Forex News Trader

A resourceful site for serious spike news traders

Archived Blog Posts

Aside from our daily results, I try to post educational information on the blog, usually on the weekend.  These posts are useful to new readers,  yet they get pushed off the page never to be seen again.  I have re-assembled them here.  Some posts may refer to brokers where we previously traded and are no longer applicable, but still have educational value.  I hope they are helpful to you.

The Australian News Lock Up Procedure

There has been a great deal of speculation regarding the release of Australian news. Without getting too much into the speculation, I wanted to give everyone some information after having a discussion with a news data vendor on the Lock-Up procedures. The only Australian data that is released in a truly digital format is the RBA rate decision. The RBA posts the decision to the web, and the different vendors perform a 'web-scrape' to get the information and send it to subscribers in a machine readable format.

All other Australian data is performed in a Lock-Up, but the procedure is different. Each data provider is given a sheet of paper with the data, and a telephone. At a specified time, they are allowed to turn the paper right-side up, and then they get on the phone to call their data center. From there, the information is put into a machine readable format and sent to the client.

So which provider gives the data first may come down to who types the fastest. This may very well explain why we see spikes in the market several seconds before we get data. They have to make a phone call, a second person has to put the information into their system, then they have to double or triple check to make sure the information is correct before sending it.

Binary Options

 

I wanted to take this opportunity to introduce an additional tool to add to our news trading arsenal.  With all the creativity among our users, it is my hope that we can develop a solid strategy by sharing thoughts and ideas among ourselves.

 

Just like spot forex brokers, many different binary option brokers are springing up and you should approach them with the same caution as you would a forex broker.  Just google "Binary Options" and you can find brokers, strategies and education on the subject.  For purposes of this discussion I will refer to the platform offered here: http://www.anyoption.com/jsp/index.jsf

 

What is a Binary Option?

A binary option, also referred to as a digital option or a fixed return option, is an option in which payout is determined at the onset of the contract. It pays a fixed amount of cash if the option expires in-the-money, independent of the magnitude by which the price of the underlying asset moves. anyoption™ offers you a 65%-71% payout when the option expires in-the-money, and a 15% return if the option expires out-of-the-money. The option cannot be sold before its expiration

 

If you expect the price to go up, you buy a call option.  If you expect the price to go down, you buy a put option.  We will be utilizing hourly options that expire at the top of the hour.

 

Example:  GBPUSD is trading at 1.5500 at 3:12 am EDT.  The option on the underlying asset is open for trade until 3:45 am EDT.  If you expect price to be above 1.5500 at 4:00 am EDT, you would buy a call option.  If you staked $100 and price closed above 1.5500 at 4:00 am EDT, even by just one pip, you would receive 65%-71% profit on your stake or $165 - $171.  If price closes below 1.5500 or "out of the money' you would receive 15% of your stake or $15.

 

If at 3:40 am EDT you can see that your call option that was bought at 3:12 am is likely to close "out of the money", you can buy another option that will expire in 20 minutes.  This new option will be based on the current price (the price at 3:40) and may be a PUT option or another call.  If you are right on this one, you would have offsetting payouts.

 

So how can we use binary options to trade news?

 

There are probably ways that I have not even thought of, and thats where you readers come in, but the basic way is as follows:

 

You will use a binary option account in tandem with your spot forex account.  Let assume we were trading last Thursday's UK Retail Sales.  The thing that appeals to me is that you enter the market before the news on both the binary account and the spot account and therefore avoid the slip or gap that can be expected on the spot account.  I would also suggest trading at a fixed spread or market maker broker to avoid your stop being hit on the spot account during pre-release fluctuations. This is the same reason I recommend a market maker broker to straddle.

 

Based on your research, gut feeling, or pre-release price action, you choose to go long GBPUSD on your spot account with .7 lots (7 mini lots). with a 10 pip stop loss.  Enter as late as you can, but before the release, maybe 20-30 seconds. 

 

At the same time buy a binary PUT option for $100 on your binary account

 

Using the UK Retail Sales as an example, when the news came out long, as it did,  your spot account could have made you up to 160 pips with those 7 minilots with a profit of $1120.   Your options account would have closed 30 minutes later "out of the money" but would still pay you $15.00

 

But what if it had gone the other way?

 

If the trade had gone short, your spot account would have lost $70, but your option account would have made $71.  Not a big payday, but the purpose was only to limit your risk.  You could just as easily have duplicated the set up in the opposite direction.

 

The goal is to have your spot account make you the money while limiting your risk with the option account.  Depending on the size of your spot account and the amount you are willing to risk on your option account, you would calculate the dollar value of your stop to make sure it will be offset by the profit potential of your option.

 

The Downside?

 

In the event there is no deviaiton or a very small one,  there is nothing you can do about your option.  It has a fixed expiration.  You only need one pip above or below your strike price to get paid.   You will focus on your spot account.  If the stop is not hit, you can hold until you are in profit, even if it is hours later.

 

If a news event comes out at half past the hour and goes in favor of your option (and takes out the stop on your spot account) then reverses and goes beyond your pre-release price, you could lose on both the option account and the spot account.  That is why I would only trade 1st tier releases with options because even small deviations can influence short term direction.

 

I haven't tried it yet, but it may be possible to buy your PUTs or CALLs with the autoclick.  These options brokers are new and may not have any way to block or slip you at the instant of news. 

 

Other Binary Options brokers include:

 

http://www.eztrader.com

http://www.optionbit.com

 

Note that you can trade stocks, currencies, commodities and indices.  You can hedge your technical trades with options during non news times.  I encourage each of you to learn all you can about options and share your strategies with the group.

 

Good Luck!

EA vs. Scripts - What's the Difference?

 

The main differences between Expert Advisors and Scripts are that EAs run only when a price movement (tick) happens while Scripts run as soon as you attach them to a chart. Also scripts will be removed from the chart as soon as they do their job while EAs stay there until you remove them manually.

 

 

 

Scripts

 

Script is a software program that you can attach to a chart to take care of a task. We usually use scripts to take care of complex tasks. Some examples of the jobs that we can do with the help of a script are:

 

* Closing many trades when the time comes or conditions met

* Creating a report based on the status of the market

* Entering or exiting a trade when the conditions are met

* OCO orders (Order Cancels Order)

* ...

 

A script starts its job as soon as you attach it to a chart. When the job of the script is done it will be removed from the chart by MetaTrader automatically. So we could say that scripts are good for one-time tasks.

 

If you have received or developed a script you need to save it under the "..\experts\scripts" folder. For example if you are using MetaTrader platform offered by Forex.com then the complete path could be "C:\Program Files\MetaTrader 4 at FOREX.com\experts\scripts" assuming you install your programs in drive "C".

 

To use a script you may double click its name or drag and drop it into your chart. You may locate scripts in the Navigator window under the Scripts title.

 

From Metaqotes:

 

Auto Trading — Scripts

 

 

 

Scripts

Script is a program written in MetaQuotes Language 4 (MQL 4) and intended for a single performing of any actions. A script can fulfil both analytical and trading functions. Unlike experts, scripts are executed on request, not by ticks. In other words, where an expert works almost continuously, a script, having completed the function once, stops functioning by itself.

Working with scripts means:

Creation of a Script

The built-in "MetaEditor" is used to create and compile a script. It is a constituent of the client terminal and represents a convenient development environment of MQL4 programs.

Script Setup

One has to set up scripts first before using them. Working parameters common for all scripts are defined in the client terminal setup window. Every script has its own settings, as well.

Launching of a Script

To launch a script, one has to attach it to the chart. The script algorithm will be launched immediately after that.

Deletion of a Script

The script completes its working after it has been deleted from the chart.

 

Expert Advisors

 

An expert advisor or Expert or EA is a piece of program that enables you to take care of doing jobs repeatedly. Unlike scripts, Expert Advisors remain attached to a chart till you remove them manually. The EA repeats itself every time a tick comes in. In other words every movement of the price triggers Expert Advisors.

 

 

The nature of EAs make them ideal for automating the whole trading process. Some uses of EAs could be the following.

* A fully automated trading system

* Market analysis and generating trading signals

* Managing or closing trades according to the market conditions

 

You need to place your EA files under "..\experts" folder. For example if you are using InterbankFX platform a typical path could be "C:\Program Files\Interbank FX Trader 4\experts". You may locate an EA in the Navigator window under the Expert Advisors title

Autoclick

Autoclick

The most important tool for the spike news trader is the autoclick.  To my knowledge, there are five of them available to us retail traders, Rapid Signal Service (RSS) , Secret New Weapon (SNW),  the Forex Muse, Turbo News Trader (TNT) and Trading on the News (TON)  Any of them are fine.  The feature that separates one from the other is the newsfeed behind them.  This newsfeed is very expensive (about $2000/mo) because the news organization providing it has a physical presence in the news lockup.  Bloomberg and Reuters provide such a service and there are others, but the autoclick service will not reveal which one they use to their subscribers.  They are also not allowed to  re-publish the actual news, as that would be against their terms of service.  What they can do, is publish the deviation from expectations, which is the trigger we look for to trigger a trade.  If we imput a trigger of .3 on our autoclick and the news comes in at .2, we will get a "no trade" signal and the buy/sell will not be pushed.  If we imput a trigger of .4, our buy/sell button will be pushed within milliseconds of the release.  I have observed video tests of one service vs. the other and each one has beat the other at one time or another. 

New Software

New Software

For those of you that traded with me at Golden Contract, we experienced some excellent growth in our accounts.  Yes, a few of our trades were reviewed and adjusted, but not on the order of what we experience at WHC.  Golden Contract would provide a copy of the underlying feed from the prime broker that was graduated in tenths of a second.  I could see 10 different prices offered during the course of one second, and the price would begin to "gap" as we entered the 3rd. second.  If we were adjusted later, it was obvious from the server logs as to why.  At WHC the only logs I have been able to see were graduated in whole seconds, with 10 second gaps before another price was given.  Despite our attempts to see a more detailed log, apparently there is none.

I began trading at WHC with one multiterminal.  We began to notice that large profit trades were adjusted to a less favorable price while smaller profit orders, executed at the same price were left alone.  Things that make you go hmmmm.......  We tried to determine what the threshold for review was, and thought we had it pegged at $500, only to have some $300 profit trades adjusted.

I began to hit the "cancel" button after a few seconds to prevent bad fills, but a couple would always sneak through.  If you haunt the forex forums, you would know that not getting execution is the biggest complaint from news traders.  We get execution every time, however we need to find a way to prevent late executions which result in bad fills.  Slippage control is available at many MT4 brokers, but unfortunately not at WHC.  I began to notice that approximately 1/3 of the accounts on my terminal were getting execution at the beginning of the spike. Once the "master" buy/sell button was pushed, the individual accounts execute on a totally random basis.

About this time, I met one of our fellow traders who had been reading some of my forum posts about trading news.  He has a Phd in computer science and is also a trader.  I explained to him my recent concerns regarding bad fills and reversed orders. After several weeks of emails, back and forth, testing, functional requests and more testing,  he developed an amazing piece of software that I had not seen available anywhere in the forex arena.  This software can trade as many platforms as you can fit on your computer or any other computer on the same network.  It can also cancel orders after a user selectable number of milliseconds.

My first experiment to get everyone filled was to fire 15 orders of the same size per account at the broker server and then cancel immediately.  The orders were structured so that "in theory" only one was capable of being supported by the available margin.  Result?  The platform filled orders on your account that couldn't be supported by your margin.  My bad.  I confessed to Scott what I had tried, and he managed to get them corrected.  My theory was sound, but the platform couldn't support it.

My next experiment was to trade everyone's standard order by putting 1/4 of each order on 4 dealing stations.  If filled, the smaller orders should stay "under the radar" of the review process.  We could get filled on anywhere from one to four stations. 

It became obvious from the time stamps on orders with bad fills that we should cancel any order that was not filled within one second.  The software was originally designed to push the cancel button once after the timer ran out, but further observations indicated that cancel buttons kept popping up just as randomly as orders are filled, and could keep popping up as late as two minutes after the release. In a perfect world, the process  should be: buy/sell followed by "order is accepted" and then "order in process" and finally "order is open".  An order can only be canceled if it is in the "accepted" stage.  If it is "in process" it can not be canceled.  The software was then re-written to  push the cancel button after the millisecond timer ran out, and then keep pushing every "cancel" button that becomes visible from then on until the program is closed out. 

This version of the software is what we are currently running, and so far, with mixed success.  If cancel buttons become visible, the software does its job, but we have come to realize that on some releases, the orders go straight to "in process" and can hang there for a couple of minutes.  There are no "cancel" buttons for the software to see, and therefore you are destined for a bad fill. 
 If you check your history and see orders open at 1 or 2 minutes past a scheduled release, then this is what happened to you.

A strong deviation from expectations on a news event can often times push a bad fill into profit.  We have had this happen  on several occasions. We just got lucky.  A bad fill on a medium deviation can get you filled at the end of the spike while the retracement starts eating up your equity.

It is too soon to reach any definite conclusions.  There are many user variables that I can adjust to improve our chances of getting the best execution.  I can change the milliseconds on the timer to cancel sooner or I can increase the number of dealing stations thus trading more orders.

Special Software

Special Software

This is what our special software looks like.  It has the capability to trade multiple stations and can cancel orders after a certain amount of time ( if a cancel button appears )  I set the autoclick to click the buy/sell buttons on the  SERVER and  open as many terminals as I want orders (for now I use 4).  I open one CLIENT for each terminal, and once set to each other, I can minimize both terminal and client.  The server must remain visible.  Once clicked, it will click all the client applications even after they have been minimized.  It will even work over the internet if you insert my IP address in the client window.  This feature will allow a user to piggyback off of my autoclick and trigger their own account on their home PC.

Requotes within Slippage

Many of us have been getting requoted at prices that fall within our slippage control, or max deviation.  I believe I have figured out why this is happening.  Since most of us use the multiterminal, we don't see the requote until after the trade when we reference the journal.  On a regular MT4 dealing station, the requote pops up in the order box.  Here is the reason:

Again, it boils down to available liquidity at certain levels.  If you were trading 90000, and get requoted within your slippage control,  it is because there is still available liquidity at that price, but not for the lot size you requested.  Since our dealing stations are minimized, we don't see the complete text of the requote, and it may not even be there, but if anyone wants to take the effort to verify the text box at the time of the requote,  it may also contain a revised volume amount for you to accept or reject.

 

A Tale of Three Traders

What do I do between trades?  I review previous trades.  Yeah.....I know.....Get a Life.  I was reviewing the US CPI trade from Wednesday July 16th and stumbled upon some interesting data.  I trade from Florida.  One of our client.exe users trades from New Mexico, but uses a dedicated server in New York to host his dealing stations and autoclick.  A third trader piggybacks my autoclick from Ohio.  We were all "clicked in" on a sell at 2.0026.  Note:  The "click in" price is not the fill price. Below is a copy of our respective logs:

My logs:

08:29:59 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:29:59 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:29:59 : instant order sell 80000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:29:59 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:29:59 : instant order sell 40000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:29:59 : request was accepted by server
08:29:59 : request was accepted by server
08:29:59 : request was accepted by server
08:29:59 : request in process
08:30:00 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:00 : request in process
08:30:00 : request was accepted by server
08:30:00 : request in process
08:30:00 : request was accepted by server
08:30:00 : request in process
08:30:00 : request was accepted by server
08:30:00 : request in process
08:30:01 : request in process
08:30:02 : order is open : #1880770 sell 80000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000
08:30:02 : order is open : #1880771 sell 90000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000
08:30:03 : order is open : #1880772 sell 90000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000
08:30:03 : order is open : #1880774 sell 40000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000
08:30:03 : order is open : #1880776 sell 90000.00 GBPUSD at 2.0025 sl: 0.0000 tp: 0.0000
08:30:04 : order is open : #1880780 sell 90000.00 GBPUSD at 2.0023 sl: 0.0000 tp: 0.0000

The following is the logs from the New Mexico trader with the New York server:

08:30:00 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:01 : request was accepted by server
08:30:01 : request in process
08:30:04 : order is open : #1880768 sell 90000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000

08:30:00 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:01 : request was accepted by server
08:30:01 : request in process
08:30:04 : order is open : #1880769 sell 90000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000

08:30:00 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:01 : request was accepted by server
08:30:01 : request in process
08:30:04 : order is open : #1880767 sell 90000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000

08:30:00 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:00 : request was accepted by server
08:30:00 : request in process
08:30:03 : order is open : #1880764 sell 90000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000

08:30:00 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:00 : request was accepted by server
08:30:00 : request in process
08:30:03 : order is open : #1880765 sell 90000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000

08:30:00 : instant order sell 90000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:00 : request was accepted by server
08:30:01 : request in process
08:30:03 : order is open : #1880766 sell 90000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000

And finally, the logs from our trader in Ohio:

08:30:02 : instant order sell 80000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:02 : request was accepted by server
08:30:03 : request in process
08:30:06 : order is open : #1880775 sell 80000.00 GBPUSD at 2.0025 sl: 0.0000 tp: 0.0000

08:30:02 : instant order sell 80000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:03 : request was accepted by server
08:30:03 : request in process
08:30:06 : order is open : #1880782 sell 80000.00 GBPUSD at 2.0023 sl: 0.0000 tp: 0.0000

08:30:02 : instant order sell 80000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:03 : request was accepted by server
08:30:03 : request in process
08:30:06 : order is open : #1880781 sell 80000.00 GBPUSD at 2.0023 sl: 0.0000 tp: 0.0000

08:30:02 : instant order sell 80000.00 GBPUSD at 2.0026 sl: 0.0000 tp: 0.0000
08:30:02 : request was accepted by server
08:30:03 : request in process
08:30:05 : order is open : #1880773 sell 80000.00 GBPUSD at 2.0024 sl: 0.0000 tp: 0.0000

Have you spotted it yet?.......We have 3 traders from different parts of the United States, trading at the same broker, using an autoclick on a typical news event.   Its not in the time stamp, remember this is generated by your own computer.  Look at our order numbers.

New York server:  1880764, 1880765, 1880766, 1880767, 1880768, 1880769

Glenn: 1880770, 1880771, 1880772, 1880774, 1880776, 1880780

Ohio:  1880773, 1880775, 1880781, 1880782

I know you've spotted it by now.  We were essentially executed one after the other.  We each got pretty much the same prices at 23, 24, and 25.

Can we draw any conclusions from this observation?  Not yet.  Its only one trade, but I'm going to go out on a limb and suggest the following:

New York has a 0 millisecond ping time to the news server and his orders begin the sequence.  I have 23 milliseconds ping time to the news server and my orders picked up where New York left off.  Ohio piggybacks off of my autoclick and his sequence pickes up after mine with a couple of exceptions.  His order 73 and 75 actually beat my order 74, 76, and 80.  We traded this release with a trigger of .1 which was considered risky for this trade. Most other conservative news traders would have used .2 or .3.  This caused the vast majority of traders to sit this one out (no trade).   Will all but us thee mavericks watching from the sidelines, the liquidity was sufficient to fill all our orders.  New York trader didn't gain any advantage with the"click in" price because we all got the same one.  He also didn't gain any advantage by getting a better fill, in fact, Ohio and I both got a 23 and New York got 24 across the board.  It is undeniable that New York got the first fills and this may pay off on future trades with more players.   Things that make you go hmmmmm......

Liquidity

Liquidity - Where does it come from?

The original question:

"What happens when crown forex has soo many spike traders sending Thousands of orders at the very same moment?
Will the liquidity be available to fill them?"

A little over a week ago, I answered  "yes" and asked if anyone could say why I answered "yes".  The answers were close, but no one said what I was looking for.

Many of you appear to be so jaded by a previous unpleasant experience with a broker, that you have lumped all brokers into one category: suspicious, dishonest, sneaky, and not to be trusted.  If your experience is anything like Maxey posted a couple of weeks ago, that is understandable.

Forex brokers are a business.  Any business can choose to be honest or dishonest.  Those on the internet are more suspect than others.  From all that I have observed, there are two types of  forex brokers: Those that clear their trade through a financial institution and those that don't. 

By definition, a broker is a middleman between two parties wishing to consumate a deal.

Those forex brokers that hold all their orders "in house" and don't clear through a financial institution do not fit the definition of broker.  They are not in the "middle" they are the final stop on the other end of the deal.  They appear to the trader to perform all the same functions of a forex broker with the exception of clearing your trades through a third party financial institution. 

This business model does not make them dishonest because, most likely, they have disclosed their practices deep within their terms and conditions.  These pseudo brokers are the ones you read about that win when you lose, and lose when you win.  If they are well capitalized, they can play the odds that 95% of all forex traders will lose.  They are frequently patronized by novice traders.  They offer 500:1 leverage, and rediculously low minimum deposts.  They accept electronic currencies, offer instant execution, and many other attractive benefits. When their success is threatened by a successful tech trader or even worse, a spike news trader, they will quietly ask them to leave.  Sometimes they let you keep your profits when you go, but sometimes they will back them out.  When they do, they know you will go to a review site to complain to anyone who will listen.  Yet their business model continues.

The other type of broker is a real "intermediary".  They fit the definition of broker by acting as a true middleman between the trader and the financial institutions.  They maintain the records of your margin account while providing customer service and streaming live executable price quotes to the trader in exchange for a fair cut of the transaction in the form of the "spread".   This may surprise you, but this type of broker is also the counterparty to your trade, but only temporarily.  If you lose, they remove the money from your account.  If you win, they display the money in your account.  They settle up with their banking partners at the end of the business day.  Depending on the success of their traders, this could be a net debit or credit for the broker.

We use the terms banks and liquidity providers rather loosely without actually naming them.  Do you know who they are?  Below is a list of financial institutions that provide that illusive liquidity to the forex market:

Bank of America

Citibank

UBS Deutsche Bank

Societe General

Morgan Stanley

RBS

CME

Lehman Brothers

Goldman Sacs

S/E/B

Dresdner Kleinwort

EBS

Santander

ABN-AMRO

JP Morgan Chase

These banks won't even talk to us as retail traders. They deal in mega  $$ millions.  They represent the true interbank market.  Our broker, ( lets say Crown, for arguments sake) maintains a margin account with them, just like we do with our broker.  As they stream their executable prices to Crown and we get filled on them,  Crown is committed to them to settle the outcome of that trade, just like we commit to Crown to settle the outcome for us.

So how does a broker get a composite feed of all the available prices from all the potential providers?  While there is no central exchange, there IS a forex grid or network that connects these financial institutions to their broker/clients.  Here is an example of a company that facilitates this type of interbank connectivity:  http://www.integral.com/products/overview.htm

In short, they provide the technology to hook everyone up.

I often refer to  Crown's 10 banks of liquidity providers.  To my knowledge this is not listed on their site.  Our Introducing Broker, Scott Kuehne, has spent years researching forex brokers.  Here is an excerpt from his site:

"We have tested or are knowledgable about most FX firms.  If a firm lies, cheats, or makes empty promises we move on.  We always find out how a firm offsets its client's trades.  We refer you to the firms which have earned our trust and who provide the trading conditions you seek."

I encourage you to read Scott's accounting of his relationship with Crown forex on his site at:

http://www.forextradersinc.com/company_crown_forex.htm

It was here, and through Scotts' contact with the management of Crown Forex, in his capacity as an IB that I learned of the 10 bank relationship for liquidity.

Remember that these liquidity providers don't just quote prices to one broker any more than Crown quotes their prices to "just you".  No matter where you trade, it is likely that some "mix" of these providers are quoting prices to you.  Maybe your "other" broker uses 5 feeds, or 3 feeds or 15 feeds.  You may never know, as they may deem their providers, proprietary information in the same way you may be reluctant to tell others what broker you trade with.

Now let me summarize and explain my answer to the original question.... ugh... What was that question? ......Oh yes,  Can Crown provide an increasing number of traders with the necessary liquidity?

We would be foolish to think that our little group of spike traders could even shade a candle on the interbank market.  Believe it or not, spike trading is not new, and we are by no means, the only ones doing it.  If I'm trading the spike at Crown, and there are 10 banks ( and I mean BIG banks) behind that composite feed, and I don't get filled,  then I calmly and resonably accept that there was NO liquidity, or very little,  available to fill my order.  I don't yell "scam" or "cheat".  I have educated myself to understand that this is business.  and no one is just going to hand over the money.  We have to work for it.  Don't blame Crown.  They don't fill your orders, they just provide a price feed of executable prices, nothing more!!  We set our slippage controls to hopefully grab a piece of the prices that may reasonably be quoted.  Both sides protect themselves with the tools they have. Getting a fill at another broker may not be as much a function of liquidity as it is a function of technology and efficiency of the trading platform. 

Lack of fills causes some traders to give up.  For me,  it causes me to work harder.  So far, its working. 

Show Me the Money

Show Me the Money

Did you know that you have more control over your "fills" at news time than you think?  We have already established that your autoclick service gets your orders to the broker before the spike. Your broker is just a "middleman".  The broker brings buyers and sellers together in exchange for a small cut of the action, just like a real estate broker, or a mortgage broker.  To find out what it takes to get fills requires you to study your trade journal, the very last tab on your MT4 in the "terminal" section.  Don't be concerned with your time stamp, it is generated by your host computer.  If you appear to get filled at 15-20 seconds after a release, its time to syncronize your computer's internal clock.  Go to your control panel, select "date and time" and you will likely see a calendar and clock.  Select the third tab to the right "internet time" and then select a server with which to syncronize your clock.  Hit "update now".

At the instant of news release, your order has to be where the money is.  Let me repeat that. Your order has to be where the money is.  Studying your journal will tell you where the money is.

On the blog, you hear me speak of liquidity.  Liquidity is money. Cash!!!!  Without it, we couldn't trade.  If we happen to be selling during a news trade, our broker's job as middleman, is to stream prices to us,  of buyers who will take us up on our offers.  The number of traders willing to take us up on those offers dwindles considerably at news time.  Using our "selling"example above, think of liquidity as a small band of buyers 8 or 10 pips below the release price with a value of $300,000.  This is liquidity,  and is enough to fill 30 minilots of .1 each, or 3 orders of .9 each with .3 left over.  Once thats gone, you move further out to maybe 12 pips, where there is a band of liquidity (buyers with money),  with a value of $1.2 million dollars.  This is enough to fill 24 minilots of .5 each or 12 std. lots, or any possible combination of orders that hit the server at that level.  When this $1.2 million is gone, we move to a band even further out, say at 15 pips where there is $4.8 million worth of buyers to take your order. This process goes on with the liquidity getting more and more as the price moves further away from the release price.  When price exceeds your selected "limit", "maximum deviation" or "slippage control" you get requoted.

That requote "TELLS YOU WHERE THE MONEY IS"

If you had set your deviation a little further out, you would have been filled, but the move may be alomst over.  Some of you have experienced requotes within your set deviation.  This means that although there was liquidity within your deviation, it was not enought to fill your particular request.  Example: You are requoted within your set deviation on an order of .9.  The market is able to fill an order of .5 but not an order of .9 so you are requoted within your limit.

Now comes the balancing act.  You have studied your journals for a month and think you have a grasp on where your broker is likely to quote prices on various types of releases.  You must know that the trigger we are using, if hit, will take the market beyond what you have set in the "max deviation" window.  You also must know that your broker will likely quote prices within that "max deviation" before that expected move is over.

On a Rate Decision, I would use a deviation of 30 because I've never seen one yet that didn't move 50 or more pips.  On a PPI release, I wouldn't use more that 10-13 because you won't get the necessary move to risk any more.

In summary,  your journal log will tell you where the money is.  Your research will tell you what trigger has historically produced what size move.  Your balancing act is set your "max deviation",  "limit" or "slippage control" to be within the move, to just "reach the money", but not so far as to have the move end and retrace, just when you got filled.

Lets Start a Forex Brokerage

Imagine that we are no longer traders, but a group of busniness people who wish to go into the forex brokerage business.  We are only interested in creating a profitable business just like any other online or offline business.  We are not out to scam or steal from anyone.  We are not particularly well capitalized, in that we only have one million dollars US to invest.  Because of our low capitalization, we have to establish our business in a jurisdiction that is friendly to our business and not subject to any crippling regulation.  We select a Carribean island, form our corporation,  and comply with all local requirements.  Because of our low capitalization, our only choice is to keep all our client trades "in house".  Our business model is founded on the fact that 95% of all forex traders will lose their account.  Keep in mind this is not illegal, but just based on a known statistic, not unlike a casino.  We have covered ourselved by disclosing the fact that we act as counterparty to all client trades.  Since we are business people from all over the world, we don't really need to have a physical presence on the island where we are registered.  We do need a trading platform, so we will use the very popular Metatrader 4 platform which we must lease from Metaquotes. We also need to lease a price feed to plug into the platform.   We  need a website, and can host both website and platform anywhere in the world.  We realize that our clients would probably be more comfortable if we had offices in major financial centers around the world, so we will lease virtual offices in London and Hong Kong, complete with valid mailing addresses and working toll free numbers which can be answered anywhere we choose.  We can advertise for Introducing Brokers (IB) who will provide our customer service from their home or cell phone in exchange for a piece of the spread.  It is now time to promote our website to the general forex market in the same way a vitamin company promotes its website.  We must do something that sets us apart from all the other brokers online so we can get new traders and lure "not so new" traders away from other brokerages. We can offer low spreads ( but everyone says that). instant execution, ( heard that before) low minimum balance requirements (seen it) , funding with every method under the sun, including electronic currencies ( haven't done it, but I've seen it).   Truth is, we have to give away a lot of free stuff to get potential clients to even consider us.  After a few months we have several hundred accounts of mostly novice traders.  We honor all withdrawal requests promptly and our business model seems to be working just as we expected, as we have noticed trader losses definitely outweigh their wins.  Our marketing efforts seem to be drawing in more traders with average experience under one year.  We don't seem to be able to attract any funds managers or experienced traders because they are a little more saavy in their selection process when it comes to brokers.  Our IBs answer questions as best they can but as you can imagine, there are always those who want to know about our liquidity providers or whether or not we are a "bucket shop".  The individuals we have charged with answering these questions can often baffle the newbys but get frustrated when an experienced trader keeps pursuing the tough questions.  They may even disconnect or abruptly end a chat.  Remember they are not principals in our business organization and have only a limited interest (their commission) in seeing it succeed.  As the months go by, our client base increases steadily and since we have provided good service, we have garnered some decent reviews on FPA.  For the most part we are still on track to win 95% of the time as our clients lose.   Sometimes we have to bite the bullet when a trader is successful, and we honor some $50K withdrawals.  By now a few spike news traders have found their way to our site and have pyramided their $500 deposit into many thousands, and they seem to be doing so on a regular basis.  After all, they are getting instant execution on prices that really don't exist.  Our software just does what the trader requests, and executes the spike trades.   Now our group of business associates has to get together to decide how to continue our business profitably.  We have been in business two years and we have a few tech traders and spike news traders that are tipping the profit trades more in their favor than our business model was designed to withstand.  Remember, we are not out to scam our clients and steal their profits, but we can't allow those wildly profitable  tech traders to hurt our bottom line.  At this point, there are only a few of them, so we decide to disable their account and send them a check for their balance.  We will email them that we are no longer able to service their account.  They immediately go to FPA and post their experience, but they are still in the minority and their post has a minimal effect on  the influx  of new accounts.  ( Have you ever read of such an experience on the FPA site?)  So that takes care of the wildly successful tech traders, but what do we do about the spike news traders who are also chewing away at our bottom line?  We have two choices.  We can do the same thing we did to the successful tech traders, or we can purchase a "plug in" application from metaquotes which will delay execution of trades at news time guaranteeing requotes to anyone who tries to trade the spike.  We elect to go with the "plug in" and we find that this solution just makes the spike traders go away.  They will still post on the FPA site about the problem with requotes at news time, but these two types of posts will just make us blend in with every other broker review on the site.

In summary:  We are a group of business people with nothing but profit motive in mind.  We have chosen a business model for a forex brokerage that mimics the interbank market but is definitely not a part of it.  We have disclosed this within the fine print of our terms and conditions so we can sleep well at night knowing we are not scamming our clients.  The worst that can be said of us is that we have been known to tell some clients that we just don't want to do business with them anymore.  Such requests were just a business decision.  By causing a delay on the news spike, we just managed to frustrate the spike traders and make them go away.  Our 95% odds are still in place and we can continue to operate profitably.

Does this sound like a broker where you have traded before?  Go re-read Maxey's post in the educational section of the site titled "Brokers - The Good The Bad and the Ugly.  See how many fit the mold outlined above.  Recognize the characteristics and move on to a legitimate broker.

ECN vs. Dealing Desk

ECN vs. Dealing Desk

Below is an article by Alexander Nekritin explaining the difference between dealing desk model brokers and ECNs.  My broker, Crown Forex, falls under the dealing desk model, though the author will acknowledge that there is nothing wrong with that model as long as the broker is well capitalized with deep liquidity relationships (see next to last paragraph). For their own convenience, Crown has initiated automatic execution up to one standard lot which we know bypasses the dealing desk, yet they are a dealing desk model broker.  It is their deep liquidity partners that allow us to get execution on news trades.  Enjoy the article.

Many forex traders are concerned about going to an ECN broker and not  trading through a deal desk. In this article I hope to shed some light about how this works and what to look for when selecting a broker to make sure that you don't become a victim of un-just dealing practices.

An ECN dealing model allows the many market participants to execute trades with each other through an electronic network. That's what an ECN stands for; electronic communications network . As you know, forex is a zero sum game so for every winner there is a loser; for everyone going long there is someone going short. So what an ECN does is match up your order with the order of another market participant. You are probably asking yourself the same question as I asked myself when I first found out about an ECN, will there be a seller every time I am buying and vice versa? The answer is that there are market makers and banks in the ECN that are consistently taking on trades and hedging their risk. They may have their own buy and sell programs that they are trading on. These banks allow clients to get better liquidity and tighter pricing in the ECN. One of the most profound benefits of using an ECN is that you get anonymity, as the other participants do not see who is trading on the other end and cannot flag your account and trade directly against you. Another benefit to consider is that you can make your own market in an ECN; meaning you can place orders in between the bid and the ask price. If you are not willing to trade at a particular price point, you are able to place a bid or offer in between the spread in hopes of the ECN finding a fit counterparty – this is not a possibility with a deal desk.

Some forex dealing firms use a dealing desk approach. With this approach their desk acts as a sole market maker and takes all long and short positions on. The desk has certain risk parameters that have been set up and based on these calculations the aggregate net position of the dealing desk is hedged. So, if the desk itself is net long or short a certain amount of EUR/USD for example, they will take a trade of that amount in the opposite direction with a liquidity provider. If all the clients are net long 1 billion EUR/USD, the desk will go long 1 billion EUR/USD and thus have a hedged position. So for every pip they loose in aggregate to their clients they will win on their hedge. Its obviously not as simple as I just explained it but that's the basic nature of the dealing model. Some of the advantages of going through a deal desk are that you always know your transaction costs as the spreads stay fixed, you know who the counterparty will be every time in case you need to get issues resolved. There are however some disadvantages as well, the dealer will always know who you are, and you can not go in between the bid and the ask.

Although many people are strong proponents of the ECN model which does seem a lot more transparent, the dealing desk approach can work just as well, as long as you are trading at a well capitalized firm with numerous deep liquidity relationships. The bottom line is you want to make sure that everything about your dealing firm, platform and over all trading set up is a fit to your needs. However there are some things you need to check right away to make sure that you are trading at a solid firm, because what good are tight spreads if you cannot withdraw your money at the end of the year? It's always a good idea to research your forex broker before you decide which route you'd like to go.

In general first find out the firms capitalization. You can find this at http://www.cftc.gov/marketreports/financialdataforfcms/index.htm. You want to make sure that the firm is well capitalized, I would say over $25 million for adjusted net cap is a good start. This means that they have enough money to have solid liquidity relationships. Next I would actually ask the firm who their liquidity providers are. You want to make sure they are big firms like JP Morgan or Bank of America. Some firms may claim they have no dealing desk on their websites, but in actuality send all their order flow to another dealing desk, you need to be really careful about that. In this case you would be much better of using an IB as you can lower your transaction costs by receiving a volume rebate and trading at the source. One way to check this quickly is an ECN will always have floating spreads. Spreads can not be fixed at an ECN. So if somebody is offering fixed spreads and saying they have no dealing desk. Guess what? They are going to another dealing desk.

Happy Trading,

Alexander Nekritin

Alexander Nekritin is a professional trader with over 8 years of experience. His specialties include risk management and system development. Alexander is the CEO of NCMFX, Inc., which is a forex introducing broker and an educational company that helps suit client's needs in forex trading. He offers a Forex broker review to his clients that assists in finding an appropriate clearing firm. Alexander has a degree with a concentration in Investment Banking and derivative instruments from Babson College in Massachusetts

Brokers..Good, Bad & Ugly

Brokers.......The Good......The Bad......and the Ugly

Hello News Junkies.   Its the weekend.......What are you doing here?  You should be out enjoying yourselves and having a good time!   Alright, maybe its raining or you've just come from the Forex Factory calendar and are trying to plan for next week.  I usually post a little news trade education here for those of you who just can't get enough. So here it is......

To be successful as a news trader you have to be willing to "test the waters" at different brokers.  On the first page of my site,  I mentioned that I was on broker number 8 ( actually, as of now it number 9).  I thought that was a lot till I met Maxey.  If you have been in our trade room, you know Maxey as a regular participant since day 1.  Maxey has been news trading about as long as I have, however, he makes me look like a rookie when it comes to changing brokers. He's on number 31.  Maxey is also a funds manager, but unlike me, his clients all have accounts at different brokers.  He also co-authors a quarterly economic report available by subscription to Muse subscribers.  This report is very useful for determining triggers and expected moves for various news reports from every major country and currency.  I asked Maxey to write this weekend's article detailing his experiences as he jumped from broker to broker.  Here is his story:

http://www.gigbrokers.com/

I began trading with them in February, 2008 with a starting balance of  $500.  I made more that $14,000 profit and was able to successfully withdraw.  In May, 2008 I made another $11,000 profit, requested a withdrawal, and my account was disabled.  They refused to pay me and would not answer emails.

http://www.fxservice.com/

I began trading with them in 2007.   I made about $7000 and was able to successfully withdraw. In 2008, I was asked by a friend to manage his account there.  I entered a trade on some Austrailian news and made $15,500 profit.  The next day, I opened the dealing station and found the trade had disappeared and the profit was voided.

http://www.2pipsforex.com/

I also began trading here in 2008.  Starting with $2000, I made $6000 within a week.  I was immediately switched to manual execution, however I was still filled on a Canadian news release.  I was 60 pips in profit and quite happy to close the trade there, but when I did, I was taken out with a false tic or fake price for a 9 pip loss.  This happened four times so I closed the account.

http://www.1world-forex.com/

This was the best broker a news trader could ask for.  I began trading with them in 2007 with a starting balance of $500 on a managed account.  I made more that $76,000 profit within three months.  I requested a $50,000 withdrawal and it was successfully completed.  A week later I requested the remaining balance of $26,000.  The account was disabled, the withdrawal, not completed and the company went bankrupt.

 http://www.fxopen.com/

Another scam.  I also began here in 2008 with a starting balance of $1000.  I made more than $95,000 profit within two months.  When I requested a withdrawal, they disabled my account and refused to process the withdrawal claiming I cheated by trading the price lag.  You can read more about it here: http://www.forexfactory.com/showthread.php?t=50202

http://www.prime4x.com/

Another one I began trading in 2008 with a starting balance of $3000.  I made more than $19,500 profit within 24 hours.  I requested a withdrawal and it was successful, so I decided to open another account.  I made another $32,000 profit and again requested a withdrawal.  My account was disabled and they emailed me saying "scalping is not allowed so all of your profits have been voided".

http://www.mbcfx.com/

I began trading here in 2008 with a starting balance of $4000.  I made more than $42,000 profit within four months.  They told me they don't allow news trading unless you also technical trade.  I told them I do technical trade and with the same size lots as I do for a news trade.  When I requested a withdrawal, they disabled my account, refused the withdrawal and told me the "bank" canceled my orders because I was trading news.

http://www.fxstarts.ru/

Same story, different broker.  Began earlier this year with $300.  Made more than $1000 within 7 days.  Requested withdrawal, and profits deleted.

http://www.whcforex.com/

Began here in 2007 using a straddle technique and made significant profits.  In 2008 they began reviewing trades for accuracy and several hours after the trade I would get an email claiming that my entry was an invaid price.  My 30 pip profit was reduce to 3 pips.

These are broker where I have attempted to trade the news and the conditions I encountered.


http://www.northfinance.com/


Slow order execution 20-60 seconds at news time.  always requoted

http://www.liteforex.org/

Orders filled - 30%

http://www.instaforex.com/


Fast execution, but if you make profit, you will be switched to manual execution.


http://www.tdfx.ch/

Fast execution, but profits will get you swithched to manual.


http://www.pro-forex.com/


Slow order execution, always requoted.


http://www.fxcast.com/


 you'll get message OFF-Quotes on news events


http://www.varengoldbankfx.com/


- Fast order execution,  1-2 seconds, but always filled at the middle or top of the spike.


http://www..ibfx.com/


- Orders filled, 20%

http://www.velocity4x.com/


-Slow order execution 5-10 seconds at news time, always requoted


http://www.stsfinance.bg/


-Slow order execution 5 seconds at news time, always requoted

http://www.mbtrading.com/


- market orders 100% fills... you'll get fills Top or middle of the spike
-Limit orders filled 20% of the time
Overall I was not satisfied with them. Profits were small so I closed my account.


http://www.alpari-idc.com/


-Slow order execution 5 seconds at news time, always requoted

http://www.tradeviewforex.com/


- Testing...

http://www.odlsecurities.com/


 Trading with them from Aug 2008
Starting balance of $2000.   I made more than 4k profit within 2 days.  They told me they dont allow news trading unless you trade technical analysis
and news at the same time which I already did.  I requested a withdrawal and my account was disabled.
They told me "our bank will cancel your trades because your were trading the news ! " (same story with mbcfx)


http://www.deltastock.com/


- Trading with them from 2007
- made more than 50k profit there and withdrawal successfully completed.
- then  the spread became an unreasonable 80-120 pips at news time, so I was unable to make any profits.


http://www.fxpro.com/


- Same conditions as at Northfinance.

http://www.pfgfx.com/


 Traded with them in 2007 with a starting balance of $300.  I made more than 2k profit within two weeks.
 Requested withdrawal  and profits deleted.


http://www.realtrade.lv/


-Slow order execution, always requoted.

http://www.poltekfx.com/


This broker was good for straddle trades only, but I heard they began slipping orders..

http://www.n2cm.com/

Traded with them in 2007 with a starting balance of $2000.  I made more than $12,000 profit within  one month.  I requested and received a withdrawal, but after that execution slowed  and orders were requoted so I was unable to make any profits.

http://www.forex-metal.com/
-Slow order execution, always requoted


http://www.windsorbrokers.biz/
-Slow order execution, always requoted

http://www.cbfx.com/

I got an offer to manage an account with $112,000.  I traded the news and was filled for a profit.  I was placed on manual execution and everything stopped.

 

And finally...brokers that will fill you at news time......as of now.

http://www.fxcm.com/
- Orders filled 40%

http://www.crownforex.com/
- Orders filled 95%

http://www.mbtrading.com/
- Orders filled 20%

http://www.ibfx.com/
- Orders filled 20%

http://www.liteforex.org/
- Orders filled 30%

I hope this has been useful to you in your quest to find the best broker for trading the news.

Computer Speed

While we wait............Speed up your computer

One of the hardest part of news trading for junkies like me is waiting between tradable releases.  I think I used to  tech trade because I always wanted to "have a horse in the race".  I did break myself of that habit when I went back to trade news exclusively but I hate the wait.  Anyway, tonights release of the AUD employment numbers is one of my favorites so I thought it would be a good idea to spend some time optimizing our computers. Just a reminder of some things everyone probably already knows,  take some time to defragment and do a disc cleanup.  During the trade, have as few programs running in the background as you can.  If you can launch a trade on one computer and watch it on another that would help.  Open charts and attached indicators will slow your computer upload speed.  If you leave your terminals open and on all the time, close and re-open them just before you begin your set- up.  Note in the bottom right corner of your terminal you will see an upload speed for in/out traffic.  The longer the terminal is open, the higher the number.  You want a low number which you will get upon reopening.  Many unneeded programs get placed in your systems tray and contribute to slowing down your system.  Many of these are put there when you download something, and you don't even know about it.  Use the following two links to clean up your "start up" process.

http://www.mediafire.com/?yzpml9yztyx

http://www.mediafire.com/?mizib9mzyjy

Other Strategies

Since I manage other peoples accounts during news time, I don't get the chance to practice other set ups in real time like I used to.  These strategies, both depend on the broker,as to whether they will work.   The logic behind them is sound and I will explain my reasoning.  These are THEORIES.  Trade them at your own risk.

The first one involves the theory that the broker will not open any orders for you unless you have the margin to support it.  I tried this techinique at Waterhouse Capital on a terminal that had no slippage control.  After observing the behavior of the orders on my multiterminal, I noted that after the "master"  buy/sell button was pushed, the orders were filled on a random basis as if they were fired from different computers all over the world.  There was no rhyme or reason as to the order in which they were filled.   I had also, in the past, gotten an error message on my journal "not enough money" when I set up a lot size wrong on an account.  In theory,  if I fired 10, 15 20 etc. or more orders at the broker's server, some would make it and some wouldn't.  I reasoned that once filled, and the margin exhausted, that the error message would return "not enough money" on all orders that tried to fill after the first one.

Example:  I'm trading USDJPY on a $500 balance.  I can set up 10 stations to fire 10 orders of 90000 (.9) from the same account at the same time.  In theory, only one "could" be filled and the others should return "not enough money"  These 10 orders would line up in the queue on the same random basis that I had observed on the multiterminal.

The result?  At Waterhouse, all orders were filled at the end of the spike because they have no controls  BUT  I had many accounts fill despite not having adequate margin to do so.  Conclusion?  The broker server was not able to process everything.  We didn't crash it, but we bypassed its logic.  Since it was a bad fill, I played dumb and Scott, our IB was able to get them all reversed except the one order that "could" be supported by the margin. 

If you are having trouble getting filled at a broker who DOES offer slippage control, and you want to try to flood their server with orders in hope that one goes through, this may work.  Do so at your own risk.  Client.exe will fire the orders for you from as many dealing stations as you can run.

SECOND STRATEGY:

Use this one on two terminals, but the same account.  Just prior to the release open a buy order and a sell order when the spread is low and there is not too much volitility.  You will be in a hedge on the target currency.  Next open a close box on both terminals and set one terminal to close the buy and the other terminal to close the sell.  Set your autoclick to close the buy if a "sell" is signaled and close the sell if a "buy is signaled.

Reasoning?  You are already "in" the market before the release.  There are fewer processes for the broker server to go through on a close order than on an open order.  To open an order (which is what everyone else will be doing when the signal comes out) the broker has to verify your margin before opening the order.  To close an order, this step is not necessary and could possibly speed up the execution of the close order.  You will need to enable the same deviation as you would on a spike trade because the close price has to be "available" from the banks, or you will remain in the hedge after the release.  The downside is that if it is a "no trade" you will have to manage yourself out of the hedge.

The logic behind the two strategies is sound.  Whether or not the logic carries through to the real world is unknown from broker to broker.  Test on demo or on a live account with the lowest lot setting.  Again, it will depend on what the broker's server is capable of. 

Spread

Spread at News Time

During the weekend when the market is closed, I thought I would post some interesting things I have learned while trading the news.  Today I want to talk about spreads.

Many of you may have seen or read about how IBFX , Oanda, and others have been known to raise their spread during news from 20 to 40 pips.  This was commonplace about a year ago, but has since calmed down.  I observed an 11 pip spread at IBFX on US retail sales this past week.

So how can Crown offer no increase in spread at news time?  Good question.  What they do is offer instant execution with no dealer intervention at the "best bid or ask price" offered by their 10 banks that provide the liquidity for them. 

Crown doesn't raise their spread, but what about the 10 banks that provide the liquidity?  Do they raise their spread?  If they do, how does that affect the price they offer Crown's clients?  Good question, and one that determines where to set the slippage control.

Suppose all 10 banks raise their spread anywhere from 5 to 12 pips before the news. Three banks raise by 5 pips, three more raise by 10 pips, and the remaining four raise by 12.

With our ping tests we are pretty sure the order gets to their server within the first 10th of a second.  If we set slippage control at 4, we get no fills.  If we set at 6 we may get filled at any one of the first three banks depending on their liquidity.  If we set slippage control at 15, we stand a chance of being filled by any one of the 10 banks, but if the report moves only 20 pips, we don't have much to work with if we get filled at 15 pips away from the open.

Bottom line is, we don't know the spreads being offered at news time by the unseen liquidity providers.  If we raise our slippage control too much, we risk the trade not going far enough to ensure our profits......too low, and we risk not getting filled at all.  On most trades, I use a 13.  On NFP, using a safe trigger, I would use a 25.  On a rate decision, I would probably use a 20, but wouldn't feel uncomfortable using a 25.  These are rare, but are usually good for 100+ pips. 

Q & A

Questions Asked and Answered

Q:  Do we have to move from WHC to Crown for you to continue trading?

A: Absolutely Not.  I can trade at both places.  In fact, until we get some initial results from Crown, it would be better to have accounts in both places.  The grass may not be greener on the other side.  The advertised conditions at Crown exactly match my every requirement, but until we have a few trades behind us we won't know.  I personally plan to keep accounts at both places

Q: Can we expect to double our accounts and more? 

A: Probably more than 75% of those trading with me have at least doubled their account, and some......several times over.  Keep in mind it is easier to double a $300 account than it is to double a $3000 account.  The key to doing this is leverage and being almost sure of the outcome of a news trade.  Presently we can't be sure of the outcome so we can't really tap into our leverage.  Any broker that offers automatic execution is telling you that you will be guaranteed to get a fill on your market order, but we need a "fill or kill" filter in place that we know works every time before we employ the power of leverage.  About a year ago, I had such a broker and I would load from 10 to 15 lots per trade on a balance from $6000 to $10,000.  Time and time again, I would close trades for $2000 to $5000 profit in just a few minutes.  As long as there exists the possiblility that we could get filled at the end of the spike, we can't expect to do much doubling, but we can expect to be profitable.  At Crown, the needed filter exists, but we haven't tested it yet.

Q:  Based on what you know, What can we expect at Crown?

A: We all know that demo trading is no substitute for live trading.  I have demo traded the news at many brokers, and almost always get filled only to find real trading is not the same.  I expected the same thing by demo trading at Crown but got some surprising results.  I already have their multiterminal and have loaded it with demo accounts.  I have traded it on about 1/2 dozen news releases, some major, some minor.  I would expect fills all the time on demo, but such was not the case.  I got filled on about half the valid signals, and locked out of the trade on others.  This is a good thing.  If I got locked out, it means that had I been filled, it would have been a bad fill.  I can set a slippage contron on demo of only 4 pips, but on a live account I can set any amount.  As an example, lets say we are trading the Austrailian Employment report at Crown.  If we research the history of this trade we may find that a deviation of 25K jobs has historically produced a move of 50 pips.   In order for us to hit a "home run" on this one, we need to set a safe trigger of 25 and value for slippage that we are willing to accept.  If we are expecting a 50 pip move, I can be comfortable in setting 15 for slippage control and accept a price up to 15 pips away from entry.   This is a lot, but 35 pips profit is more than acceptable.  There are trades that I expect may go only 20 pips based on historical moves on similar triggers, so obviously I have to set a much lower slippage control.  Ideally, to answer the question,  we can expect bigger profits on fewer fills.

Q:  Are all bad fills caused by the broker?

A: No.  Remember the news data feed comes from a news organization such as Bloomberg or Reuters with a physical presence in the news lockup.  They are humans pushing the send button on a computer.  I bailed on a trade this past week when I saw a price spike and no news data coming through on my software.  Basically the newsprovider was late with the signal.  If I had not bailed, the orders would have triggered and we would be entered at the wrong end of the spike.  I watch for this on every trade, and it doesn't happen often, but it does happen.

Q: What if moving to another broker doesn't work?  Is there anything else you can do?

A: Its like starting over when you go to a new broker.  I will start by just trading our standard orders on one station.  We can try multiple orders to see how many get through.  We can try what I did at WHC and fire 10 or 15 of the sames sized order from each account knowing that the account's margin can only support one, and see if their system can handle it.  I have other strategies too numerous to mention involving dedicated servers, multiple autoclick services working simultaneously, and changing the variables on all of the above.  I have a certain OCD (obcessive compulsive disorder) about news trading, and I was joking around the other day saying that I have to be successful so I can afford the therapy.

Feel free to post your questions to the comments area of each post or the guestbook.  We have a lot of knowledgable traders here as well as some technological gurus. 

Talk later!


Posted on Saturday, June 7, 2008, 02:27 PM (UTC -4)

 

A Tale of Two Tapes or ..........Why you will never win at WHC

The decision to move to Crown from WHC may have seemed quite arbitrary, and for those that are staying at WHC, I wanted to show what we are up against when it comes to having our profitable trades reviewed.  MT4 is used by many brokers but at each one, there is an underlying data feed of prices from the liquidity provider.  If there are many providers, this feed is a composite of them all.  If you've been with me for a while, you remember we were very profitable at Golden Contract.  Below is a clip of the data feed from Golden Contract for a Canadian News Release on February 8, 2008

02/08/08,14:59:59, 1.0078,, 1.0074
02/08/08,14:59:59, 1.0075,, 1.0067
02/08/08,15:00:01, 1.0079,, 1.0073
02/08/08,15:00:02, 1.0080,, 1.0074
02/08/08,15:00:02, 1.0050,, 1.0045
02/08/08,15:00:02, 1.0080,, 1.0074
02/08/08,15:00:03, 1.0080,, 1.0076
02/08/08,15:00:04, 1.0025,, 1.0016
02/08/08,15:00:04, 1.0032,, 1.0016
02/08/08,15:00:04, 1.0032,, 1.0024
02/08/08,15:00:06, 1.0030,, 1.0025
02/08/08,15:00:08, 1.0008,, 1.0003
02/08/08,15:00:08, 1.0009,, 1.0004
02/08/08,15:00:08, 1.0007,, 1.0002
02/08/08,15:00:08, 1.0012,, 1.0004
02/08/08,15:00:08, 1.0007,, 1.0002
02/08/08,15:00:08, 1.0004,, 1.0000
02/08/08,15:00:09, 1.0011,, 1.0001
02/08/08,15:00:09, 1.0009,, 1.0003
02/08/08,15:00:09, 1.0006,, 1.0001
02/08/08,15:00:09, 1.0006,, 1.0002
02/08/08,15:00:09, 1.0005,, 1.0000
02/08/08,15:00:09, 1.0005,, 1.0000
02/08/08,15:00:09, 1.0004,, 0.9999
02/08/08,15:00:09, 1.0007,, 0.9999
02/08/08,15:00:09, 1.0010,, 1.0006
02/08/08,15:00:09, 1.0010,, 1.0000
02/08/08,15:00:09, 1.0007,, 1.0003
02/08/08,15:00:09, 1.0004,, 1.0000
02/08/08,15:00:09, 1.0004,, 1.0000
02/08/08,15:00:10, 1.0007,, 1.0001

Notice that each second can have multiple price quotes within that second.  The eighth second has 6 quotes and the ninth second has 13 quotes.  Notice the gap forms after the forth second.  If the time stamp on your order is after the 4th second, you will get the less favorable price after a review, even if your trade was initially profitable.  That is because the "stock"  MT4 "out of the box" feed, can't keep up with the underlying feed from the liquidity provider which will be the final authority on the profitability of your trade.

Now lets look at a data feed from Waterhouse Capital on a USDJPY release.

5649,05/02/08,16:29:54,104.67,,104.61
5650,05/02/08,16:29:54,104.68,,104.62
5651,05/02/08,16:30:04,105.06,,105.00
5652,05/02/08,16:30:05,105.06,,105.00
5653,05/02/08,16:30:08,105.14,,105.08
5654,05/02/08,16:30:08,105.14,,105.08
5655,05/02/08,16:30:10,105.18,,105.12
5656,05/02/08,16:30:11,105.17,,105.11
5657,05/02/08,16:30:12,105.17,,105.11
5658,05/02/08,16:30:14,105.19,,105.13
5659,05/02/08,16:30:16,105.27,,105.21
5660,05/02/08,16:30:17,105.27,,105.21
5661,05/02/08,16:30:17,105.27,,105.21
5662,05/02/08,16:30:18,105.26,,105.20
5663,05/02/08,16:30:18,105.26,,105.20
5664,05/02/08,16:30:19,105.27,,105.21
5665,05/02/08,16:30:20,105.25,,105.19
5666,05/02/08,16:30:20,105.25,,105.19
5667,05/02/08,16:30:21,105.25,,105.19
5668,05/02/08,16:30:22,105.24,,105.18
5669,05/02/08,16:30:24,105.25,,105.19
5670,05/02/08,16:30:26,105.24,,105.18
5671,05/02/08,16:30:27,105.24,,105.18
5672,05/02/08,16:30:27,105.24,,105.18
5673,05/02/08,16:30:30,105.26,,105.20

Notice the gaps with no prices.  Especially this one:

5650,05/02/08,16:29:54,104.68,,104.62
5651,05/02/08,16:30:04,105.06,,105.00

A 10 second gap with no price which spans the 6 seconds before the release and the 4 seconds after the release?  What conclusion could you draw?  Fair?  I don't know?  Which tape would you rather have your trade reviewed against?  As long as there are multisecond gaps that begin before the release and end several seconds after the release, you can not expect to keep any meaningful profits at WHC.  If you do, it was most likely just overlooked.


Posted on Sunday, June 15, 2008, 11:29 AM (UTC -4)

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