So... it turns out that Market Maker models arent that bad
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Thread: So... it turns out that Market Maker models arent that bad

  1. #1
    . . .afterall

    Looking around today, the brokers that are still standing are mostly market maker brokers.

    Individuals who are ECN, FXCM, Alpari etc seem like they are going under.

    The reason seems to be that at the MM versions, the brokers are your counterparty, when you lose, they win.

    However, with ECN brokers, since they pass you onto the main market through their liquidity providers they assume the risk if their customers accounts go bankrupt, so they end up owing their liquidity suppliers. That is FXCM owes 225million.

    So far as I can tell anyway.

  2. #2
    Yes that was my conclusion as well. Alpari etc passed the trades onto the market location whereas Oanda etc probably didn't and kept it on their book

    All very interesting when you consider it...

  3. #3
    In Market Maker model, do you mean that the broker creates a countertrade or hedge from the own trade. But on the ECN model, the ECN broker does not produce a hedge from the trade?

  4. #4
    Does market manufacturer model pose huge drawback only to short term trader,

    eg 1m/5m/15m interval,

    or it still hurts extended long term trader? (H1 or above)

  5. #5
    No - So it goes like that...

    picture this senario... (didn't occur BTW)

    thinks SNB has his spine;--RRB- so buys 10 lots of EUR/CHF @1.2008

    Today s broker (Alpari in this instance ) thinks... umm I have a responsibility - if BBC wins I loose (I need to cover BBC) and if he looses I win (BBCs acct dwindles)

    Alpari does not like this so they also buy 10 lots of EUR/CHF @1.2008 - now if BBC wins I win and that I only pass my winnings straight to BBC and if BBC looses and that I loose well we're still equal as BBCs acct and therefore what he can draw has gone down.

    Today the SNB removes the ground and EUR/CHF is immediately trading @~1.0000 - Alparis stop gets hit. And they take a loss - because we pass this loss around to BBC who's at precisely the same trade but thats ok. - oh wait BBCs acct is currently -#10000 (absurd BBC only needed #200 in his own acct) (numbers not right that I simply made them up for illuion purposes) therefore Alpari is sitting at -#10000 and this may stay there till BBC tops his acct back to zero... - better get on the telephone to BBC states Alpari we need that money now as we're insolvent!! We need that 10K ASAP... - BBC chooses the telephone call and can not stop rolling about on the ground - that'll be right he says and hangs up...

    of course the previous telephone call does not occur because they do not have enough employees and know exactly what everyones responcse will be they nevertheless owe their liqudity providers that won't touch Alpari with a barge pole as they haven't been paid yet... all trading stops and Alpari are currently insolvent... adminiors will get called in and they might make the telephone calls above as they try to regain the companies resources. But thats for a different week/month...

    That is compared to the MM version in which they never got any stops hit as they never actually traded on the FX market. In this case as long as they can deal with this days winners they then live to fight another day...

    Or to put it the other way that the only brokers that will be left are those which have a vested interest in seeing you loose (they do not scam your transactions on the FX market)

    Interesting I think you'll agree...

  6. #6
    Quote Originally Posted by ;
    No - So it goes like that... imagine this senario... (did not happen BTW) BBCMicro thinks SNB has his spine;--RRB- so buys 10 lots of EUR/CHF @1.2008 Now BBCMicros broker (Alpari in this case) thinks... umm I've a responsibility - if BBC wins I loose (I must cover BBC) and if he looses I triumph (BBCs acct dwindles) Alpari does not like this they also buy 10 lots of EUR/CHF @1.2008 - now if BBC wins I win and I just pass my winnings straight to BBC and if BBC looses and I loose nicely we are still equal as BBCs acct and therefore what he can draw has just...
    ECN brokers don't take counterparty to your place, at least in theory, they are supposed to bundle your order together and move it through the interbank.

    The market maker models usually do take counterparty, and when their risk goes above a certain threshold level, be that in their book, or some specific pair, then they must hedge in the true interbank market.

    The difficulty for those ECNs is that the liquidity suppliers stopped quoting them, meaning that they couldn't get their clients from the trade, meaning that they were trapped in a market not quoting. Since many customers blew all their own account, and much more besides, from the time that the market had got to a sort of normality that the ECNs brokers had a massive floating loss because they don't hedge. Which they had to assume obligation to pay back.

    That's the way I understand it.

  7. #7
    Any idea which method Exness usage?
    As which provider ( based on 2 methods) is Suggested to get 1000 USD a/c

    Thanks, Prachait

  8. #8
    Quote Originally Posted by ;
    . This is in comparison to the MM model where they never obtained any stops hit as they never traded on the FX market. In this case so long as they can deal with that days winners they then live to fight another day... Or to put it the other way that the only brokers that'll be left are those which have a vested interest in watching you loose (they do not hedge your trades on the FX market) Interesting I think you'll agree....
    What do you believe at the MM model, the stops never got hit? Of course the stops got hit right?

  9. #9
    I believe market manufacturers hedged their CHF risk. I believe half of those brokers will go out of business!

  10. #10
    I only believe the broker who got struck have risk management. . .it was pretty apparent that SNB couldn't peg forever... therefore my ECN Broker sensibly just permitted 1:10 leverage with CHF trades...

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