A Market Maker with VIP membership for more stable EA trading... Serious discussion!

[Stormin_Norman]

Then what goes on in the pure STP or ECN execution model in which every order is passed onto a liquidity provider? That certainly is hedging, so I'm not sure why you say "there is no such thing as hedging against the client in Forex". Other brokers, instead of passing off every single order to a third party, they may hedge based on their aggregate exposure (across their entire client base), i.e. in big blocks, as I explained in my previous message. If you don't hedge exposure in any way at all, you would be a pure bucket shop market maker broker, in which case you always profit from client's losses.

 

And will need to pay them if they profit.

 

So being a bucketshop, with profitable clients; where is the money going to comefrom if they make profits?

[hyperdimension]

Oh, very sorry... Now I see what you're talking about, and started to make sense.

 

I think I will leave the hedging part to the liquidity provider and I will make sure to mention on my website that we never hedge against our clients. Maybe that would give us some credibility? Since we show no interest in hunting clients down?

I think you are a bit confused.

 

You, as a broker, need to decide what you want to do with the exposure. I assume that you know what "exposure" means. If you pass off every client trade to a liquidity provider (as in STP or ECN execution), then you would be 100% hedged all the time.

 

If you hedge exposure on an ad-hoc basis, i.e. only when you think you should (based on price movements), then you would not be 100% hedged all the time, as you would have long exposure in some currencies and short exposure in others and it will constantly be changing depending on the trading activity of your clients throughout the day. From your posts, I think this is what you want, and I've outlined the challenges you face if you do this.

 

If you don't hedge at all, you would not have any need for any liquidity provider. You profit when a client wins, and lose when a client profits. The disadvantages of this is common knowledge.

[Abdulisback]

I think you are a bit confused.

 

You, as a broker, need to decide what you want to do with the exposure. I assume that you know what "exposure" means. If you pass off every client trade to a liquidity provider (as in STP or ECN execution), then you would be 100% hedged all the time.

 

If you hedge exposure on an ad-hoc basis, i.e. only when you think you should (based on price movements), then you would not be 100% hedged all the time, as you would have long exposure in some currencies and short exposure in others and it will constantly be changing depending on the trading activity of your clients throughout the day. From your posts, I think this is what you want, and I've outlined the challenges you face if you do this.

 

If you don't hedge at all, you would not have any need for any liquidity provider. You profit when a client wins, and lose when a client profits. The disadvantages of this is common knowledge.

 

Thank you for taking the time for explaining this.

 

Just to make sure, could you please define hedging?

If by hedging you mean buying the same contracts a client sells and Sell the Same contracts a clients buys on the same currency pair. Then I dont think we would be on the same page.

[Abdulisback]

Talking about registering the broker, there are plenty of places to register that aren't NFA. Actually CYSEC, from cyprus, is becomming little by little a pretty good registerer. they have throw out some important broker, like prime4x, or other, like gigfx...

 

i also believe a market maker does not habe to scam a client as a rule, you can be very good market maker and honest too, these are compatible. You just need to find a liquidity provider that would offer you fix low spreads and start to work from there.

 

I think the idea of openning the first branch in Cyprus then moving forward and expanding to Dubai, US and UK is what I should consider.

 

Thank you for bringing that up

[hyperdimension]

If by hedging you mean buying the same contracts a client sells and Sell the Same contracts a clients buys on the same currency pair. Then I dont think we would be on the same page.

Your understanding of the term "hedging" is incorrect.

 

When a client Buys 1 lot of EUR/USD from you, from that transaction you effectively become short Euros and and long US dollars. i.e. you are exposed in the market, and any movements in the EUR/USD rate will cause either a loss or gain in your own money. If you did not want to be short EUR/USD, then you need to hedge by buying 1 lot of EUR/USD at your liquidity provider. In the STP or ECN execution model, this process is automated.

 

In the aggregated hedging model, you'd have to sum all open longs and shorts for every currency that you offer to clients to get your net exposure for each currency. If you are highly short Euros and highly long Australian dollars, then to neutralize that exposure, you might want to buy EUR/AUD at your liquidity provider.

 

I think you need to do a bit of reading up on brokers, prime brokers, ECNs, and the interbank currency markets to get a much clearer understanding of how the industry and the various players operate and make money.

[Abdulisback]

 

When a client Buys 1 lot of EUR/USD from you, from that transaction you effectively become short Euros and and long US dollars. i.e. you are exposed in the market, and any movements in the EUR/USD rate will cause either a loss or gain in your own money. If you did not want to be short EUR/USD, then you need to hedge by buying 1 lot of EUR/USD at your liquidity provider. In the STP or ECN execution model, this process is automated.

 

 

Do you have a link for a good read on all these types of brokers?

 

So you're saying that I have to hedge and match every client contracts in case of ECN?

If that is the case, then how could a broke guy like progress who did not even have 50K on him open his JadeFX broker and have enough money to hedge each client?

 

I dont think the hedging is done here from my funds and thus, it's the liquidity provider's funds. Am I correct?

 

Thank you for taking the time for this