Trade Realization Based on the Market Conditions
Have you ever thought about how many percent of the profit from trading we lose due to the poor performance of transactions, as well as brokerage delays? Personally, I was amazed when, based on statistics of the work results, a broker for a month pays more than 4% of his monthly yield for commissions and swaps. If you think about the spreads and slippage as well, then this amount can increase more than twofold. It is clear that a broker should, as they say, earn something. But as for me, such a percentage of profits can be called a robbery.
After this situation, I spent about two months looking for the best brokerage terms. However, where I was promised zero commissions or without swap accounts, another danger appeared, which consists in a banal withdrawal of funds. So, I started to dig further and found an interesting opportunity that I would like to share with you.
Have you ever thought about how the broker provides quotes? Where does he get them and by what standards is the liquidity supplied? When I started looking for answers to these questions, I got acquainted with the notion of fix api and various similar protocols. These protocols allow the broker (and the trader quite realistically) to receive real market information through the FiX financial gateway.
FiX is an international standard for the supply of up-to-date market information, including quotations for a financial asset. If the prime broker wants to make a trading operation, he commits it through a financial protocol. In this case, fix api allows you to just put these transactions and is a kind of gateway between the seller and the buyer.
If we simplify the whole process, we get the following picture:
When the trader makes a deal, it automatically goes to the broker’s server. The broker processes this transaction, takes a different kind of commission (including he sets spreads and a slippage) and closes the deal on his own or looks for another client to overlap. After triggering the transaction (closing it after reaching the declared levels of profit/loss fixation or at the market price), the order closes in the server of the brokerage company.
This is how most of the modern forex brokers work. But! There is a very limited number of companies that give the opportunity their customers to trade through the fix api and the internal picture is completely different here:
The first stage is identical – the commission is taken, but exclusively for the opening of a transaction (spreads and swaps will be market-based). However, if you trade through the fix api accounts, then the deals will immediately be delivered to the market without delays and processed on the prime broker’s side. This is the principle, by which a minimum share of brokerage companies works, and those who give such an opportunity, request an additional capital.
Well, we got acquainted with the theory, but what about the practice? How to realize the possibility of trading on the market conditions? After searching for a while in the Internet, I found two scenarios for trading using the fix api:
- The first one is to trade through a broker and his fix api (as I wrote above, not every broker gives such an opportunity).
- The second approach is to acquire special software, which actually will deliver transactions through the server of the prime broker and execute the trading orders according to the market conditions.
Each kind has its own nuances. You understand that if you use some kitchen’s trading account and trade through software, then you can hardly see your profit. Therefore, it is better to accumulate additional capital and look for a broker with a possibility of trading through the fix api. Moreover, if the broker gives you this opportunity, you can be sure that there will be no problem with withdrawing your profit in the future. This is the option I chose. I already have a few brokers in mind, but if you also know some fix api brokers, I’ll be happy if you share this information.
Going back to the topic of implementing the speculative trading based on the market conditions, I want to answer the most crucial question: Why is it expensive?
The thing is that delivering deals to the clearing centre is not a cheap matter and it is not profitable for the broker to pay a large commission for our transactions of a minimum amount. Yes, the process of supplying the transaction to the market deprives the lion’s share of the company’s profits, as we have already seen in my example. Of course, the broker should also optimize his expenditure side. In search of options for implementation of market trading, I also ran into various options on how the broker can reduce the cost of providing the ability to the fix api trading. However, very few people use it. For example, fix api splitter http://4fxbrokers.com/fix-api-splitter. Such software is made for the broker and for a fee it allows him to reduce commissions of each trading account of the client. Thus, when a transaction from a customer is to be delivered to the market, it gets into the splitter, and from there to the clearing centre to the prime broker. Thus, we get a market execution, but the broker pays only for his account, because the transaction will be delivered through it. Everything is extremely simple and clear. But again, nobody uses this opportunity and brokers continue to process transactions on their server.
Unfortunately, the functionality of the brokerage companies has not changed for more than a hundred years. The broker is not interested in your income. He is interested in your commission. Therefore, modern technologies that could improve the trading performance, as well as improve the quality of the forecasting and analysis, are bypassed by the ordinary traders.