Here is an interview I came across a couple of weeks ago (me thinks) on the following site: http://nondealingdesk.blogspot.com/
*Sorry for the long-winded article. It's not mine but an internet find on the subject. Skip it or read it.
Sure. Let me start by saying that I have written articles that have been published by SFO Magazine as much as 18 months ago on the topic of STP/ECN platforms. In those articles, I mentioned three platforms that I felt were "heading in the right direction," if you will.
HotspotFX was one of those platforms (COES and EFX/MB were the others). It is clear that they have an STP platform. They have since been bought by NITE, and one of the key original players since left, so I don't know yet exactly what NITE's plans are long term for the platform (i.e. will they continue to try to improve it as an STP platform or use the customer base to somehow head back in the deal desk direction...time will tell).
Having said that, it was also clear that Hotspot offered two platforms, one for their larger clients and one for their smaller clients (the main
www.hotspotfx.com website asks you to choose immediately). The retail platform gets wider spreads. The institutional platform shows you market depth, although the liquidity isn't huge. They do let you bid and ask between the spread, which proves that they aren't a deal desk, which was why I listed them as one of the three. However, showing different customers different amounts of liquidity, in my opinion, is a very questionable thing to do. There really isn't a reason for it.
The main issue comes down to the number of banks in their system and the liquidity that they get. Where they might show $3 million per pip or so (take a look at their instruction manual examples), EFX/MBTF shows $30,000,000 frequently on stuff like EUR/USD and GBP/USD. The range of order types on Hotspot is not clear and doesn't provide the depth of coverage that I like, or least, it didn't last I used them. For example, no true trailing stop. If this has changed, certainly let me know.
Small differences in platforms...Hotspot requires a $7500 minimum account, which is high for the industry but probably keeps them from having to deal with people that want to start trading with $1000. They offer 50 to 1 leverage. While I certainly use less leverage in my trading in general, the industry standard at the moment is definitely 100 to 1, and many people require that.
They don't trade at sub-pip increments, or at least they didn't about four months ago.
And to save us some time, COES was the other platform that I think was legitimately trying to set up an STP platform. However, they never seemed to be able to get much liquidity in their systems, and there always just seemed to be something "off" from what I heard from people that worked with them. I guess now, that makes a lot more sense.
But yes, in general, I have always said that Hotspot, COES, and EFX/MB were the only platforms that, from a technology standpoint, were truly attempting to go STP/ECN. These three are leaps and bounds above the deal desk world (including FXCM, Oanda, GFT, InterbankFX) in my opinion. Then it is just a matter of how much liquidity you need, how much order type flexibility you need (some people don't need any and just sit and buy and sell at the market), costs, leverage, the track record/reputation of the company, and anything else that you want to factor in to make yourself comfortable.
If anyone has dealt with HotspotFX on a more regular basis in the last couple of months and noticed any changes/improvements, please let me know. For example, have they added true pip-for-pip trailing stops? Can you use tenth of a pip increments to post your own bids and offers? Are they showing more liquidity, and if so, what is the average size showing at each pip on the EURUSD or GBPUSD during the core trading hours? I have wondered many times what direction NITE is planning on taking the platform now that they own it.
Chris
No, that is not correct. Back and forth movement in a 5 pip range is a symptom of a deal desk doing what they call "constant sweeping." For example, if the EURUSD is a 3-pip spread on a deal desk, then possible quotes are:
1.2550 by 1.2553
1.2551 by 1.2554
1.2552 by 1.2555
1.2553 by 1.2556
1.2554 by 1.2557
By moving their quote up and down through this range while they know that their main bank provider is sitting at 1.2552 by 1.2553, for example, they will often get their customers to buy at 1.2557 and others to sell at 1.2550 as people tend to buy when they think something is moving up and sell when they think it is moving down. So if they move the quote up a couple of ticks to 1.2557 offer and some people buy, the platform sells at 1.2557. Then they move it down to 1.2550. You can see this happening on the e-Signal chart of the main compiled EURUSD or GBPUSD quotes. The whole time, the platform knows they can buy at 1.2553 or sell at 1.2552 from/to their bank liquidity provider. Note that in the process of moving the quotes over those five prices, they never end up in a situation where they are in danger of not being able to close out the other side of a trade via their main liquidity provider.
STABLE FOREX quotes are a result of seeing true bank pricing. The more liquidity you see from more providers, the less instant-by-instant movement you will see. This price stability is readily apparent on HOTSPOT, COES, and EFX.
One more add-on to be clear about this. LESS liquidity in ANY market leads to more wild action. More liquidity is harder to move. This goes back to the conversation about Hotspot and the comments about EFX. You can't move their quotes. Neither can they. The quotes come from banks. If they have a dozen banks compiled, then five or six of those might be bidding the EURUSD at the bid at any moment. One bank getting hit or changing its mind doesn't lower the bid. I want to be very clear about this for the newer traders, as this is fundamental to true market analysis in any market (stocks included). MORE LIQUIDITY MEANS LESS IMPROPER PRICE FLUCTUATIONS. Look at something like GOOG on the stock side that shows only a few hundred shares at every penny, and then consider how jumpy it is. Then look at something much more liquid like AAPL and how it can stay in a ten cent range for extended periods.
Since a deal desk platform isn't affected by liquidity at all (they have complete and sole control over where they put their prices), you see more instant by instant price fluctuations. By the way, I was talking to someone that works on a deal desk recently. Think about this. He said that on a pair where they show a 4-pip spread, they AVERAGE making more than that. How is that possible? Go back to my example on the last post with the five prices.
Let's say the deal desk moves their prices up to the highest price. People buy at 1.2557. Then they move their price down to the lowest price. This generally causes more people to sell, which would be 1.2550. 7 pips made in some cases there on a 3-pip spread, and the true market never moved. The more people that trade on a platform like that (in terms of number of customers), the more likely that someone is buying and someone is selling each time they slide their quotes like that.
*There is more I could post but post is already too long.
COTtrader
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