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  #672  
Old Sep 27, 2009 5:40pm
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This may sound discouraging but there is no edge in orderflow.

I have been working with banks for most of my professional career - and that is for more than twenty years.

And 'having friends in a bank' won't help either - most of the time they don't know their a*se from their elbow - the amount of times two different trading departments from the same bank meet each other through the institutional broking firms (or throught the electronic communications network, nowadays) is countless. The proprietary desk is bid in €/$ while the options desk is the offer - they dont talk directly all the time and pay commission twice for what they could have done for free.

That goes for most large banks that contribute in the global FX market (cash that is). When I used to work for the worlds largest inter-dealer broker, it was our specialty to bring the same bank together in a deal - and they didn't even mind about it. Very often they [the bank dealers] sit so far away from each other [because of the different departments like options, money market, deposits, prop, etc.] that its easier to ask the broker for a price or hit the ECN without caring that orders from a different department might get filled.

Forget all that orderflow nonsense - the fx cash market is far too large for that, especially in the majors. Work on the premise that if a bank has to unload in a rising market, it will do so - regardless of price. Otherwise, buy as long as the market moves up until it stops going up - and vice versa for shorts.

No offence to the OP intended.

regards
daytrading
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  #679  
Old Sep 29, 2009 4:28am
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With this being true, the players in this game can be abbrasive as they want. Also, to my knowledge at this point, the big players (banks) have the ability to see all substantial postions and open interest in the market. With this information at their disposal they can manipulate as much as they want.

This is why this type of trading interests me so. If you have a good source for knowing where certain orders are on the price ladder, you certainly could end up "mixing shoulders with the big guys."

If a solid source for existing order information exists and one could gain access to it, you would not have an edge at that point, but an ATM machiene.

More to come,

Scotty
[/quote]

This is not so.

I have worked with the best banking and proprietary software there is in the market. The latest obvious choice for bankers are ECN's - but not all use them. The 'ladder' does exist but unlike level II data in the stock market, there are no names on the FX ladder since the markets participation is anonymous, which means your own electronic contribution as a bank (JP Morgan, DB, UBS, Barclays to name just a few of the around 50 strong base contributors of the ECN community) shows up amongst other orders which have been entered electronically by market makers and position takers - you cannot distinct between them in the first place.

The next point is that retail orders come into the ECN as a bulk, and by the same token cannot be identified as 'retail' stop orders. Further orders include 'time slice' order types that feed chunks into the system on a periodic predetermined intervall for the purpose of not moving the market in one direction with a large order. Iceberg order are also part of the ladder by which a contributor hides the total extend of an order to the system, because showing would set of the automatic withdrawal of the imminent counter-orders and drive the price against the desired direction.

Most of this takes place in an automated fashion and unlike assumed in the thread where the so called big dogs sit in front of a screen looking where a bunch of inconsequential retail traders may have placed a miniscule stop order here and there.

Algorithms take care of a lot of spikes caused by 'liquidity-seeking' programs inside the ECN - all this happens on a speed scale which the physical trader is incapable of.

Then there are the corporate orders coming from actual real business interests like Siemens is building a new nuclear power station or funding a dam somewhere - these transactions come into the market each and every day from leftfield without warning and they come in size.

Rest assured, people everywhere cook with water - the only real difference is speed and size of execution that separates the institutional from the retail crowd - and very often a bunch of excellent programmers who work on short-term solutions - otherwise its trading based on trends, high's, low's and S&R as usual.

regards
daytrading
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  #681  
Old Sep 29, 2009 5:37am
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Pj,

How hedge funds operate in the FX market depends strongly on their employed strategies. There are pure FX oriented funds but they are not the majority.

Reasons for a hedge fund to have a position (or interest) in the cash FX market (or in the FX futures market) can be manifold.

For example, when I used to work in the derivatives industry from 1993 until 2000, interest rate products such as IR-swaps and IR-options depending on the currency the contracts were traded in, had 'cash-settlement' as an expiry option - that meant that the counterparts had to settle the contract via the cash FX market. The way it worked was on the day, they would simply check the underlying fx pair's current price and placed the equivalent of sometimes huge ($500M or more) FX orders - just like that.

Other reasons for funds to be in the FX market are of course their own currency trading strategies, or currency risk resulting from other correlated exposure which they need to take care of on a daily basis.

There are as many different participants as there are reasons to enter into a FX transaction - its impossible to keep track of them at any time, except when time stands almost still: when interest rate decisions are to be released or when situations arise such as the unwinding of the carry trade a while back. Those exposures in the FX market are reported at the Bank for international settlements in Switzerland (BIS). Or the TIC data gives clues about where capital is flowing from and to. That again is not specific as to individual groups but whole industries and counties.

Unlike after Bretton Woods where currency bands were fixed and tight, they now move in much larger ranges - still ranges though. If they deviate too much, CB's step in but that is something FTI in his thread about 'technical analysis fallacy' explains much better than I could.

http://www.forexfactory.com/showthread.php?t=57639

That is all I can do for you now - time is money and money is time.

regards
daytrading
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  #689  
Old Sep 30, 2009 4:53am
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Quote:
Originally Posted by LuboLabo View Post
another picture of order flow
That is a Futures price ladder - not cash FX.

As I mentioned in one of the posts, in the futures market matters are somewhat different. A lot of our prop-traders use TT ladders (X-Trader and MD-Trader platforms) for scalping on news, open interest etc.

All this, even with the most sophisticated software (or should I say in spite of it) is not the same in the cash market.

regards
daytrading
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  #693  
Old Sep 30, 2009 11:59am
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Quote:
Originally Posted by LuboLabo View Post
I use futures data to trade fx spot

Look yesterday max sel buy tick trade volume and how react price to this level. This is one of many way to use market depth from currencies futures for trade spot fx.

Lubo.
I understand - but market depth is not the same as 'order-flow' as per description of the thread.

Nevertheless, what you do is of course possible (and profitable).

regards
daytrading
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