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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.

Filed under Regulation by  #

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For the last month or so Ray the Random Robot™ has been involved in a friendly competition with RAI, a cousin of his conceived in the laboratory of Dr. T, who installed some artificial intelligence in the space between the ears where Ray keeps his artificial stupidity.  Both "robots" were entered in the February 2012 Vantage FX/myfxbook trading contest, and myfxbook have just announced the final results on their blog.  Having read that blog post, and then checked his own final standing in the competition, Ray is now suffering from a terrible pain in all the diodes down his left side and is hiding in a corner of his room. He's refusing to talk to anyone, least of all me. I'll try to explain on Ray's behalf the cause of his current psychological problems.

Only a few short days ago things looked so much brighter for him, and Ray was quietly confident of being in front of RAI by the time the final whistle blew. The competition rules stated that:

  • All open positions will be automatically liquidated at the end of the contest.
  • The top 3 placed participants of the contest are those with the highest percentage gain at the end of the contest period, after liquidation.

On top of that it was only on February 20th when myfxbook announced, again on their blog, that:

We’re excited to announce a very anticipated and requested change – equity based drawdown. As you might know, the drawdown calculation up until now was balance based, however that isn’t the most accurate way of measuring drawdown since equity can move drastically while the balance remains the same.

Quite so! However despite all those fine words, according to the table of results of the competition on the myfxbook site this morning Ray is in 175th position out of 2700, with a "gain" of 51.09% over the month:

Ray the Random Robot finishes the myfxbook/Vantage FX trading contest in 175th position

Ray the Random Robot finishes the myfxbook/Vantage FX trading contest in 175th position

whereas RAI is up in 111th position with a "gain" of 81.23%:

RAI the Artificially Intelligent Robot finishes the myfxbook/Vantage FX trading contest in 111th position

RAI the Robot finishes the myfxbook/Vantage FX trading contest in 111th position

There was some sort of technical glitch at the start of the second week of the contest, and it now looks as though there was another one at the last moment also.  None of Ray's final six trades were liquidated at the end of the contest, and it seems as though the same thing applied to all the other contestants too.  If the rules had been adhered to he would actually have finished the contest with an equity gain of 35.5% following a maximum equity drawdown of 29.11%, compared to RAI's final equity loss of 20.53% following a drawdown of 77%. The winners did much better than either Ray or RAI of course. Here's how the top ten got on:

The balance curves of the top ten competitors in the myfxbook/Vantage FX trading contest

The balance curves of the top ten competitors in the myfxbook/Vantage FX trading contest

The winner achieved a monthly gain of 5254.37% following a drawdown of 79.13%. Now that I've put the record straight on his behalf I hope Ray will emerge from his self imposed isolation and start talking to RAI and I again very soon. After all, there is another myfxbook MetaTrader trading competition starting in a few days time and, as they themselves point out, there is "zero risk" and "you have nothing to lose".

Let's all hope things run a bit more smoothly next time around.

Filed under Trading Contests by  #

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Earlier this week LMAX (who have now started to refer to themselves as LMAX Exchange instead of LMAX Trader) quietly started allowing existing customers to trade on their multilateral trading facility using MetaTrader 4, but they're not advertising that fact!

Whilst the platform is the same old MT4 that you may well be familiar with, other aspects of trading at LMAX using MetaTrader will almost certainly not be what you're used to.  For example, currently LMAX do not offer demo accounts and to start live trading you firstly need to open an LMAX Classic account with a minimum of $10,000. Having done that you can then ask LMAX to transfer part of your deposit to an LMAX MT4 trading account, and start trading at a minimum size of one standard LMAX lot (10,000 units of the underlying currency, equivalent to a MetaTrader "mini-lot") with leverage of 100:1.

Unable to resist such a temptation I transferred £500 from my main LMAX account yesterday and then installed LMAX MT4 on our UK VPS.  The MT4 setup program provided by LMAX proved to be unbranded, but once installed it became evident that LMAX are actually using bridge technology supplied by PrimeXM. Next I copied the latest version of Ray Robot II into the newly created experts folder, and then set him running on a daily chart of GBP/USD shortly after 11 PM last night, with exactly the same settings as he's using in our long term MT4 spread betting test. By lunchtime today this is how things looked:

LMAX MetaTrader chart for GBP/USD on March 2nd 2012

LMAX MetaTrader chart for GBP/USD on March 2nd 2012

The first thing to notice is that the chart contains every daily bar of historical data that LMAX currently provide, so doing much in the way of backtesting is going to be rather tricky! Secondly, LMAX's flavour of MT4 runs on UK time rather than European time. As luck would have it "yesterday's" high and low came out roughly the same at LMAX, Alpari and GKFX, but we'll have to tinker a bit with Ray's inner workings in an endeavour to better compare like with like in the future.

When the screenshot shown above was taken Ray was already short, and a bit later in the day his 50 pip target was reached, revealing another thing not often seen in a MetaTrader 4 screenshot:

50 pence commission on Ray's first live LMAX MT4 trade

Ray pays 50 pence commission on his first live LMAX MT4 trade

As you can see, Ray had to part with 50p in commission on his first trade, but at least he had the consolation that this unusual overhead came out of the proceeds of a profitable first trade rather than his deposit. If you look very carefully you might also notice that Ray profited from sufficient positive slippage on his limit order exit to cover that commission.

Another consolation that you might expect for paying commission is lower spreads, and here's a snapshot of how LMAX's looked in the early afternoon today:

LMAX MetaTrader 4 quotes on the afternoon of March 2nd 2012

Some sample LMAX MetaTrader 4 quotes on the afternoon of March 2nd 2012

0.9 pips on cable is certainly less than Ray is used to paying on his other live test accounts. In total 30 FX pairs are available, plus gold and silver as you can see. No CFDs as yet though.

If you're a MetaTrader fan and you like what you've seen so far of LMAX's flavour of MT4, but you don't have $10,000 available to tie up while you evaluate it, there are one or two options open to you. LMAX assure me that (for the moment at least) if you're willing and able to deposit $1,000 with them they will allow you to evaluate their new platform in live trading, but they will expect you to deposit an additional $9,000 in due course if you decide trade through them long term.

Alternatively you might prefer to visit the website of Estonian broker Armada Markets, on which they say that "LMAX connectivity gives our clients exclusive access to extremely tight spreads, unmatched liquidity, speed of execution and pricing transparency", and where they offer more conventional free MetaTrader demo accounts. Armada's "primeExchange" account sounds a lot like LMAX's own MetaTrader account with added "micro-lots" and slightly lower commissions, whereas their "primeClassic" account has significantly wider spreads, but no commissions whatsoever and maximum leverage of 500:1.

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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:

Ray Robot's live equity curve on December 21st 2011 at Alpari UK

Ray Robot's live equity curve on December 21st 2011 at Alpari UK

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:

Ray Robot's live equity curve on December 21st 2011 at GKFX

Ray Robot's live equity curve on December 21st 2011 at GKFX

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:

Ray Robot's backtest results on December 21st 2011 at Alpari UK

Ray Robot's backtest results on December 21st 2011 at Alpari UK

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:

Ray Robot's backtest results on December 21st 2011 at GKFX

Ray Robot's backtest results on December 21st 2011 at GKFX

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?

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Last weekend LMAX quietly announced to those of their customers carrying trades over the weekend that they were introducing what MetaTrader brokers refer to as micro-lots on their spot forex contracts. Whichever way you look at it, that title is something of a misnomer, but we'll explain what it means to a client of LMAX.

A "full lot" at LMAX is a mere 10,000 units of the underlying currency, compared to 100,000 at the average MetaTrader broker, or even 1 million at Dukascopy. From this week you can now enter a minimum size of 0.1 into an LMAX Trader order ticket, or 1,000 units. That's what MetaTrader brokers describe as a micro-lot for reasons known only to themselves, since anywhere else in the known universe apart from MetaTrader land micro means a millionth.

"Micro-lots" now available via LMAX Trader

"Micro-lots" now available via LMAX Trader

Be that as it may, there is a peculiarity about these new LMAX one tenth lots. You pay almost as much commission as you would on a full lot!  For example, on GBP/USD  a tenth lot trade will cost you 35 cents whereas a full lot will cost you 40. This is not really a very attractive option for traders wishing to start small by trading micro lots, but it does add extra granularity to position sizing for those traders happy to trade LMAX full lots and more.  The mass of MetaTrader micro brokers still don't have anything to fear from LMAX, for the moment at least.

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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 MSN Trader home page will be disappearing real soon now

The MSN Trader home page will be disappearing real soon now

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":

MSN Trader morphs into Saxo WebTrader

MSN Trader morphs into Saxo WebTrader

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:

Microsoft's share price for the year to November 18th 2011

Microsoft's share price for the year to November 18th 2011

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!

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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"!

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Another day dawns, and all four of Ray Robot's MetaTrader spread betting accounts have suffered another small loss overnight. Another cable short, another -10.0 pips, Ray's bottom line down to £246.00 at both GKFX and Alpari UK.  This "false breakout" was however longer lasting than the previous ones.  It took 3 hours and 21 minutes on both GKFX and Alpari for Ray's (overly tight?) stops to get taken out this morning.

Since yesterday's initial report our logs have revealed many more apparently delayed quotes from both GKFX and Alpari. Sticking with just the live accounts for the moment, here's an extract from Alpari's log this morning:

Delayed quotes overnight on November 16/17th 2011 from Alpari UK's spread bet feed.

Delayed quotes overnight on November 16/17th 2011 from Alpari UK's spread bet feed.

Alpari's worst case delay was 82 seconds at 14:57:12 yesterday afternoon. Now lets have a look at the competition:

Delayed quotes overnight on November 16/17th 2011 from GKFX's spread bet feed.

Delayed quotes overnight on November 16/17th 2011 from GKFX's spread bet feed.

GKFX's worst case delay was 40 seconds at 07:50:04 this morning.  Since these long delays occur at different times on different brokers it doesn't seem as though they could be caused by a problem with the internet connection to our VPS, does it? Just for the record the ping time from our virtual private server to Alpari's servers averages 1 millisecond, whereas for GKFX's server it averages 2 milliseconds.

Whatever the ultimate cause, can you imagine the effect such delays might have if you were trading manually at the time? A member of the Trading Gurus community tried that thought experiment recently, and here is their conclusion:

I wouldn't be able to get the results I was expecting. The delay means the price would have already changed.

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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?

Filed under Brokers by  #

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Ray Robot II™ has been automatically spreadbetting on four different accounts for 3 days now, two of which are live accounts with real money in them, and two of which are solely for demonstration purposes. The trades themselves have been fairly uneventful so far, although I'm sure much more excitement is waiting just around the corner! Today the live and demo accounts at both GKFX and Alpari UK all suffered their third 10 pip loss in a row. They all shorted GBP/USD just below the previous day's low yet again, and they all lost once more. Some sort of a pattern does seem to be developing however. Just like yesterday, it took longer for Ray's stop loss to get taken out at GKFX than it did at Alpari UK. 6 minutes at GKFX versus 5 mins at Alpari UK on this morning's trade.

There is some rather more interesting news to report however! To alleviate the boredom engendered by continuous repetition of one small losing trade per day we loaded our GuruLogger™ indicator on all four test accounts yesterday. This morning three of Ray's MetaTrader accounts had logged nothing of interest. However the live GKFX spread bet account was showing a number of alerts relating to delayed prices:

More on Our MetaTrader 4 Spread Betting Live Test Suffers Some Delays

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