Which FX provider for an Aussie?

[Trembling Hand]

Anyone know an FX provider that allows opening an account for as low as, say, 1k that can be funded by B-Pay or credit card and is, preferably, denominated in Aussie dollars? (I'm afraid I loathe the idea of wiring funds overseas or mailing cheques!) I'm naturally most attracted to ECNs -- there's somthing unsettling about the "middleman" basically losing if you win as in MMs. But I'm certainly not deadset against using an MM.

So yeah, who can I B-Pay or credit card pay starting at 1k opening balance (or a bit higher)?

I think for 1 K start, bpay or C-card and Aussie you are going to have to go with MM. CMC would fit that but many don't like them. I use them as a backup if a disaster hits with my Futures provider and think they are OK.

 

[Stormin_Norman]

Hi everyone I'm using gft just wondering what anyones thought on them are....secondly if your making consistant trades it would really matter about spreads and all that stuff would it?m thanks

spreads are higher then a pure foreign exchange provider. but they do commodities and equities on the same platform.

if you are holding positions for an extended time and not scalping then a couple of pips difference in the price of a spread is not going to concern you all that much.

they are a deal desk foreign exchange broker however. and all the bad things that come with deal desks.

their net worth is about $65 mil. which is more then all but a few foreign exchange dealers.

its hard to know which broker is the best for each person. but with GFT you could do a lot worse.

 

[Stormin_Norman]

I'm naturally most attracted to ECNs -- there's somthing unsettling about the "middleman" basically losing if you win as in MMs. But I'm certainly not deadset against using an MM.

you are describing a dealing desk senario.

every meeting of more then two financial institutions to exchange currency could be concidered a new market made.

there is no market in the currency trade. there are multiple markets all 'made'. be it between the bank of england and HBOS or between broker and their bank.

matching clients positions up before hedging the residual makes more sense to me then passing all the trades directly through.

taking the opposite position and dealer desking all client's orders ARE a big problem to me.

i dont know which banks EFX deal with. the 'clean through to the bank' that EFX is claiming could be no more 'clean' then a non dealing desk MM.

i could set up a EFX like system where all the deals were sent 'direct' through to to the 'banking system' (efx's banks are not named. i suspect they are small state US 'banks' - similar to our credit unions). that bank then receives all the small orders, groups them all up to find their net positions; then hedges those positions against other banks to cover their risk.

no different to what a broker like OandA does. except OandA take the spread profits from any matched up trades. EFX give it to the 'bank/s' they deal with; who then hedge net positions and make the profit.

every currency exchange involves a 'market that is made'. EFX's relation to its small banks are also a 'made market'.

the bad things are dealing desks/stop loss hunting/ re-quotes/ mispricing and nonfilled orders.

every participant, from retail $500 accounts to central banks dealings with each other create their own market. because of that the broad labeling of a 'market maker' as 'bad' doesnt quite sit comfortably with me. similarly i do not see 'straight through' trades as an advantage over a nondealing desk broker which aggregates customer's trades (as opposed to taking the opposide side - that's bordering a bucketshop).

 

[tayser]

sigh.

..........

Any market making broker (i.e you're just trading inside the market created by the broker) is a deal desk broker. "Market Making" brokers will have either humans sitting on the deal desk accepting the incoming orders and hedging against their client's positions or they'll have a whole platform of hardware doing the same job, no matter which way you look at it, there is intervention by the broker on your order because they are on the other end of it.

again, a market maker broker = deal desk, full stop.

And I doubt very much EFX has little US state banks running liquidity for them 24/7 5.5 days a week, because little banks usually use larger ones as their agents for their FX transactions - and with a STP model you're actually getting filled on currency from a bank - the bank will have its own army of traders all trying to win / hedge for the bank as well - yes, this is how the financial world works, however the point is, the broker is not taking the other end of the trade - they're not trying to intervene for their own interests, they just want your commission, they're providing a platform for you to access a much larger market than your average bucketshop will be able to give you, your order is being filled by a plethora of banks all competing for your business.

 

[Stormin_Norman]

sigh.

..........

hello taser replace your oxygen. clear your mind.

Any market making broker (i.e you're just trading inside the market created by the broker) is a deal desk broker. "Market Making" brokers will have either humans sitting on the deal desk accepting the incoming orders and hedging against their client's positions or they'll have a whole platform of hardware doing the same job, no matter which way you look at it, there is intervention by the broker on your order because they are on the other end of it.

ok. market making broker i can handle. but just calling them 'market makers' was sitting uncomfortably for me because technically with no main market, any collection of organisations for currency trade are 'making a market'. this point is an important one; i feel people compare currency trading with stocks or commodities. it is very very different market. there is no main market. the NASDEC is a formal market. there is no formal currency market.

if you ran a bucketshop doing CFD's for NASDEC shares you are making a market. if your broker matched trades before buying the balance of the equities from NASDEC they would be making a market.

with no formal market. everyone in currency is creating a market. there are different sizes of markets. but with no one formal market; by definition all the markets are informal markets made up by their participants.

the point is more then a definitional one.

again, a market maker broker = deal desk, full stop.

by your definition, if a broker collates people's position to hedge the final result then all brokers are deal desks.

however there are clearly two kinds of deal desks. those which interfere with your trades; or those which pass them through at the quoted price. interference with your trades are not on and a major disadvantage and turn off for retail customers.

those which pass the quoted price and deals straight through their system to match up and hedge a residual are fine with me (eg OandA). they are not taking a side (another trader, who has decided independently has taken the opposite side to you is). they are not changing your price. they are taking advantage of a profit opportunity.

for eg.


there is a total position of 1000 long and 300 short at the broker for that moment in time (less then a blink of the eye).

a non interfering deal desk at a broker would match up these 300 short with 300 long and be left with 700 long. they pass the 700 on to the bank. the bank make a profit on receiving these 700 trades.

the 300 longs and 300 shorts are directly matched to each other. rather then passing these 600 trades onto the bank to profit from; the bank can match up these at the interbank quote rates they were given and 'pocket' the spreads. There is no market movement risk to this kind of broker (again my eg is OandA).

alternatively a broker could take 1300 trades and pass them through to their bank directly. they would be forgoing the ability to match up trades which are on opposite sides. they pass the quotes through to the banks who profit from these trades. you get charged a commission for the trades not to be matched up (so the company can make money).

The bank, who has received these 1000 longs and 300 shorts will then want to limit it's risk. So it will hedge with another bank the 700 longs it is holding. Effectively the same result as in the above scenario; except the broker is not involved in the hedging part because the trades are passed straight through.

don't mistake me. i like the idea of 'straight through' trading. but thinking about it a bit more; im unconvinced of its total domination. interfering trade desks everyone agrees are a spawn of satan.

non interfering deal desks which hedge outcomes but do not take sides are operating as the bank the direct trade/straight through system does and makes perfect sense to me in a non centralised market.

the spread profits to be made in matching mean that the good matching-up brokers do not need to charge commission. the 160+mil value of OandA shows there must be a good profit in doing it efficiently.

And I doubt very much EFX has little US state banks running liquidity for them 24/7 5.5 days a week, because little banks usually use larger ones as their agents for their FX transactions

exactly my point. EFX wont tell you which banks they are passing you onto. it might be a small bank who hedges the net position against a bigger bank. thats what all the market participants do.

Small bank A deals its currency through international bank A

small bank B deals its currency through international bank B

etc.

EFX have a panal of several banks to make up its liquidity. probably like the above.

so small bank A gives a price to EFX. this price is the price they got off big bank A + profit.

small bank b,c,d,e,f and g do the same thing.

EFX display the best quote. and you get passed straight through to the small bank A. which hedges its net position with its big bank, who hedges its position with other big banks and other orders.

if (this is an assumption here) OandA and small banks a,b,c,etc hold the same relative place in the market, dealing with the large banks retail investors cannot access; it could be argued that rather then giving you 'direct access to the markets' EFX is infact just adding another layer to it.

back to the initial part of the post about there being no formal market and everyone a market maker. EFX pass your trade directly at quoted price through to a banks dealer desk who hedge your trade onwards throught the system.

EFX passes up profits and charges you commission to do that (and probably get commission kick backs from banks they put your order through to).

you get flexibile quotes which can have 0 spread for short periods of times because the quotes come from multiple banks and the best one is displayed to you.

there is slippage if your order is not filled; and problems if the bank your order is put through to cannot fill it; requiring the deal to come back to efx and try bank option #2.

any broker offering 'fixed spreads' is a worry. OandA's spreads move too. AUD/USD at news time can go out to 3,4 or even 6 pips. 80% of the time it is 1.8.

EFX you can occasionally get away with your trade for no spread, but usually EFX has the AUD/USD at around 2 (+another pip in commission). On average the pip difference between OandA and EFX is very similar, but because OandA match up deals before passing them on they do not need to charge commission.

I was using OandA for charting and EFX for trading there for a while; thats why I felt comfortable comparing them.

- and with a STP model you're actually getting filled on currency from a bank - the bank will have its own army of traders all trying to win / hedge for the bank as well - yes, this is how the financial world works, however the point is, the broker is not taking the other end of the trade - they're not trying to intervene for their own interests, they just want your commission, they're providing a platform for you to access a much larger market than your average bucketshop will be able to give you, your order is being filled by a plethora of banks all competing for your business.

i hate brokers taking the other side of the trade too. that is entirely different however to 'matching trades'.

these type of brokers dont really want you to lose either. they want you to trade so they have more positions to match up.

i am not talking about your average bucketshop; i loath them. but a broker that behaves like a bank; taking trades and hedging the resultant risk out makes sense to me.

they can make a profit of deal matching and control their risk to basically zero. financial risk for dealing desk brokers is very real; because they take opposite sides. look for dramatic changes in a company's net worth for suspicions of taking other sides and winning/losing large.

 

[traydor]

spreads are higher then a pure foreign exchange provider. but they do commodities and equities on the same platform.

if you are holding positions for an extended time and not scalping then a couple of pips difference in the price of a spread is not going to concern you all that much.

they are a deal desk foreign exchange broker however. and all the bad things that come with deal desks.

their net worth is about $65 mil. which is more then all but a few foreign exchange dealers.

its hard to know which broker is the best for each person. but with GFT you could do a lot worse.

hi storman thanks for the reply mate i,m still new to this what would be all the bad things thanks

 

[StockyGuy]

Thanks, guys. Interesting debate of MM vs ECN here, hehe. Seems most popular, overall, is Oanda

 

[Andy_aus]

So in conclusion Oanda is probably the way to go as they offer lower overall costs (slippage only and no commision) compared to EFX. Would i be correct in saying that?

 

[tayser]

Cost of doing business should not be your only concern when looking at a broker.

Oanda positives: AUD denomination, US-based, Rollover rates (calculated by the second and credited/debited after you close your trade), robust platform that's constantly updated, can open an account and don't have to fund immediately, interest paid on unused account balance.

Oanda negatives: a market-maker, poor selection of order types including no trailing stops, inability to trade inside the spread, no NZD/JPY, AUD agent bank is in London therefore funding/withdrawing takes upwards of 48 hours (*personal experience), servers are located on the US east coast (adds about 60-80ms to latency when you're trading in fast markets).

EFX positives: pure ECN at retail level which reflects the wider interbank market (the big participants in the interbank market are also in their liquidity pools & therefore EFX is more a truer reflection of the interbank than Oanda despite what Norm says), execution, ability to trade within the spread which can decrease your cost, enormous range of order types, commission discounts on the more volume you put through, servers are located on the US West coast (typical Melb-Syd-LAX/SFO round trip is about 180-200ms on my iinet connection), agent bank is Wells Fargo (US West Coast / PST Timezone bank) - funding/withdrawal is bound to be quicker for us (will eventually test this and let everyone know). If you're an equities trader, you'll be more familiar with an ECN than a MM: ECN's have market depth for one.

EFX negatives: USD denomination (although that's likely to change), no interest paid on unused balance, rollover rates, commission is high when you first start off.

__________

At the end of the day, certain brokers are going to be better for different trading styles - EFX is by far the better choice for me personally. If I scalp AUD/JPY on the short, the rollover is going to reduce any profit I make (remember: FX transactions take 2 business days to clear and each night at 5pm NY time you're credited/debited whichever rollover rate applies to the pair you're waiting on clearing), but the benefits (ECN, order types and real bank quotes that are not on a fixed spread) far outweigh the negatives (commission primarily).

I'm keeping my Oanda account open, as I'll probably use it for something else - Oanda's very good for carry trading (see rollovers) which is something I might look at sometime down the track.

 

[Trembling Hand]

There is also FX Futures which it seems no one uses except me.

 

[lesm]

So in conclusion Oanda is probably the way to go as they offer lower overall costs (slippage only and no commision) compared to EFX. Would i be correct in saying that?

Andy,

In terms of ECNs, you may like to look at Hotspot, Interactive Brokers (IB) and DukasCopy, for a comparison between ECNs.

EFX/MBT is the most expensive, commission wise, at $50 million and DukasCopy the lowest at $18 milllion. Each have their pros and cons.

Hotspot and Lava are prime brokers for DukasCopy, and would give you lower entry costs, in terms of opening an account, as opposed to DukasCopy themselves. Hotspot offers both a retail and institutional platform.

If you are considering high frequency scalping you wouldn't want to be paying any more than $20 - $30 million.

EFX/MBT is targetted at scalpers or intra-day traders. Due to their atrocious swap(rollover) rates other brokers (ECN or MM) would be preferable for longer term or carry traders. They also close down their order servers each night for maintenance. They are trying to reduce this down time to about two minutes, but it has been as high as 15 minutes.

Tayser,

Have you managed to find out who EFX/MBT's liquidity providers are?

They have been very secretive about that to date. Their access to the interbank market will be restricted to the group of banks that provide their liquidity.

Cheers.

 

[tayser]

No, I don't think anyone has been able to. Studying their market depth however reveals that even on AUD/JPY there's at least 7-8 banks in that specific pair - each usually offers 3,000,000-5,000,000 apiece at a guess with a spread of 4-5 pips and as there are so many of them, the spread narrows to the average 2 pips around the big opens & active hours and 3pips at other times. This mornng (Monday), there'll only be a few banks in there guaranteed with a wider spread - probably just Australian banks and it won't narrow / pick up til the Asian banks join the pools.

As I've said in the cyrox thread, the ceiling you'll hit on EFX is roughly about 20,000,000 on AUD/JPY (all the majors: much higher) before you start soaking up market depth either side of the price you want (when using market orders) - based on my study of their market depth in active market hours.