We've previously discussed a variety of academic and political views on the costs and/or benefits of high frequency trading here on the Trading Gurus blog. If that type of thing is of interest to you as well then you might want to wander over to The Economist, where a "virtual debate" is currently taking place on the topic of "This house believes that high-frequency trading contributes to the overall quality of markets".
Proposing that motion is Jim Overdahl, currently vice-president of the Securities and Finance Practice, National Economic Research Associates, and ex SEC and CFTC. His opponent in the debate is Seth Merrin, serial entrepreneur and currently CEO of Liquidnet. As some commentators over at the Economist have pointed out, these guys might not be entirely unbiased! Despite that I'm finding the discussion very interesting, with lots of links to learned economists' findings that support both sides of the argument. There are also lots of pertinent views being expressed from practitioners on the "virtual floor". Here's a few snippets to give you a flavour. For some reason the guys at the front seem to be much more focussed on stocks rather than commodity futures, so firstly lets hear from a "hedger" in the agricultural markets, who seems to be anti HFT:
When a farmer hedges the fall soybean crop, the slippage or range of hedging prices has almost doubled to what it was five years ago. The HFT markets has scared a lot of REAL users OUT of the market place.
On the other side of the fence here's someone who sounds like he's an "investor" in stocks:
If you think about how stock trading was done 10-20 years ago by banks over the phone, and later through internet brokers and public exchanges, you'll see that a typical HFT earns much less than the fat fees banks used to charge or fees a typical internet broker charges. Today's markets are much more transparent and efficient thanks to computer automation and HFTs. I believe nobody should expect us to go back to the 'stone age' days of trading.
The Economist's debate still has a few days to run, with the closing arguments being put forward next week. Currently the voting is 42% in agreement with the motion, and 58% against. However that vote finishes up, I feel sure that this one is going to run and run. Politicians and regulators will ultimately have much more to say on the issue than even The Economist and its readers.
Ray Robot II™ has now been running his live spread betting test comparing Alpari UK with GKFX for over a month. We're rather obsessive here at the Trading Gurus, and we've noticed a variety of interesting differences between Ray's four experimental accounts during that time. Some observers have however suggested to us that all that matters in a trading account is "the bottom line". Whilst we humbly disagree with that assertion, Ray is nonetheless now proud to announce that there is at last a difference between the bottom line of his Alpari accounts (currently standing at £255.00) and his GKFX accounts (currently standing at £261.00). There are any number of other (less significant?) differences also.
Let's first of all compare equity curves for Ray's live accounts. Here's how his Alpari UK spread betting account looks this morning:
According to myfxbook the bottom line of £255 can be characterised by a "Profit Factor" of 1.25 following a "Drawdown" of 3.85%. Now here's Ray's GKFX equity curve:
According to myfxbook once more this time around Ray's profit factor is 1.58 after a drawdown of 3.46%. Here's a funny thing though. If you look at Ray's trading accounts at Forex Factory instead of at myfxbook the drawdown numbers are slightly different. Here's another funny thing too. This morning I ran some backtests on the same two accounts, on the same VPS, over the same period of time. Here's what the MetaTrader 4 strategy tester showed me, first for Alpari:
As you can see, in backtests Alpari's version of MetaTrader reports a profit factor of 2.81 following a drawdown of 2.92%. Taking a look at GKFX instead:
As you can see, we have yet another different equity curve, and another set of numbers. This time we're told the profit factor is 2.50 and the drawdown is 4.08%.
Here's an entertaining game for any interested readers to play over the Christmas holiday season. Which of all those different sets of results do you think best represents Ray's future performance trading cable in the New Year? Finally, if you should happen to have some spare cash left over after doing all your Xmas shopping, on the evidence Ray has accumulated so far in his testing would you prefer to open a spread betting account with Alpari UK or GKFX?
Just over a year ago we reported that "Microsoft Enters Retail Forex". It now seems as though what with one thing and another that little (ad)venture didn't turn out as originally hoped. At that time I opened an MSN Trader account of my very own, but yesterday I received an email from saxobank.com informing me that:
We write to inform you that the MSN Trader website will be de-commissioned very shortly and the normal log-in webpage will no longer be available.
As you are aware, your MSN Trader account is held and contracted with Saxo Bank A/S. Please be reassured that the services provided to you by Saxo Bank will remain unaffected. However, the log-in page to access your account will change. Going forward, the MSN Trader platform will adopt the Saxo Bank brand.
We thought we'd take one last look at the MSN Trader platform before it disappears forever. The good old MSN Trader home page is still there at the moment:
The "Investor Platform of the Future", always was "Powered by Saxo Bank", and soon the MSN Trader brand will be no more. Once logged in there is a noticeable absence of anything Microsoft. Instead there is an exhortation to try out the "new Saxo WebTrader docking system":
At the time MSN Trader was launched we also speculated about why Steve Ballmer had just sold $1.3bn worth of shares. This seemed like a perfect opportunity to check out what Microsoft shares have been up to over the last 12 months, and here's what the Saxo WebTrader Quick Chart for MSFT looks like:
As you can see, following a bit of drop this week it seems MSFT are back to almost exactly where they were a year ago. Maybe Steve really did decide that forex trading is more profitable than investing in Microsoft stock!
We reported at the beginning of November on the abrupt downfall of Jon Corzine. If you recall Mr. Corzine is an ex "Democratic" governor and senator, and now ex CEO of MF Global Inc. as well as an ex CEO of Goldman Sachs. He has just presided over the seventh largest bankruptcy in U.S. history. The Commodity Futures Trading Commission, one of the regulators supposedly keeping an eye on dodgy dealings on Wall Street on behalf of U.S. taxpayers, has released a long statement about the affair. Amongst other things CFTC Commisioner Scott D. O’Malia has this to say:
Segregation of customer funds is fundamental to our markets. The Commodity Exchange Act expressly prohibits intermediaries like MF Global from (i) commingling customer and proprietary funds (i.e., house funds) and (ii) using customer funds to support proprietary transactions. It appears that MF Global failed this fundamental responsibility.
In fact it seems as though the CFTC were failing in one of their fundamental responsibilities also, since what the law they are supposed to uphold "expressly prohibits" has happened anyway. Touching on that issue Mr. O’Malia has this to say:
More on The CFTC Finally Realize That MF Global "Has Shaken Public Confidence"!
I've just received an email which says it's from "Todd Crosland, President, IBFX Australia Pty. Ltd.". The email starts off by saying that:
As you may have already seen in the recently issued press release, IBFX Holdings, LLC has been acquired by TradeStation Group, Inc., a recognized leader in online trading and winner of Barron's 2011 "Best Online Broker" award. TradeStation is part of Monex Group, a leading Japanese online brokerage firm.
According to the TradeStation press release that Todd mentioned in his email:
Under the terms of the acquisition, which has been unanimously approved by the Boards of both companies, TradeStation Technologies, Inc., a wholly-owned subsidiary of TSG, acquired from Interbank FX, LLC, a Utah corporation and one of the wholly-owned operating subsidiaries of IBFX, the proprietary risk-management software of Interbank FX, LLC, and immediately thereafter TSG acquired all of the ownership interests of IBFX from its members. Within the next 30 days, Interbank FX, LLC (the primary Forex operating company of the IBFX group) will be merged into TradeStation Forex, Inc., a Retail Foreign Exchange Dealer registered with the Commodity Futures Trading Commission and a member of the National Futures Association, and, as a result, all of Interbank FX, LLC's accounts will be transferred to TradeStation Forex and it will be operated as the "IBFX Division" of TradeStation Forex. IBFX Australia Pty. Ltd. ("IBFXAU"), an Australian company regulated as a member of the Australia Securities and Investments Commission ("ASIC"), will also operate as a subsidiary of TSG.
It seems like recent speculation that Interbank FX was about to be sold was at least half right! Going back to Todd's email, he reassures IBFX Australia customers such as myself that:
You will naturally have some questions about how this announcement will affect you. We do not expect there will be any material changes to our products, services, management, spreads, fees, operations, systems or methods of doing business. In fact, we believe the acquisition will directly benefit every IBFX customer by combining our innovative approach to the FX industry with TradeStation's cutting-edge forex trading technology and support services.
So that's all OK then, and everbody's happy? As TradeStation put it:
This is a win-win for IBFX and TradeStation clients and makes TradeStation a global leader in forex trading, dramatically expanding our customer relationships and creating a global operating presence. IBFX's proprietary forex tools and services and its focus on customer care will now be backed by the financial stability and trading technology leadership of TradeStation. In time, TradeStation forex clients will benefit from technology offered by IBFX using TradeStation's award-winning, market analysis and trading platform.
A win-win situation for everyone concerned then, apart possibly from those investors in IBFX who for some reason aren't mentioned in any of the above announcements about win-win situations, but are mentioned in a document translated from the original Japanese on the website of the Monex Group, who themselves acquired TradeStation Group earlier this year?
Those investors would seem to be "Todd B. Crosland & Family (59%) and Spectrum Private Equity Fund (40%)". I wonder what they make of all this continued consolidation in global FX?