yesakhtar Posted October 24, 2011 Report Share Posted October 24, 2011 Hello Pip-mates I was wondering for quite a while if somebody could explain me the reality of the buzz around Market Makers ruling the pip-world. I did a bit of knowledge gathering from around the web and want your participation to understand the reality.:-/ I have some facts and some question. If people find the thread interesting, we can further build on this FACT 1 source: http://en.wikipedia.org/wiki/Foreign_exchange_market Top 10 currency traders [7] % of overall volume, May 2011 Rank Name Market share 1 Deutsche Bank 15.64% 2 Barclays Capital 10.75% 3 UBS AG 10.59% 4 Citi 8.88% 5 JPMorgan 6.43% 6 HSBC 6.26% 7 Royal Bank of Scotland 6.20% 8 Credit Suisse 4.80% 9 Goldman Sachs 4.13% 10 Morgan Stanley 3.64% FACT 2 Banks Struggle to Make Money From Foreign Exchange source: http://blogs.wsj.com/source/2011/07/27/banks-struggle-to-make-money-from-foreign-exchange/ I didn't go thro' financial statements of all these banks but went thro' DB's annual report 2010. (source: http://www.db.com/medien/en/downloads/Geschaeftsbericht_2010_engl.pdf) Net income (loss)= 2,330 mn (This loss is due to overall activity of DB but forex activity couldn't bring them into green, even when DB is the forex market leader) My questions or doubts 1. If market makers are making a decent profit of say 20% (or even failing...as mentioned in WSJ blog), how can those preaching Market Makers method earn 500-1000% profit@-) 2. Market Makers methods preach that all major banks (FX players) join hand together and rob our money. In such case, they should all distribute our money according to their net asset in this business. But how come some big players gain while others lose:-? Is it that all of them are fighting alone for the entire market share? If yes, then the basic assumption that market makers join hand, become powerful and rob us... is nothing but a fallacy I have no idea on the truth... these are the questions that hovered from quite sometime. Anybody interested can show me the light of truth :-bd hart3000 1 Quote Link to comment Share on other sites More sharing options...
f451 Posted October 25, 2011 Report Share Posted October 25, 2011 You'd need to look at their trading divisions to see if they are making money from trading FX. These large banks conduct a wide variety of activities - even including lending! hart3000 and yesakhtar 2 Quote Link to comment Share on other sites More sharing options...
yesakhtar Posted October 25, 2011 Author Report Share Posted October 25, 2011 Thanks f451 I was interested in their Investment banking and securities division but can't separate Forex trading with other products (equity, derivatives or other wealth management). I looked at DB's CIB (Corporate & Investment Bank Group Division), all looked extraordinarily ordinary. Nothing great about our assumed Market Maker. See for yourself http://img844.imageshack.us/img844/6704/dbfinancials.jpg If somebody has a better way to read the financial statement, here's the link. http://www.db.com/ir/en/download/DB_Interim_Report_2Q2011.pdf More suggestions please hart3000 and piporo 2 Quote Link to comment Share on other sites More sharing options...
f451 Posted October 25, 2011 Report Share Posted October 25, 2011 I seriously doubt that MMs can make outrageous multiples a year, so your initial assumption (assuming we can untangle the structures doing the trading) may be wrong. Nearly all hedge funds run into the market liquidity problem - they end up so large that they have difficulty finding opportunities where deploying their funds won't soak up all the available liquidity and arbitrage away their own potential profit. If MM are moving around $1b in funds a week and making 3% everyone would be very very happy. As to find the entities - I'd start by finding out who makes the market for interbank. hart3000 1 Quote Link to comment Share on other sites More sharing options...
yesakhtar Posted October 25, 2011 Author Report Share Posted October 25, 2011 (edited) Completely agree on this they end up so large that they have difficulty finding opportunities where deploying their funds won't soak up all the available liquidity and arbitrage away their own potential profit In this case, its difficult to imagine a scenario where they join hand and work together. I remember the way old proverb.... "If horse makes friendship with grass... then what will it eat" Edit: Waiting for your further research As to find the entities - I'd start by finding out who makes the market for interbank Edited October 25, 2011 by yesakhtar Quote Link to comment Share on other sites More sharing options...
f451 Posted October 26, 2011 Report Share Posted October 26, 2011 I don't believe they work together - I think they often compete, and I'm sure Goldman is trying to screw Deutsche and who ever else they can get whenever opportunity arises. I think the problem is for the MM that they make book for institutional clients (e.g. the banks you have listed above) and this is far more important than screwing their competitors. Need to fill a yard ($1b us of currency orders) at specified price range without pushing the price around against your buying or selling requires certain kinds of unloading patterns - and I think this what leads to the MM cycles. Chris Lori says that the interbank and institutionals go fishing for liquidity with stop hunts just above or below a known high (low) and once they have scooped up the stop orders they need for a fill, let price move against them - they have big pockets and often are buying for business transactions or on a fundamental position trade timeframe. So MM are seriously constrained by the orders they need to place, and when they need to get them off their books and on to the market. (This is how they can manipulate price - the book of standing orders that they need to fill...) However, I'm sure there is collaboration within the one MM across their different offices - the asian floor manager will talk to the euro floor manager who will talk to the US floor manager to discuss what the liquidity and order position is on their book... yesakhtar and hart3000 2 Quote Link to comment Share on other sites More sharing options...
Guest grandpost Posted October 26, 2011 Report Share Posted October 26, 2011 It's not market makers who are manipulating us..........it's the data feed......that's whay they are at risk and protect themselves and they don't make that much money..... don't confuse currency trading with forex......banks trade with no leverage, real money and they have orders they need filled and they can manipulate these in several ways.......delaying overcounter orders......buy/sell order and give u worst price and keep the other; so much that they can do most of which is illegal; in short they don't care if they win or loose because they are commission based, but they do need to secure their positions through hedging...... Now when u use money from a bank to leverage clients and u have great volume u can make interest, commission, and profit share...... YOu know why we all feel manipulated, because 75% of data feed or something around world is bloomberg, or reuters , i cant remember; It's not the order flow that is changing things, it's the advanced mathematical super computer that is flipping the scale against the majority of the market......and they don't do it to manipulate prices or catch u of trend but because prices need to be moving continuously so money would move around or else we are in recession......... Quote Link to comment Share on other sites More sharing options...
yesakhtar Posted October 26, 2011 Author Report Share Posted October 26, 2011 The more I try to understand the market, the more tangled I get. I could catch hold of a book in anticipation of learning the currency trading structure namely Currency trading: How to Access and Trade the World’s Biggest Market. If anybody interested in reading, can find it at http://www.multiupload.com/XEEPPIFYEK I would present my learning as soon as I finish reading the book Quote Link to comment Share on other sites More sharing options...
Marchello Posted October 26, 2011 Report Share Posted October 26, 2011 (edited) What truly has helped me .. at FF .. search terms ( as links can not be posted) Technical Analysis Fallacy >>>> following the posts from member " fti " (notice date when thread started ,, ) :) Good trading wishes PS .. Love this quote posted in first page .. "Invest With The Insiders, Not The Masses" George Muzea Edited October 26, 2011 by Marchello Quote Link to comment Share on other sites More sharing options...
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