Classification of foreign exchange margin dealers:
Straight-through processing, straight-through processing system, referred to as STP；;
Electronic communication network, electronic communication network mode, ECN abbreviation;
Inquiry (banker) and single market maker (market maker) mode, referred to as DD or MM;
The foreign exchange margin brokers we usually contact usually adopt the latter trading method (MM), so here we also use the most space to introduce the operation mode of MM mode platform.
Direct processing system mode
The customer's order is sent to the bank through STP, and the transaction is close to real-time according to the price of the bank. During the period of high transaction volume, the order may be suspended, which means that the order has been executed but remains in the pending order window. Generally speaking, such a list has been executed, but it will take a little time to wait for the bank to confirm. During your stay in day trading, there may be multiple orders to be processed. The increase of the waiting list sometimes affects the bank's delay in confirming some lists, which may be different according to the types of lists.
ECN electronic trading network mode
ECN is an electronic trading network and a foreign exchange trading technology with centralized-decentralized market structure. This model is completed through close cooperation with banks, institutions, foreign exchange markets and technology suppliers. Traders' orders are directly and anonymously hung on this network, and each order is in the same location, and the transaction is carried out according to the optimization of price and time. So the price on ECN is the real market price, and the spread is not fixed. The operators of ECN do not participate in the transaction and charge the traders an appropriate proportion of transaction fees. So they will try their best to provide better service to customers. With the development of Internet technology, ECN dealers serving individual investors, small banks, investment institutions and hedge funds began to appear. ECN's business operation mode is generally regarded as a typical fully automatic electronic stock exchange by American securities industry.
DD inquiry and MM market maker model (with trading platform)
Individual investors make inquiries and trade with a single counterparty, and the fairness of the quotation depends on the integrity of the trader. Traders themselves are market makers. They usually add up the prices of banks or ECN, and then report their profits to customers. So customers are actually trading with market makers (on ECN, they are trading with anonymous real traders). What customers see and trade is not the real market price, and the execution price of the transaction is determined by the foreign exchange market maker, so it is not surprising that the transaction price is often beneficial to the market maker. After the customer's order enters the market-making system, the long position and short position are hedged internally, and then the remaining net position is hedged by the bank or ECN, or it can be partially hedged or not hedged at all, so the order that is not hedged belongs to the gambling category.
Now let's introduce what gambling is. Gambling means that these market makers will not take all their net positions to ECN or banks to hedge. For example, a foreign exchange dealer received 65,438+0,000 orders from customers to buy Euro/USD (foreign exchange trading unit, usually referring to 65,438+million units of base currency) and 800 orders to sell Euro/USD, so after internal hedging, there were 200 net long positions in Euro/USD, but the company was willing to bear the risk of market fluctuation of these positions, and did not take these 2000. The relevant laws and regulations in the United States do not rigidly stipulate how to hedge risks, which depends entirely on traders' own risk control strategies. If the customer's list can be cleaned in time, then the market maker hardly needs to bear additional market risks and the income obtained is relatively stable. But in reality, market makers generally bet more or less, which increases their own risks. The existence of this hedging/betting mode means that you may often be unable to connect to the trader's trading system for effective and fast trading in certain time periods (such as when the main data in the United States are released or when the market price fluctuates sharply), because it is difficult for traders to pass on the market risk in time within the limited cost range at this time, so you simply restrict customers from placing orders or take some other measures, and then blame the problem on network failure or other reasons. The phenomenon that orders can't be closed in a specific period of time is also common in the foreign exchange firm trading of domestic banks.
In addition, most MM traders classify customers, and customers may be divided into two categories. Customers with strong profitability are divided separately and enter the slow mode. This kind of customers are faced with many obstacles, such as slippage and difficult transaction (repeated inquiry), but traders will always be very cautious to prevent customers from noticing. Customers with poor profitability fall into the automatic execution mode, because on average, these customers will eventually lose money, so they don't have to pay attention to their orders and let them toss about mediocrity. In the end, their net worth will become zero, and money will naturally enter the pockets of market makers. Market makers and these customers with poor profitability have a great chance of winning gambling transactions. As for transparency, we can only look at the internal policies of these market-making companies.
The advantages of market makers are low threshold for opening accounts and high leverage, so objectively speaking, the existence of market makers is a historical necessity. It is precisely because of market makers that the foreign exchange retail trading market can develop rapidly and more small and medium-sized investors can participate in foreign exchange trading.
How to tell whether a banker is a trader-free platform or a market maker platform?
As early as June 5438+1October 25, 2008, NFA put forward the requirement that all foreign exchange dealers in the market-making mode in the United States disclose the nature of their anti-gambling transactions to their customers.
However, most foreign exchange dealers did not directly translate their gambling nature into Chinese as required. Domestic foreign exchange brokers often avoid talking about this or are vague, and even some foreign exchange brokers themselves don't know what gambling is all about. Therefore, it is particularly important for investors to master some methods to judge the types of foreign exchange merchants.
There is a simple and effective judgment method.
Method 1: Whether ultra-short-term trading is allowed. That is, scalping and stock trading are allowed. If the trader explicitly prohibits or restricts the above trading methods, then the transaction can be considered as a market maker transaction. Without a trader platform, there will be no trading restrictions. But it doesn't mean that allowing ultra-short-term trading must be a trader-free platform. Because some market makers have also publicly announced that there are no restrictions on trading. Therefore, this method can judge whether Huizhou merchants are market makers, but it can't judge whether Huizhou merchants are dealer-free platforms. A friend didn't know the banker's policy on ultra-short-term trading in detail before opening an account, and as a result, his account was closed by the banker because one of his transactions was closed too quickly. It is usually useless to complain about such things. You can only blame yourself for not doing enough homework when you open an account.