Question regarding ECN and counter-party trading
This will help:
ALL brokers are counter party to transactions in FX. You are confusing dealing desk with counter party.
For example, if you execute a trade with a straight through processing broker the broker is essentially matching you trade with liquidity providers. However, in the most technical sense the broker is acting as the counter party to your trade and counter party to the banks trade. They are not acting as a dealing desk its just how the clearing side the business works.
At the end of the day all of these trades are cleared via their prime broker.
Hello,I have been looking to signup with an ECN to avoid dealing desks.Can someone explain how a counter-party differs from a dealing desk.As stated in the contract... (removed broker to avoid bias feedback)"THE FOREIGN CURRENCY TRADING YOU ARE ENTERING INTO IS NOT CONDUCTED ON AN EXCHANGE. BROKER IS ACTING AS A COUTNERPARTY IN THESE TRANSACTIONS AND, THEREFORE, ACTS AS THE BUYER WHEN YOU SELL AND THE SELLER WHEN YOU BUY. THE PRICES BROKER OFFERS MIGHT NOT BE THE BEST PRICES AVAILABLE.ALTHOUGH BROKER IS THE COUNTERPARTY TO EACH OF YOUR TRADES, BROKER LIMITS RISK TO ITSELF BY INSTANTANEOUSLY OFFSETTING THE TRADES AND POSITIONS IT ENTERS INTO WITH YOU WITH A BANK OR INSTITUTIONAL MARKET MAKER. AS A RESULT, BROKER DOES NOT PROFIT WHEN YOU LOSE MONEY ON A TRADE. RATHER, BROKER EARNS COMMISSIONS ON EACH TRADE IT ENTERS INTO WITH YOU."How does this differ form a dealing desk? This said broker claims no dealing desk. What risks to the broker are being limited? Maybe I am not understanding the concept of a counter-party and how it could EVER play WITH the trader. If this said broker plays a counterparty trade on every trade. Their winning customers would make them losers. Can someone shed some light on this? I am beginning to doubt even ECN's
Thank YouWe can say like market makers, that is said to trade against their client. If we go by this concept, you loose they win, you win they loose. That's very funny!
Richardson, OP asked a question and there you go promoting your own BS of a broker. If you can't answer OP's question, rather not answer at all.
"THE FOREIGN CURRENCY TRADING YOU ARE ENTERING INTO IS NOT CONDUCTED ON AN EXCHANGE. BROKER IS ACTING AS A COUTNERPARTY IN THESE TRANSACTIONS AND, THEREFORE, ACTS AS THE BUYER WHEN YOU SELL AND THE SELLER WHEN YOU BUY. THE PRICES BROKER OFFERS MIGHT NOT BE THE BEST PRICES AVAILABLE.
This simply means that the broker acts as a market maker. The last line says it all. The prices the broker offer is not the best. In other words, the broker marks up the original price with a few pips in order to make a profit regardless of whether you buy or sell.
ALTHOUGH BROKER IS THE COUNTERPARTY TO EACH OF YOUR TRADES, BROKER LIMITS RISK TO ITSELF BY INSTANTANEOUSLY OFFSETTING THE TRADES AND POSITIONS IT ENTERS INTO WITH YOU WITH A BANK OR INSTITUTIONAL MARKET MAKER. AS A RESULT, BROKER DOES NOT PROFIT WHEN YOU LOSE MONEY ON A TRADE. RATHER, BROKER EARNS COMMISSIONS ON EACH TRADE IT ENTERS INTO WITH YOU."
This means that when you buy, the broker sells you and when you sell, the broker buys from you. If there is risk to the broker (i.e: Your buy or sell is in a profit) the broker offsets this by opening a similar order with their liquidity provider.
Example:
Customer buys EURUSD at 1.35
Broker sells EURUSD at 1.35
Customer is winning this trade.
Broker buy's EURUSD at 1.35 from the liquidity provider and offsets his risk.
Most brokers have automatic risk profiling measures which quickly put you into 'Good Trader' 'Bad Trader' category. The bad trader's trades are ALWAYS filled by the broker who acts as the counter party (because the risk profile shows you to be losing money) so the broker, instead of passing on your orders (and having to pay a commission to the LP's) would get rid of all that fees and trade directly against you.
Now a days brokers have realized that by advertising themselves as ECN they can attract clients. Most ignorant customers just go and trade with these thinking the orders are STP, but they aren't. There are many ways a broker makes money. Here are few straight forward ones:
1. Spread mark up: They mark up spread buy or sell with a few pips. This way they make some money regardless of buy or sell
2. Dealing Desk/Counter Party: Based on your risk profiling trades will be filled in-house to cut out any further fees while making a big profit for themselves (the broker)
3. Spread only: Fixed spread brokers.. Mark ups are a bit higher and in most cases trades are filled in house. Occassionally, the broker would offset your winning position (which is their losing position) by trading with their liquidity providers or with their ECN network.
Hope this clarifies.
To conclude: The broker in question is a clear market maker and there is no question of STP execution.
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Hello,
I have been looking to signup with an ECN to avoid dealing desks.
Can someone explain how a counter-party differs from a dealing desk.
As stated in the contract... (removed broker to avoid bias feedback)
"THE FOREIGN CURRENCY TRADING YOU ARE ENTERING INTO IS NOT CONDUCTED ON AN EXCHANGE. BROKER IS ACTING AS A COUTNERPARTY IN THESE TRANSACTIONS AND, THEREFORE, ACTS AS THE BUYER WHEN YOU SELL AND THE SELLER WHEN YOU BUY. THE PRICES BROKER OFFERS MIGHT NOT BE THE BEST PRICES AVAILABLE.
ALTHOUGH BROKER IS THE COUNTERPARTY TO EACH OF YOUR TRADES, BROKER LIMITS RISK TO ITSELF BY INSTANTANEOUSLY OFFSETTING THE TRADES AND POSITIONS IT ENTERS INTO WITH YOU WITH A BANK OR INSTITUTIONAL MARKET MAKER. AS A RESULT, BROKER DOES NOT PROFIT WHEN YOU LOSE MONEY ON A TRADE. RATHER, BROKER EARNS COMMISSIONS ON EACH TRADE IT ENTERS INTO WITH YOU."
How does this differ form a dealing desk? This said broker claims no dealing desk.
What risks to the broker are being limited? Maybe I am not understanding the concept of a counter-party and how it could EVER play WITH the trader. If this said broker plays a counterparty trade on every trade. Their winning customers would make them losers. Can someone shed some light on this? I am beginning to doubt even ECN's
Thank You