Non-Dealing Desk Trading: The Primary Advantage
After reading a number of posts to the forum and a recent article in the Wall Street Journal (WSJ) I’m having to step back to re-examine the advantages / disadvantages of non-dealing desk trading. The result is that I'm coming to the conclusion that as it stands today the greatest benefit to trading through a NND broker may lie in the fact that the trader's positions are not known to the counterparties the trader is trading against. The article appearing in the WSJ, points to the importance of truly anonymous trading.
The headline of the article reads "CBOT (Chicago Board of Trade) Gets Flak Over Online Trades". The subheadline reads "Critics Fault Exchange for Falling Short in Effort to Fully Shield User Data". The exerpts to follow provide a glimpse at a problem spot traders face when they trade with dealing desk brokers who, seeing all of their positions, are free to actively trade against them.
"Big brokerages can still see key information about who is on the other side of supposedly anonymous electronic traes by looking at data the Chicago Board of Trade prints on each transcation, according to exchange docuemnts and interviews with market participants.
"The lack of anonymity has persisted despite rules passed this summer by CBOT, the country's major makret for futures contracts linked to Treasury bonds, grains, and other assets."
"CBOT critics say that clearing information is enough for firms using powerful computers and mathematical forumlas known as algorithjms to figure out the individual counterparty information that the CBOT does obscure - and potentially use that information to their advantage.
"The exchange's approach also differs from that of the neighboring Chicao Mercantile Exchange, which eliminated all information about individual traders and their clearing firms from its system about six weeks ago."
Reading this article, emphasizing the need for trading anonymity, I can't help but think that forex spot traders are inevitably going to get the short end of the stick when trading against brokers who not only create but control their respective markets. Their positions are known to the broker counterparty and, therefore, traders can be easily targeted for take out.
Perhaps we could get those who purport to offer a non-dealing desk trading platform to discuss this issue in greater detail. Specifically, they might explain how ECN/STP orders are processed. What do participating counterparties really know about the trader's positions?
I would have posted a hyperlink to the WSJ article but, unfortunately, one has to be a subscriber to access it.
Recommended Additional Reading
Think You've Been Trading the Forex? Think Again
Advantages and Disadvantages of Non-Dealing Desk Trading
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