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My only experience is with equities, but yes forex is both highly leveraged and poorly regulated. Even in equities, your brokerage is not your friend: if you p

My only experience is with equities, but yes forex is both highly leveraged and poorly regulated. Even in equities, your brokerage is not your friend: if you place a limit order, there's nothing to stop them from placing the same order just a bit closer to the market and using you as their free stop loss.

fixxer 13y ago
Very true. Case in point, Ameritrade's odd marriage with Citadel... think they might be reading the tape? https://www.tdameritrade.com/forms/AMTD2055.pdf‎ https://www.tdameritrade.com/forms/AMTD2055.pdf‎
kasey_junk 13y ago
I'm not sure I understand what you are saying. How does the brokerage make money off of that. If they are improving the price you haven't lowered their risk profile at all. If they are taking the other side of your trade and the market doesn't reflect that, they've actually given you a free roll.
- fixxer 13y ago
  Suppose you want to buy XYZ for $1.00. You place your bid and are the highest price against a $1.03 offer. Evil broker places a $1.01 bid and gets a fill. He immediately offers $1.02. Case 1: The market runs up, he makes his tick on essentially zero commissions. On some markets, you earn commissions for providing liquidity. Case 2: The market falls off, he smacks your bid and only loses a penny. This is edge. EDIT: When I say "the market", he could base his actions off an index. As for "free roll", sure... but there is still an impact on liquidity and you're in a situation where you are more likely to get a fill whenever the market is going against you.
  - kasey_junk 13y ago
    Is that legal trading anywhere? That seems like it would fall into front running definitions in all the jurisdictions I know of.
    - fixxer 13y ago
      Legal? No. Does it happen: yes.
      - kasey_junk 13y ago
        OK, but to my other reply. If they are going to blatantly front run, why would they even bother with the markets. Just spoof market behavior to you and take your money. Much easier. If this behavior is impacting your execution why are you still using "Evil Broker"?
        fixxer 13y ago
        You mean, provide a false market? They do that in FX (you're trading their market; it is up to you to know what is going on beyond their walls). As for spoofing other markets, you can get away with front running.
        kasey_junk 13y ago
        I'll grant trading FX is for crazy people. As someone who's experience is way more on the commodities futures side of the house, I'm shocked that blatant front running is an expected cost of business in equities trading. Even in the highly monopolized CME world front running is considered beyond the pale. I will say (in my experience in the commodities markets), 9 times out of 10 folks who claim that they are being front run are actually just unaware of how sophisticated their competition is when it comes to micro-book structure optimization.
        fixxer 13y ago
        FX is a great market, but not for the reasons people typically think. The problem lies in brokers for the mass market (the little guy). If you're at a billion dollar hedge fund, you have access to an entirely different class of brokers (and those markets are full of intrigue...) I second your claim ("9 times out of 10") for CME. Human nature is to assign a complex answer ("they're reading the tape") to something very simple ("my model is shit"). That said, front running happens on CME, too. Again, it is the same construction: consumer sending orders through a nefarious broker.
  - deleted 13y ago
    [deleted]
- OldSchool 13y ago
  Imagine your algorithm says that a certain non-volatile instrument isn't going to go much below 5.00 and often goes above 5.15. You place a limit order in advance to buy at 5.00 (market orders don't guarantee price) and if you get filled you'll be hoping to short at 5.15 or so later. "Evil Brokerage" comes in and offers to buy at 5.01. Remarkably, you observe that any time you pull your 5.00 order, their 5.01 order disappears. The instrument heads toward your 5.00 target. If their order turns out to provide all the necessary liquidity at that moment, the sellers never reach you, and the instrument turns around and "Evil Brokerage" soon sell for higher. Alternatively, if the instrument is on a move and it going to go against you too, brokerage sell to you and they only lose 0.01/share. That's why I call the scenario a free stop loss.
  - kasey_junk 13y ago
    I get that, but again, doesn't that fall under illegal trading behavior? If we are going to assume that the brokerages are rampantly front running, why assume they are even telling the truth about execution. At that point they can just tell you that your trades executed that way without the bother of actually going into the market. Further, why would you stay on an execution platform that is so obviously bad for you?
    - OldSchool 13y ago
      I don't think it's illegal, not even really front-running. That'd be them turning a price profit on filling your order, not just using it to avoid a potential loss. Also, you're right, at a minimum, via a subsidiary it's possible for the brokerage to "fill" your order without it ever reaching the exchanges, I think as long as it's inside the national bid-ask price spread at that moment. They pitch this as a feature - it also lets them avoid exchange fees. Then they can manage their overall risk separately. Yes, I stopped trying to make those trades years ago. At one time though it was a remarkably consistent way to succeed on a small scale.
      - kasey_junk 13y ago
        I'll admit I haven't looked at every broker, but every exchange that I know of, you have to opt in for orders to not go to the other exchanges. This frequently is a feature for both sides of the equation due to lower fees, better execution rules, rebates, priority, etc. I certainly know that I would never opt in to a platform that consistently provided worse execution (especially in the equities space where there are so many choices).

fixxer 13y ago

Very true. Case in point, Ameritrade's odd marriage with Citadel... think they might be reading the tape? https://www.tdameritrade.com/forms/AMTD2055.pdf‎ https://www.tdameritrade.com/forms/AMTD2055.pdf‎

kasey_junk 13y ago

I'm not sure I understand what you are saying. How does the brokerage make money off of that. If they are improving the price you haven't lowered their risk profile at all. If they are taking the other side of your trade and the market doesn't reflect that, they've actually given you a free roll.

fixxer 13y ago
Suppose you want to buy XYZ for $1.00. You place your bid and are the highest price against a $1.03 offer. Evil broker places a $1.01 bid and gets a fill. He immediately offers $1.02. Case 1: The market runs up, he makes his tick on essentially zero commissions. On some markets, you earn commissions for providing liquidity. Case 2: The market falls off, he smacks your bid and only loses a penny. This is edge. EDIT: When I say "the market", he could base his actions off an index. As for "free roll", sure... but there is still an impact on liquidity and you're in a situation where you are more likely to get a fill whenever the market is going against you.
- kasey_junk 13y ago
  Is that legal trading anywhere? That seems like it would fall into front running definitions in all the jurisdictions I know of.
  - fixxer 13y ago
    Legal? No. Does it happen: yes.
    - kasey_junk 13y ago
      OK, but to my other reply. If they are going to blatantly front run, why would they even bother with the markets. Just spoof market behavior to you and take your money. Much easier. If this behavior is impacting your execution why are you still using "Evil Broker"?
      - fixxer 13y ago
        You mean, provide a false market? They do that in FX (you're trading their market; it is up to you to know what is going on beyond their walls). As for spoofing other markets, you can get away with front running.
        kasey_junk 13y ago
        I'll grant trading FX is for crazy people. As someone who's experience is way more on the commodities futures side of the house, I'm shocked that blatant front running is an expected cost of business in equities trading. Even in the highly monopolized CME world front running is considered beyond the pale. I will say (in my experience in the commodities markets), 9 times out of 10 folks who claim that they are being front run are actually just unaware of how sophisticated their competition is when it comes to micro-book structure optimization.
        fixxer 13y ago
        FX is a great market, but not for the reasons people typically think. The problem lies in brokers for the mass market (the little guy). If you're at a billion dollar hedge fund, you have access to an entirely different class of brokers (and those markets are full of intrigue...) I second your claim ("9 times out of 10") for CME. Human nature is to assign a complex answer ("they're reading the tape") to something very simple ("my model is shit"). That said, front running happens on CME, too. Again, it is the same construction: consumer sending orders through a nefarious broker.
- deleted 13y ago
  [deleted]
OldSchool 13y ago
Imagine your algorithm says that a certain non-volatile instrument isn't going to go much below 5.00 and often goes above 5.15. You place a limit order in advance to buy at 5.00 (market orders don't guarantee price) and if you get filled you'll be hoping to short at 5.15 or so later. "Evil Brokerage" comes in and offers to buy at 5.01. Remarkably, you observe that any time you pull your 5.00 order, their 5.01 order disappears. The instrument heads toward your 5.00 target. If their order turns out to provide all the necessary liquidity at that moment, the sellers never reach you, and the instrument turns around and "Evil Brokerage" soon sell for higher. Alternatively, if the instrument is on a move and it going to go against you too, brokerage sell to you and they only lose 0.01/share. That's why I call the scenario a free stop loss.
- kasey_junk 13y ago
  I get that, but again, doesn't that fall under illegal trading behavior? If we are going to assume that the brokerages are rampantly front running, why assume they are even telling the truth about execution. At that point they can just tell you that your trades executed that way without the bother of actually going into the market. Further, why would you stay on an execution platform that is so obviously bad for you?
  - OldSchool 13y ago
    I don't think it's illegal, not even really front-running. That'd be them turning a price profit on filling your order, not just using it to avoid a potential loss. Also, you're right, at a minimum, via a subsidiary it's possible for the brokerage to "fill" your order without it ever reaching the exchanges, I think as long as it's inside the national bid-ask price spread at that moment. They pitch this as a feature - it also lets them avoid exchange fees. Then they can manage their overall risk separately. Yes, I stopped trying to make those trades years ago. At one time though it was a remarkably consistent way to succeed on a small scale.
    - kasey_junk 13y ago
      I'll admit I haven't looked at every broker, but every exchange that I know of, you have to opt in for orders to not go to the other exchanges. This frequently is a feature for both sides of the equation due to lower fees, better execution rules, rebates, priority, etc. I certainly know that I would never opt in to a platform that consistently provided worse execution (especially in the equities space where there are so many choices).