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ECN Order Entry Basics

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Alright Ladies and Gents.

I have been an MT4 (Metatrader) trained trader my entire trading career. With some prodding and suggestion.. it is time for me to graduate from the Bucketshop to the ECN world. For reasons of a more level playing field, better commissions, better- well pretty much better everything!

 

I have done demo's on various ECN's over the years, and each and every time- I got overwhelmed and went running back to what was "familiar" and "safe" But with severe issues with my Market Maker broker, now cropping up. I must make the leap from the bucketshop to the ECN world.

 

I am currently testing a HotspotFx Demo platform. Layout looks nice and I can always get my charting elsewhere- so that is no longer a concern as it once was. See picture below that seems to help also.

 

hotspot-main.gif.ed3c0a4e78500c64f7b2fae4cdebb731.gif

 

My questions are fairly simple. Coming from a Market Maker "world" where my broker is on the other side of my trade and has to be, to a world where the rules are a bit different.. I'm a tad out of place here. Things like "flattening my position" or reading a screen with order flow on it (instead of a bar chart on a platform with no indication of how many lots are being desired in any direction) will take some getting used to.

 

Can anyone out there give me the very basics of this new world for me? Anything is appreciated- something you may think is extremely basic- may turn a light on for me- it is like someone asking in forex "What is a pip" the pip is the basis for everything you do- don't know what a pip is- you'll be a short lived trader.

 

I know when people step into the forex world- it feels the same if they come from futures or equities, they get into this "pip-spread-how the heck did I open a position and be in the hole instantly-shock"

 

I would like to look at this screen (posted above) and fully comprehend what I am looking at.

 

Thanks!

Aaron

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Hi Aaron,

 

although I still have to learn a loooooooot (with many more o's) more than you (especially when I look at the account balance in the picture ;) ), maybe I can help you out a little bit:

 

Let's start with what your ECN broker actually does:

Since he doesn't take the other side of the market he can supply a bit more information than you are used to...if the information is useful for your trading is a different question! Your ECN works the following way. Your broker has connections to a specified number of banks/dealers/etc. They all can submit a dealable Bid/Ask price and acompanying amount that they are willing to trade. This information builds up the ECNs order book for every specific currency at any moment in time. The inside spread (best bid/ask) of this accumulated information is dispayed for each currency you want to monitor in the middle of your screen.

 

The bars to the left and right of every currency basically give you a look at the market depth of your ECNs order book for each currency. So if you'd like for e.g. buy 10 mio GBP, in your picture you can see that 5 mio would be most probably filled at 1.9230 and the other 5 mio at 1.9231.

 

Now beware: Your market depth and the displayed order flow are "ECN broker specific"! Other brokers will have different data available as they might be connected to a different bank pool. ...so just a thought: Why display inconsistent information in the first place? If your broker has a lot of customers the order flow will anyway be impossible to 'tape read' due to its high speed.

 

One thing in your ECN broker choice might be important: If you already trade big amounts, it might be useful to choose an ECN with a deep market depth.

 

Now regarding order entry I don't know how this works with your specific broker. Maybe the benefit of the displayed market depth is that you can click on a price away from the inside spread and there will be a limit order created for that price. I use IB, there you can submit (if wished) an instant order when clicking on the bid/ask price. Otherwise you can configure your orders in a separate window and transmit them as you wish.

 

IMHO the only thing you need is:

- the bid/ask of the currencies you're watching

- a window where you can prepare your orders

- a window where you can monitor your current trades

 

A last word to all that: When you come from a world where you traded profitably only from the chart...why change this? Throw out all the mumbo jumbo on your ECN platform and simply submit your orders via the ECN order entry. Keep the charts you are used to watching next to the 'stripped to the minimum' ECN platform.

 

A short word about quotes and charts: As far as I know brokers process information in the following order (1) new quote arrives (2) order book is updated (3) quote display is updated (4) chart is updated. Since graphical information takes a lot longer to process than simply displaying a number, your chart might 'lag' a bit behind the quotes that you actually see.

 

I hope this helps a bit. If you have any questions about the above used terms or anything else, feel free to ask.

 

To everyone else out there: If I made a mistake in my explanation, feel free to correct me.

 

Grood trading to all of you,

Flojomojo

 

PS: I'm not associated with IB in any form, but if you want to check out their FX trade platform, have a look at this introductory video from a webinar:

https://interactivebrokers.webex.com/ec0600l/eventcenter/recording/recordAction.do;jsessionid=LrxZQ3GB5gvWShPcvt4Ty2hmJlRh2h8nTvy296m7j2QjhbwlT0QW!557007313?theAction=poprecord&actname=%2Feventcenter%2Fframe%2Fg.do&apiname=lsr.php&actappname=ec0600l&entappname=url0106l&needFilter=false&&isurlact=true&rID=24363957&entactname=%2FnbrRecordingURL.do&rKey=119793EA4CD4878F&recordID=24363957&siteurl=interactivebrokers&rnd=6367738736&SP=EC&AT=pb&format=short

There are a lot of webinars on their tools via their "recorded webinar site" here:

http://individuals.interactivebrokers.com/en/general/education/priorWebinars.php?ib_entity=llc

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This is for e.g. how my ECN window looks like...nothing fancy, I think very basic.

 

Top row: Current positions with collums that monitors them

Next two rows: Prepared orders ready for transmission.

 

Orders/Log/Trades/FXPortfolio slabs to monitor past activity.

 

Just my 2 cents,

Flojomojo

IBFX.thumb.JPG.3b6519adb22b5d3aeaff86af35ff7c12.JPG

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A last word to all that: When you come from a world where you traded profitably only from the chart...why change this? Throw out all the mumbo jumbo on your ECN platform and simply submit your orders via the ECN order entry. Keep the charts you are used to watching next to the 'stripped to the minimum' ECN platform.

 

Flojomojo-

Thanks for your reply. I have to tell you though that "Figure" in the screenshot I snagged off the web- it isn't mine (I'm just demo'ing it and I think they started me out with $75K)

 

As far as the quoted part above. This is exactly what I plan to do, but I am having issues with trying to get the order entry down. As an example- I closed or "flattened my positions" on Monday. Monday night I get a pop-up telling me that all my postion "winnings" were deposited into my account and they were wiped from my "active" screen ( this is weird to me, I got freaked out that I liquidated them at profit and they still sat there in my "active" screen) See MT4- when its closed, it disappears from your active screen directly into your history. Just a slight change to get used to, but its cool.

 

My reasoning for going ECN is that Market Maker broker games are crap and I've had enough. I had a nearly $900 position I wanted to bank money- and they wouldn't let me out. I left the "close order" up and "processing" overnight- when I got up- still not closed out. It was down a few hundred bucks though, and when it popped above to + $250, I bagged it (they were willing to let me close out the $250) and then called to raise holy hell about it.

 

Platform was live and connection status was up and functioning. The chart showed them gapping up (possible S/L hunting) and I caught them in the act.

Anyways, that is another topic for another day.

 

Thanks for your insight. All others please feel free to chime in and lend your opinion as well.

Thanks,

Aaron

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My reasoning for going ECN is that Market Maker broker games are crap and I've had enough. I had a nearly $900 position I wanted to bank money- and they wouldn't let me out. I left the "close order" up and "processing" overnight- when I got up- still not closed out. It was down a few hundred bucks though, and when it popped above to + $250, I bagged it (they were willing to let me close out the $250) and then called to raise holy hell about it.

 

Platform was live and connection status was up and functioning. The chart showed them gapping up (possible S/L hunting) and I caught them in the act.

 

Market Maker in the FOREX world (spot FX) is a polite euphemism for "bucket shop". The counterparty for your trade is nothing more than the FX broker itself. They may offset some of their risk with a real ECN themselves, but as for your order, forget about it. Hence the silly games that they play.

 

IMHO, if you can trade spot FX, you'd probably be able to trade FX on a real exchange, with real trades against another party. Currency futures such as the IMM at the CME might be the way to go. They've been around since 1972, so it's a well supported and recognized market to trade in.

 

If you're still interested in ECN info, try looking over at http://www.kreslik.com as that forum has some of the better info on forex trading that I've seen.

 

-fs

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fs-

Thanks mate. I actually have gone to the CME site and tried in vein to figure out that mess. Everytime I think I have someplace I can DL and trade a demo ON the CME, you get sent to one of their preferred "brokers" which is fine, but I'm thinking- can't I just trade electronically on the CME? I remember probably a year ago I posted the phrase "I KNOW how to trade, I know how to make money in the markets.. but trying to de-tangle the broker web in Forex or Futures or whatever is a nightmare!"

 

You have Market Makers, you have ECN's, you have Tier 1 and Tier 2 houses, you have the Globex.. no wonder noob traders want to kill themselves. Trying to not get taken to the cleaners by a sleazy operation and finding a good solid home to trade- is HARDER than actually learning how to frickin trade! :crap:

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Careful folks. Be aware of the difference between what retail traders refer to as a market maker (i.e. more often than not some crappy retail / spreadbet platform), and what the market actually thinks of as a spot FX market maker (i.e. someone sitting on a bank's spot desk).

 

Futures trading is an option for you, but by no means your only option. Liquidity isn't fantastic but depends on your trading size. Also think carefully about which currency pairs you want to trade and find out whether your choice of exchange even supports them. If you have a penchant for crosses, would suggest a reputable ECN over futures trading. If you just wanna punt cable and eurusd you will of course have more avenues open to you.

 

Another overlooked option for the higher end retail trader is to go with a single bank platform from one of the bigger investment banks. Now they're gradually opening up their architecture to allow you to bid and offer against internal liquidity, they are almost resembling mini ecns themselves, but with the potential added advantage of more robust liquidity at choppy times.

 

Bottom line is you need to properly research this stuff.

 

Good luck

 

GJ

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GJ-

One thing I have learned is not to pigeonhole brokers without the "retail" tag (Thanks Andre) There are reputable brokers out there, and their are houses that my account balance doesn't let me play in.

 

Thus far the ECN's that look promising are:

HotspotFx

IB

MBT/EFX

 

Those I can enter with my account size. But I know we are getting off point,

My real question is if I can get the basic differences in trading itself between the "bucket shop" world and the ECN world.

 

Maybe if someone here has traded with a bucket shop and has graduated to an ECN, that would be helpful in giving me insight between the two. One of my good friends and fellow traders- is assisting me online, but he said he has always traded an ECN platform- so he has no idea about the way an MT4 platform runs or how to place bids etc on it.

 

Do you have any links of the places you mentioned for me to scope out?

Thanks,

Aaron

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Careful folks. Be aware of the difference between what retail traders refer to as a market maker (i.e. more often than not some crappy retail / spreadbet platform), and what the market actually thinks of as a spot FX market maker (i.e. someone sitting on a bank's spot desk).

 

Futures trading is an option for you, but by no means your only option. Liquidity isn't fantastic but depends on your trading size. Also think carefully about which currency pairs you want to trade and find out whether your choice of exchange even supports them. If you have a penchant for crosses, would suggest a reputable ECN over futures trading. If you just wanna punt cable and eurusd you will of course have more avenues open to you.

 

Another overlooked option for the higher end retail trader is to go with a single bank platform from one of the bigger investment banks. Now they're gradually opening up their architecture to allow you to bid and offer against internal liquidity, they are almost resembling mini ecns themselves, but with the potential added advantage of more robust liquidity at choppy times.

 

Bottom line is you need to properly research this stuff.

 

Good luck

 

GJ

 

From your point of view, is it better to go to currency futures (e.g. IMM at CME) and move to investment banking Forex - or vice versa?

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I wouldn't trade futures personally, but I've been an interbank / institutional FX person for 14 years so you would expect me to be a little entrenched in my views. I think I've earned the right to be old and cranky now ;)

 

Aaron - to come back to your original question, I would say that the one thing you will find when graduating to ecn trading is that you may at first feel overwhelmed by the array of options open to you when you trade (in terms of how you access the market).

 

Traditional retail platforms have three ways you can trade - at market, limit order, stop order. Some ecn platforms have all sorts of funky algorithmic offerings, typically aimed at people trading larger size, that are aimed usually at minimising the 'footprint' they leave in the market. This can be by hiding their bid until the price is trading, by slicing it into small slivers and executing over an hour or whatever. There are loads of thes algorithms operating. Pay them no heed. You don't need all the bells and whistles. Just concentrate on remembering what it was you were doing before that worked, and figure out asap how to replicate it on your chosen ecn. Trust me - it's not rocket science.

 

GJ

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Aaron - to come back to your original question, I would say that the one thing you will find when graduating to ecn trading is that you may at first feel overwhelmed by the array of options open to you when you trade (in terms of how you access the market).

 

Traditional retail platforms have three ways you can trade - at market, limit order, stop order. Some ecn platforms have all sorts of funky algorithmic offerings, typically aimed at people trading larger size, that are aimed usually at minimising the 'footprint' they leave in the market. This can be by hiding their bid until the price is trading, by slicing it into small slivers and executing over an hour or whatever. There are loads of thes algorithms operating. Pay them no heed. You don't need all the bells and whistles. Just concentrate on remembering what it was you were doing before that worked, and figure out asap how to replicate it on your chosen ecn. Trust me - it's not rocket science.

 

GJ

 

GJ-

Thank you sir, so basically, since I'm not trying to hide a 5000 lot accumulation over time, I'm just trying to get my measly 2.00 lots filled and sold off when I'm happy with my take.. utilizing normal entry methods as I always have should suit me just fine. Your explaination helps me quite a bit. THANK YOU!

 

Any tips on reading the "market depth" that they give? Personally, I'm not conerned with the fact that 10 ticks away their are a ton of folks are wanting to by (because 10 ticks the other direction folks are looking to sell too) Maybe being new and naive, this is an "ECN Rookie" oversight and the "ladder" as some call it, when lined up well- makes the trade much more attractive.. so feel free to "let me have it" if this bit of information is being paid "less mind" than it should be.

 

Thanks for your insight!

Aaron

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