Via Cathy Cole
Recent news reports put the spotlight on the largest FX brokerage in the United States and the world when it was completely shut down and barred for life from doing business in the United States. The charge — Trading Against Their Clients.
How could this happen in today’s sophisticated regulatory environment? In a nutshell, FXCM took positions against their clients and did one of several things.
First, they were charged with slipping the pricing on the bid/ask on both entries and exits, including buy/sell stops, resting entry orders and limit orders, meaning that when the order was entered into their system, it would slip the price one way or the other and cheat the clients out of their earnings or their entire trade. Many times, the traders would slip prices on stop losses on news events by hundreds of PIP’s (points) and simply take the client’s money from them.
In addition, FXCM was accused of manipulating market price. By being the largest FX broker worldwide, their clients would have their own (FXCM’s) version of pricing software, which provided the ability to control the pricing a client saw and move the price up or down to hit stop orders and force clients out with a loss when the market never traded to those levels at those specific times. They were famous for this and it is one of the main reasons the formal regulatory complaints began.
FXCM was also accused of and found guilty of trading against their clients by widening the spreads during news events that made it nearly impossible to exit trades with a profit. During a news event, the FXCM dealing screen would show a typical 1 to 2 PIP spread for exiting the trade but when the client entered or exited, their systems would widen the spreads to insane amounts such as 100-200 PIP’s and when clients would complain, they would simply say that market volatility caused the spreads to be that wide at that moment.
Fortunately for investors, there are honest ways to trade with FX brokers. FXCM said for years that they did not run a dealing desk, when in fact they had an internal company-owned liquidity provider doing this all for them. Blue Isle FX clears all trades only via an ECN Liquidity pool made up of most all the world’s largest banks and private liquidity providers while allowing clients to receive true ECN/STP market pricing. With all the years of trading our team has under its belt, we can tell you that we’ve seen and heard it all when it comes to broker excuses related to price manipulation.
It’s a simple and highly known fact that all large bank brokers and prime brokers use a dealing desk and are known to manipulate price. When price is manipulated it’s difficult to run a successful algorithm and stay consistently profitable. Investors need to be able to count on honest and true pricing to make profits.
It’s important to check whether your broker has the ability to set up liquidity lines directly to the liquidity providers and ensure true ECN price to the traders. It is important for several reasons:
- First, a registered broker that uses liquidity aggregators for its ECN Liquidity Pool (LP’S) pays a small fractional percentage of each trade. There is no manipulation of any kind by them as a prime broker because they have no dealing desk. All trades are processed straight through to the LPs on both entry and exit, thus ensuring true market price at all times.
- Second, it is important to be able to expand liquidity for trader needing larger sized trades by doing a couple of different things. Additional liquidity sources added to the pool provide better competitive pricing or can widen the portal that sends the trade to expand trade sizes. Using a typical dealing desk prime broker would never allow that because they make their money on the spreads and their manipulation. Lastly, controlling pricing and assuring spreads represent true prime pricing, which passes on those low ECN spreads and cost to the client accounts, thereby helping to ensure a profitable track record.
For algo traders to be fully effective, their algorithms require consistency and true market pricing. With no price manipulation, it then comes down to strategy, money and margin management. The simple fact of having use of a solid ECN backbone to trade via mouse or via algorithms allows the traders’ systems to run uncorrupted and accurately to the strategy conditions.
Disclaimer
In no event should the content of this material be construed as an advertisement, express or an implied promise, guarantee or implication by or from Blue Isle Markets Inc. (BIFX) or any of its partner or subsidiary companies. This is not an attempt to sell or solicit any security and should not be taken as such. The content of this email is for informational purposes only. Potential Investors are advised to carefully read the Disclosure Documents to determine whether a FOREX Account for investment is consistent with their financial situations and investment objectives. Past results are no guarantee of future performance. BIFX is a St. Vincent and the Grenadines Registered Corporation, with corporate offices in the Bahamas. BIFX does not operate within the United States of America.
For information, visit www.blueislefx.com or call 011-242-702-3105 or email [email protected].
Michael Stewart
Michael (Mike) S. Stewart, General Manager of Blue Isle Markets, Inc. (“Blue Isle FX”) has 28+ years of experience trading in the financial markets.
After trading stocks, commodities, and options from 1988 through the early 90’s, his FOREX career began in 1997 when he founded a currency trading education firm. He subsequently created Trade Signal Pro, which expanded into one of the largest selling retail currency trading software platforms prior to its 1999 acquisition by E-FX. From 1999 to 2006, Mr. Stewart lectured across the United States, Canada, Australia, Europe and South Africa on trading Forex and soon became widely respected as a leader on global retail foreign exchange trading.
In 2006, he established Sonador Capital Management Inc. (SCM), which quickly became one of the most profitable and largest volume OTC Spot FX and OTC FX options trading firms in the world with average trading volumes of $23 billion per month. In 2007, SCM exceeded $65 billion in trading volume per month. In 2008, Michael’s lead options trader suffered from a fatal heart condition and due to probate issues SCM reorganized under the name Snake River Financial Inc., which continued with most of the SCM client base.
By 2013, the dynamic business landscape of foreign exchange, the impact of evolving US and international regulations, and the resulting closure of most of the global derivative desks led Mr. Stewart to launch a platform to meet the needs of accredited investors and small institutions. The Blue Isle FX platform allows professional clients to trade currencies, CFDs, Metals and Minerals. Clients may select from various trading sizes, each of which is subject to the desired leverage and account size. Full service support, quick and easy client account funding mechanisms and fast account approval means the process is seamless and even easier to use. Mike Stewart has been married for 29 years, has three grown children, and is an avid hunter, nature lover, fly fisherman, and competitive power lifter.
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