it may be a good idea to ask the broker about using automatic high frequency orders before you open the account.


Markus
 
Now, how does a broker earn his money? With the spread. The spread only applies to actually fullfilled orders, not to pending/open orders. So he calculates his costs according to this spread and gets somewhere his break even plus "something". Lets say, a broker is happy havin 10000 customers for a server with the capacity of 100%. He can still pay the rest, like employies, rent etc.

Now, someone developes a technique, which is based ony many, many open/pending orders. If this customer for example uses 100 trades / hour instead of the "typically expected" 1 trades / hours (just an example), but he basically payy only for 2-3 trades per hour, because the rest remain pending for a few hours, this means, that this custmer basically needs the capacity of 100 customers.

A responsible businessman than needs to see: If this is a techique which is "successfull", he must fear that more and more of his customer will do that. So he does need a server capacity much higher than 100%, maybe 5000% (50% of his customers scalp with automatic experts) or even more.

More resources cost more money (bigger / more servers).

So he would need to increase the spread to cater for scalpers.

Wich would push him out of the market, since other brokers offer the "typical" spread.

So what will he do: Endure the scalper or close their accounts?

Lets face it: For the amount of resource "scalping" need, you cannot hope to get away with 2-3 pips spread per executed order. The non executed orders cost money as well.

I don 't mean to directly offend someone or divaluate someone techique, I just want to show, why a typical broker, must be stupid to not close a scalper at standard conditions.
 
Well, in this case with 100 actual trades per hour the broker should be more than happy with a customer like that, making more roundturns than the average customer in a month. Unless the broker's business model is based on more than just spread (e.g. balancing risk between client accounts instead of straight through dealing, etc.). I'd love to see what's going in the broker's back office for a day or a week, I'm sure there are a lot of things happening that you won't expect ... but somehow I guess it's sometimes better to not know.


Markus
 
 
thank you for all answers

i think small brokers (MT brokers : alpary, neurex , interbankfx , ... ) dislike scalping and 'RedDuke' have good answer for this in moneytech forum :

"No they don’t, and it has nothing to do with straddle. MMs, for the most parts, are like a casino, they know that 90%+ of traders loose, and they utilize various techniques to protect their profits. For example, I hope people realize that their orders especially on mini accounts are not sent to the bank, MM just matches them within its platform, and so it does for many regular accounts. If you are large enough, winning and they can not offset your order with others, they will send it to the bank or use some hedging technique. There are other things that they do.

Now, with scalping, even outside major news release, you do not give them a chance to offset the orders, and since there are no central exchange, there are times when you can “pick” them especially if spread is small enough. Now saying all this, MMs are the only way into this business if you start small. The banks would not even bother talking to you if let’s say you can dump 100K to open account, it is too small, but how many people can devote even this sum? So, the solution is to learn the rules of the game and take it from there."

http://www.moneytec.com/forums/showpost.php?p=143633&postcount=13


regards ,
martine
 
I found this:

Since a Broker does not charge commissions or any administration fees the question of how a Broker clears a profit eventually arises.

What happens to my position once I have entered the market with a Broker?
Once you have undertaken a position, the Broker will proceed in one of the following manners:
1) STP (Straight Through Processing): The majority of broker's trading volume goes directly to the broker's multiple liquidity providers. This means that when you are trading with a Broker your trades are automatically laid off with the broker's liquidity partner banks. These liquidity providers are, in the case of the Broker the largest banks participating in the foreign exchange market. This, among other benefits, guarantees you correct pricing and constant liquidity at all times.
2) Broker also builds up an overall position (deal book) of all its customers' transactions in different currencies and in different directions. Broker can therefore also “match” client orders and positions between themselves.
3) Broker can also build up its market position and gradually hedge any risk that position exposes them to with institutional counter-parties. In that respect Broker operates very much like the dealing and treasury department of a large institutional bank. But for mini accounts positions have to be accumulated because 3 to 5 Million is minimum trade size on the interbanking market. This is the reason for "scalpers are not welcome" - these short living positions cannot be cleared. The broker has to pay for your profit. So simple. Even you would not do this.
So how does a Broker clear a profit?
- Simply, a Broker acts like a wholesaler. As you would go to a supermarket to get better prices than at your local grocery shop, a Broker works very much in the same way. a Broker regroups, thousands of clients therefore creating a huge amount of trading capital and volume. With this trading capital and volume, a Broker is able to negotiate excellent interbank conditions with its liquidity providers. The result is that if Broker can offer 3 pips to its client it means that its liquidity providers are offering Broker less than 3 pips. These conditions are achievable only by guarantying Billions in monthly volumes to the broker's counter parties.
 
martine,
most scalping systems can simply not be tested accurately in the backtester, even on a M1 timeframe which is the most accurate MT4 has. Run your expert on demo for a couple days and then backtest for the same period and you'll see what i mean.
 
Try www.tradexgroup.com. There's a third-hand claim that they like scalpers because they say scalpers make them more money.

http://www.tsd-forex.com/showthread.php?t=10&page=2

-lcg
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