Should You Consider Using A Forex ECN Platform? - MB Trading

RETAIL e-FX CLIENT >>>
Sanjaq continues: “I believe that brokers who are
offering both DD and NDD are actually DD brokers
trying to catch the trend by promoting NDD trading
for their clients. The DD-NDD dilemma is ethical
and can not be taken as a variety of services. Since an
ECN broker’s role is to give individual traders access
to the interbank market, they do not benefit from
the spreads or the losses of their clients. Therefore,
they usually charge a commission fee per transaction
proportional to the trade size. Besides, banks
usually charge the ECN broker commission fees for
transaction executed on their end.”
Wolf in sheep’s clothing?
While Ditlove comments: “This is an example of
a wolf in sheep’s clothing. If your broker does not
immediately display your bid or offer for all other
clients to see, if your broker maintains minimum
fixed spreads, if your broker knows information about
your order that is not fully transparent to the rest of
the marketplace and retail traders alike, then you’re
not getting a fair deal. Just because someone calls
themselves a NDD-ECN does not make them so.
Frankly, it’s laughable.”
Yet the debate about dealing desks and non dealing
desks (NDD) is a red herring, claims Glenn Stevens,
CEO at GAIN Capital. He says as a retail trader, your
Andrey Vedikhin
“While approximately only 5% of retail clients
trade via ECNs today, we expect this to grow to
over 95% within the next few years.”
primary concern should be your ability to get into a
trade quickly and at the rate you request, and where
your orders are filled. These things can positively or
negatively impact your trading results; where your
order is ultimately routed does not.
Stevens explains: “Our belief is that NDD’s came
about in response to complaints about the poor
execution quality at some of the retail brokerages.
Promoting themselves as a NDD was a way for
brokers that entered the market late to differentiate
themselves. It’s fairly well known that when the first
NDD firms came on the scene there were several
firms with poor reputations for execution, especially
where they filled their client’s stop loss orders. Also,
some brokers prefer the NDD model because it’s
much easier to take a price feed from a bank, mark
it up to the retail customers, then push all the trades
back to the bank, than to act as a MM and manage
risk internally while providing the best client dealing
experience possible.”
Continuing, Stevens states that GAIN Capital believes
an experienced, professional trading desk is the real
benefit to its retail clients at FOREX.com. “We don’t
have an arm’s length relationship with our clients; we
take full responsibility for the prices we quote and
where we fill orders.”
Conflict of interest
In a pricing basis model, also known as a MM model,
the prices are streamed from data vendors directly
to the client terminals. Clients perform trades on
the streamed prices, but the trades reach a dead end,
which is the MM’s servers. Meanwhile, the dealers
of the MM are trying to negotiate execution for the
favour of the MM and to minimise the profitability
of their clients. Sanjaq states this model creates a
huge conflict of interest between the broker and their
clients, as the loss of the client is considered as pure
profit for the broker.
He states: “As a client trading on MM’s platform,
when you are buying a currency pair, the MM is
your counterparty (selling to you). Therefore, if your
buying order goes in profit of $1000 for example, it
means that the MM is losing $1000. It’s as simple as
that, unless the MM has a risk management policy
that it applies to offset your order with a different
counterparty at a certain point. Slippage and
requotes are techniques used by MMs to minimise
the profitability of the client. Scalping is usually not
allowed by MMs because it gives the client higher
128 | april 2010 e-FOREX