Watching a Globex Forex Feed during off peak times where the market-maker is almost the only participant, continuously populating both sides of the queue with tease-orders. Being mesmerised how the market-maker is able to move out of the way of an incoming order execution.
A trading platform is a software process with data inputs and outputs. A "box" with data inputs entering on the left and data outputs exiting on the right. The processes are performed inside the box, based on the requirements of the incoming data stream (orders)
Example: Incoming order - sell 20 lots at market
Status of market depth bid queue prior to order transmission.
Before............................................1 Second After
Market Maker 10 @ 5006....................Market Maker 10 @ 4990
Market Maker 10 @ 5005....................Market Maker 10 @ 4988
Natural Buyer 20 @ 5002.................Market Maker 10 @ 4995
Market Maker 10 @ 5000
The market maker miraculously disappears in nano-seconds. The trade is executed at 5002.
Such behavior is clear evidence the market-maker has access to the incoming order stream, and is able to remove the front orders, allowing the natural buyer to be hit. It's a question of the location of the market. During market hours, exchange and market-maker are separated. During non-pit hours they merge. Market-Making is electronic. The market-maker not only operates the market, they are the market.
If you decide to hit a market-maker sitting in the market, there is nothing to guarantee the order will be there when your transaction arrives. The market-maker can see your order coming. It can simply move out of the way and not be there when your order arrives. If your order is an "at market" order you will be dismayed at the result. You will hit the nearest natural buyer/seller
Ask the question - what question? “What happens when a "participating broker", who is a market-maker, also owns the market (exchange) [which is the case, of course, with every dealing desk broker]?.”
It’s apparent that with CME’s current trading platform, what you see isn’t necessarily what you get which makes me wonder if we aren’t going to see exactly the same thing when the joint CME/Reuter’s trading platform hits the street. Perhaps their unwillingness to commit to allow FCMs to offer the platform is a blessing in disguise.
To see the original posting and more, visit Camron.com.
Recommended Additional Reading
Think You've Been Trading the Forex? Think Again
Advantages and Disadvantages of Non-Dealing Desk Trading
Did you like this post? Spread the word.
Social Bookmarking
