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Are there institutional traders that lose money?
If yes, why do they have a job?
You make some really good points and you obviously understand the market mechanics better than me. But I do have some questions/thoughts.
Do you think there could be real Sunday opening gaps since most institutional traders probably are taking the weekend off?
I totally agree with you about the big banks and the CFTC not caring about us at all. I especially find it hard to believe that the CFTC cares much about any big thread/trading method since obviously there are still a lot of them up and running.
I’d definitely like to hear more of your thoughts on stop running. Since currencies are a huge OTC market, there aren’t any real market makers like specialists on an exchange-traded market. (I think.) But acting as if there are does seem to work.
It’s really interesting because ICT’s methods do work, as many people on this forum can attest, even though it can be difficult to explain why (for me anyway) when you get down to the nitty gritty of the market mechanics. In any case I’d definitely like to hear more of your thoughts (and others’) on these topics.
They may be off, but they’re never OFF. The market moves all weekend. Watch it here. It’s usually pretty slow on Saturday, but picks up Sunday morning 5 or so hours before NZ opens. I’ve seen it move more than 100 pips, only to open within 10 of Friday’s retail close.
To add to the Viper’s stellar words of wisdom, there is much more to this market than a bunch of yahoos speculating on it.
I read blog after blog, and sage words of wisdom from these so called “experts”, and the consensus seems to be that the only reason the market moves is speculation.
Ummmm… That would be WRONG.
The real players in this market could care less about moving the market per se. The market moves because they actually NEED to swap dollars for euros, euros for yen, yen for sterling etc. They do keep an eye on where the market is, and use futures to make sure the money is at the price they need, when they need it. It’s not about making gains, it’s about needing real money (and large amounts at that) in the currency they choose, and not letting it etch into their profits when the exchange happens. In those cases, they don’t buy EUR/USD pair, they use their real dollars, to buy real euros. Whether futures, or real money depends on when they need to take delivery, and what price they need to not lose money on the transaction. In fact, international companies write clauses into their contracts to make sure the exchange rate will be adequate at the time the money changes hands. The players are huge business, like Mercedes, BMW, Airbus, Novartis, not to mention the bigger banks, and then there’s sovereign need to swap. China buying Euro based bonds, needs euro to do so. Those purchases are based out of need, not speculation. And they drive the market regardless of speculation.
So, what happens is, when the euro is up in value against the dollar, money that doesn’t need to be exchanged immediately, builds up on US shores. Companies like Airbus, BMW, European based drug companies, all let the money sit until the euro drops, because they lose money repatriating profits when the euro is high.
But while the euro is high, the dollar is cheap, so US money is flowing back from overseas. As the dollars get bought up, they climb. So you have this big sloshing back and forth of value, that seems to fly in the face of most fundamental issues (like Greece).
And those big moves happen with, or without the speculating minority.
Especially us retailers, whose buys or sells don’t even register on the institutional market in the first place;)
Well, I agree with much of what you say, Master Tang. Nonetheless it is possible that speculation plays a significant role in the currency markets. These may be isolated events, but there was speculation involved in the UK leaving the ERM and maybe even in the Southeast Asian crisis. I definitely agree with what you say about large corporations etc actually needing to exchange currencies but isn’t that true of every market? The vast majority of currency trading at least passes through the hands of a few large banks like Deutsche Bank, Citibank and others. Don’t they speculate? Could they ‘raid stops’ in forex like specialists do in other markets? I don’t know myself but it’s interesting.
Well Banks aren’t in business to lose money. Sure they could just take in orders and earn a steady profit on commission, but why stop there if you have so much control over the market?
Who is the money multiplier in our economy? It’s the banks, lending out far more than they have covered in reserves… they aren’t printing it but they are doing the real dirty work of money creation!
Well, I don’t know about ‘raiding stops’ since the large speculators probably use mental stops and/or are in the market almost continuously. But IF the big banks do speculate enough to push price through an accumulation/distribution cycle, at least on an intra-day basis, then they probably would pick up that easy profit. Certainly there is a good amount of speculation in forex, but the question is, how much? How big is the mass of small speculators? Is it worth it for the big banks to try and exploit that if they could?
But, yeah, the forex dealers themselves could not act as real market makers, but I think the large banks could. And IF they are trying to exploit speculators, that could be passed along through the forex dealers to affect the retail trader. It’s definitely interesting.
Thanks for the facts viper, have to be careful in the big bad world of spot forex!
And if the large banks are playing games with speculators, this is a beautiful setup for the forex dealers since they get to ride along for free and scoop up all the losses from their retail clients without doing anything at all.
All a retail dealer really wants is the spread.
When you make a trade, they initially take the position against you, then pass the trade off to another trader as quickly as possible, to mitigate risk. If they pass it off, and have made a few pips along the way, so much the better. If they cant match your trade right away, they hedge it, then dump the positions when they can (probably nanoseconds). Bottom line is, they want out ASAP, and could care less what happens to you after they get out. They’ll pick up your position again when you close the trade. You’re now flat, but they never are. They just try to have their positions equalized. Their trading software is a bit more sophisticated than yours;)
The trader has all the risk. You enter at a loss right off the bat. The broker takes the trade, and then passes it off. The eventual guy on the other side of your trade, also enters at a loss. So, if the trade was the E/U, with a two pip spread, and the dealer passed the trade off as soon as it was open, even if price didn’t move a bit, the dealer is up 4 pips. And they may pass it off a piece at a time.
The spreads add up. You get an overtrading fool using mini lots, and he makes 30 trades a day, even if he broke even, the broker made $300 on him just trading the euro in one week.
Legitimate retail brokers have no interest running stops. A losing trader will eventually give up. A trader that breaks even, is much more valuable to a broker than a trader who overleverages, opens one trade, and smokes the account. Most likely the broker only made the spread on that transaction.
And a trader that is profitable is even more valuable. They’ll be there a long time making trades.
It is true that everyone up the food chain makes a guaranteed profit from the bid/ask spread. And definitely forex dealers could not be engineering any funny moves because they get their price feed from the banks. But if the banks could pick up some more easy profit, of course they would go for it.
In stock markets, specialists are ethically obligated to match buy and sell orders at the best possible price and only enter the market themselves when there is an imbalance. But some people say they manipulate the market by selling to demand and buying supply themselves, out of their huge inventory, before matching the orders of the other side. Basically the specialists get wholesale prices while the public gets retail prices. If they were doing this, they could engineer stop raids and accumulation/distribution cycles. I’m not sure how this would work in modern electronic markets or even if it’s possible at all, but it does look like it happens somehow.
OTC markets are virtually unregulated compared to stock markets. I don’t know how or if the big banks could do something similar. But if they could, they certainly would.
On second thought, I think the big banks are definitely doing this. They have the inventory, it’s not illegal, and it certainly looks like they are. There’s no reason for the banks not to pick up this easy money. All they have to do is alternately fill the orders of each side of the market. In the absence of unusually big moves, this is pure profit for them, buying low and selling high over and over again, repeatedly trapping speculators on the wrong side. Even if they couldn’t do this on a large scale, they could still do it on a small scale.
So basically this is just VSA. 
ROFLMFAO!!!
Well: ‘THREAD of the Year 2011’ for ME went to goldenmember and his ‘forex and girls’ thread. This: I’m betting is going to be ‘POST of the Year 2012’ for ME (and we’re only in March)!!! LOL!!!
Keep the rants coming!!! One thing is for certain: you and I don’t seem to DISAGREE on ANYTHING!!! YET!!! LOL!!!
Regards,
Dale.
I wish I had more time to spend here, anywho in the unforgettable words of Joan Rivers, “Can we talk?”.
Please remember that retail accounts are “never” seen by the PB’s. If you want a small list of PB’s you can go here Currenex | About Us - Prime Broker Relationships So when you are on a retail feed you will see a composite feed made up of different individual feeds. (I think I said something about this) Anyway, YOUR feed/liquidity/activity never gets passed back to the PB’s. So if your stop is hit by a spike, it came from your broker and not the PB’s. Again they don’t even know you are there.
TimB, Stop Runs are a point of view, and yes some of Mike H’s stuff works, but there are alternative explanations that are just as valid as “stop runs”.
I would rather discuss the what rather than why. The what being human behavior. When we look at humanity as a whole, I would say the most asked question is “why”? Talk to a 4 or 5 year old for a few minutes you will see what I mean. We as Humans have an innate need to know why? So as traders many also ask why? The reality is that it does not matter why, and this my traders and traderettes is one of the things that makes trading different from any other profession. This “need” is why some feel so bad when a trade moves against them. Think of this, a trader puts a level into the context of “I know what is going on here, there is a stop run, turtle soup, etc and I am going to extrapolate that into future action”, so when the trade moves against them they think “man I don’t know what I am doing, I am stupid and don’t know anything” at this point it becomes personal.
Trading cannot be personal, no one knows anything. Think of the EUR/USD, you look at a level, price is moving lower and it hit it once, then reverses, so you set a long at that level based on the fact that it has only hit once, and your stats indicate that it might hit a level 3 or 4 times before breaking out/down, so you enter the trade, and it breaks out/down, you take a stop, and thats that. For whatever reason, price broke down, it might have been a fundy event, or maybe the Finance Minister of Greece ate a bad Baklava and threw up in Oma Merkels lap, or a billion other reasons, “or maybe, just maybe that is just the way it is Ricky Bobbie”. So you move on to the next trade.
The bottom line is no one really knows until after it happens, what we do know is that there are times the market will trend, and others when it will range, why??? I don’t know and I don’t care, all I know is that it is doing X right now, so I have to trade in line with what the market is doing right now, and, if it was doing the same thing 6 months ago, and if for 6 months I have been trading the same way, fine, but it will change mark my words. To quote JP Morgan, “it will fluctuate” :0
Also as far as stops are concerned I believe you will find that all of the PB’s have Buy Side desks and operations, so who are they running stops against, themselves, other buy side desks? Just something to think about. 
Oh and for Akgreatwhitenorthoilcountry, my two favorite Canadians are Ann and Nancy Wilson, the second two are in the video here The Great White North : How to Get a Mouse in a Beer Bottle - YouTube
The Never Being A Hoser Eh VIPER
It is the job of some institutional traders to loose money … it meet objectives to hedge other positions … not always but sometimes.
But that’s the point. PB’s or any kind of market maker are self-incentivized to take actions that get passed down the food chain and act exactly like stop raids. Nobody has to see us for the game to be rigged against us. But I agree that the forex dealers don’t have the money or any control over the price feed to do anything. But they do benefit from the self-interested actions of the PB’s.
This is a little off topic but here’s a thought. Speculators are at a disadvantage in any kind of market if only because we have to close the trade but the businesses involved in the commodity do not. Any market maker games don’t affect them. Even if they ‘lose’ by getting a bad price, that’s just opportunity cost to them and they still make money using the commodity in their business. But the speculator never makes money off using the product itself and is at the whim of the market in a way the commercials are not.
Cold Hard Spot Currency Trading Facts Part 2
“I knew it would end badly”
VIPER
EIGHT.
My “system” needs at least 200/1 leverage or more, so I am moving my account “offshore” to avoid this oppressive reduction in leverage!
NO, NO, NO This thinking was rampant when the Overlords reduced the leverage in Spot C. and even though this happened a while ago, I still see posts here and there with the same thought. How it is that someone can believe more leverage is needed to be a success in trading I will never understand. Ask yourself this, why is it that the large hedge funds and investment houses “usually” risk only 2% per trade. Are you so special, so insightful, so “the rules don’t apply to me” that you can risk 20-50% or more on one trade? Rookie traders listen up, it does not work, I repeat, it does not work. You will never make 100k a year on a 10k account balance. And if someone says they can, show us an audited statement, if not Shut Up and get out of here. Remember, Brokers/Dealers put it out there, if you are dumb enough to use it they could care less.
NINE.
You don’t need protective Stops in Spot C because it is different.
NO This is a kinda new one that I heard recently. How this stuff gets started I will never know. You will always need stops in whatever you are trading. There will be events that you cannot control, without protective stops you could be blown out in just a few minutes. For all of your Fibbos, OTAs, MBA’s, PMS’s, Kill Zones, Birth Canals etc. you do not know what will happen next in any given trade. So when a trade moves against you, and one will, at what point do you close it, or do you just wait for your broker to do an auto close when you run out of the 500/1 margin you are using??? Dumb, just plain Dumb.
TEN.
I am going to trade 6 different pairs because that is how to make the real money in Spot
Maybe, if you master one pair first, and then move on to another that is not correlated to the first, then a third etc. you can build a basket. Most people who start trading cannot even master themselves let alone one pair, but there are great advantages to be had if you can master more than one pair.
ELEVEN.
X Broker/Dealer has this new wizz bang trading platform designed just for Spot C. This is what will make me a success.
NO Find on the internet the forbidden documentary “Trader” by PBS, it is about P.T. Jones, look at the charts and quote machines he used to trade his way to success. You can trade with graph paper and a pencil, I paper traded in high school this way. You can use just a price ladder, or a quote window. A huge programmable platform will not make you a better trader, controlling you head will.
Now don’t get me wrong, I would not willingly give up my NeoTicker, but I could trade without it.
So I think this just about covers Spot Currency trading, if I think of something else I will add it here
The Ever Thinking VIPER
Great stuff. There’s a shortage of that around here these days.
Wow I can’t believe that was 2 years ago…
TWELVE
I am going to be giving you some inside information from my contacts in the Hedgefunds and Large Investment Banks.
NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
First of all;
Traders, Anal ists, and managers in the financial industry are generally bound by very tight NDA’s. Their job, no, responsibility, is to make money for their clients and the firm, not to give stuff away. Also think about this, why would someone risk a six to seven figure a year salary to give something to someone to put on an internet board, give me a break.
Second
What would be the motive? There is no Alpha in giving stuff away. G/S sold crap, took the other side of the crap, and were proud of it. Not only did they sell it to strangers but also to people they knew. That is what this business is about, competition and Alpha. There is no mercy, secular humanism, or feeling bad, or giving stuff away. This dear reader IS a cold hard fact. If you believe it is any other way you will loose and loose badly.
The Ever Intense VIPER