Who should support Teton routing? Is it the Introducing broker or the Clearing Firm?

From what I understand, even if the FCM supports Teton, if the broker doesn't want to support Teton, then we can't use it. So what exactly is the role of all these entities. I am a bit confused.

OK, I can understand that.

I hope this is not too basic, but let's get back to the basics of what each player does. There may be variations on this, but I think this will be a decent outline, and it's going to be complicated enough, anyway.

1. FCM. You must have, and you will have, an FCM. Many traders will not have an IB, but everyone will have an FCM (many FCM's will happily open accounts directly with traders; if you open an account with an Introducing Broker, they will then "introduce" you to an FCM, and if the FCM approves your account, you will have an account with the FCM. But you will have an FCM account regardless, or you won't trade.)

The FCM account is where your money is. They actually open a dedicated account in your name with a bank to hold your funds. Any trades you make will ultimately impact that account. The FCM is a member of the exchange and "clears" your trades.

When you talk about your "broker," that does not have to mean an IB. If you don't have an IB, then your "broker" is your FCM. You do not have to have an Introducing Broker in order to trade. You may prefer to, because of some additional service they provide, but many traders do not (I don't, for example.)

2. The order routing service, including Rithmic, CQG, Sierra Chart's Teton, and others. They communicate your orders and the results of them between all the parties. So they have to interact with your trading platform on your desk to pick up the order, they have to check with the FCM to make sure you have enough margin in your account to make the order, they have to get the order to the exchange's servers so the order can be matched to another on the opposite side, they have to get the result of the match (if it's matched, and the price it went for if it was) back to the FCM so it will register to your account, and back to your trading platform so you will know what happened.

All this electronic routing is why we no longer have to have a bunch of guys shouting to each other in the trading pits, with runners getting the orders by phone from the FCM's (who got them by phone from their customers) and literally running out to the pit to give them to the pit traders to get them executed. But thinking of their role in these terms may help.

For this to work, the routing service will have to interact with the FCM, so they will have to have some arrangement with them on a technology level, and of course on a business level, and also with your trading platform so they will communicate back and forth.

3. Your trading platform on your desk. It also has to have a connection with the routing service, or nothing gets routed in the first place. So the company that makes the trading software has to have support for the routing service's system, which is also another business relationship.

So you need these first three to get your trades to clear, basically, and there has to be compatibility among the different elements for this whole thing to work, which means there has to be business agreements between them. These roles can be combined in different ways, so in some cases one company can fill many or all these roles, but these are the elements that are going to be present.

4. The Introducing Broker. If you have an IB, which you don't have to, they don't have a direct role in getting your trades processed, actually, at least not in their capacity as an IB. Now, they may provide the trading software -- such as NinjaTrader, an IB, does -- so they may have a role in that way. They will have an introducing relationship with some FCM's but not others, so that might affect the routing service they provide. and for their own reasons they may prefer to use some routing firms but not others.

In, for instance, the case of NinjaTrader, they are intense competitors in the trading software world with Sierra Chart, so the chances of their ever using Teton to route trades executed on their platform is close to zero (or below ), whether they use an FCM that is compatible with Teton or not (they presently own their own FCM, NinjaTrader Clearing, so this will not come up with them. But in the past, they have used other FCM's, and you can believe they would not have used a direct competitor's routing service.) So this would be a case where the decisions of the IB would govern whether something that the FCM offers is made available to the IB's customers. There might be other situations.

---------------------

I hope this is clear enough. If not, I suggest just referring to the list given previously of which firms, both FCM's and IB's, support Teton.

There may be other wrinkles that could be added to this outline, but it's meant as an outline to make the general relationships more clear. I hope it does this.

Bob.

--------------------

Edit: to add to all this, an FCM is free to offer more than one routing service if they wish. For instance, they may offer support for different trading platforms, and some may only work with particular routing firms. Then an IB that uses that FCM could pick and choose from what the FCM provides, if they had a preference.

The key is that these different elements are not necessarily independent, but they are separate pieces and can be combined in different ways.

--------------------

Edit 2: I left completely out of all this the role of the Clearing Members or Clearing Brokers, which is another wrinkle. Briefly, Clearing Brokers are all FCM's, but not all FCM's are Clearing Brokers. The Clearing Brokers are actually responsible for clearing the trades.

But this is not going to address this question, and I probably shouldn't have brought it up. I just had this urge to dot the i's. Google it or go to the CME site and spend some time there if curious, or just check here for the basics of what FCM's and Clearing FCM's do: https://www.investopedia.com/terms/f/fcm.asp

Thank you so much for laying out so clearly for me. All this make sense now.

One further question, I am using an IB now and Ironbeam as FCM, can I then go ahead an open an account directly with the same FCM?

I would talk to the FCM. If you go to them as if you were a new customer, without talking to them first, it probably will come up, so square it away with them first.

Bob.

Bob, thanks again a ton. What service would an IB offer that I may not get from the FCM?

OK, I can understand that.

I hope this is not too basic, but let's get back to the basics of what each player does. There may be variations on this, but I think this will be a decent outline, and it's going to be complicated enough, anyway.

1. FCM. You must have, and you will have, an FCM. Many traders will not have an IB, but everyone will have an FCM (many FCM's will happily open accounts directly with traders; if you open an account with an Introducing Broker, they will then "introduce" you to an FCM, and if the FCM approves your account, you will have an account with the FCM. But you will have an FCM account regardless, or you won't trade.)

The FCM account is where your money is. They actually open a dedicated account in your name with a bank to hold your funds. Any trades you make will ultimately impact that account. The FCM is a member of the exchange and "clears" your trades.

When you talk about your "broker," that does not have to mean an IB. If you don't have an IB, then your "broker" is your FCM. You do not have to have an Introducing Broker in order to trade. You may prefer to, because of some additional service they provide, but many traders do not (I don't, for example.)

2. The order routing service, including Rithmic, CQG, Sierra Chart's Teton, and others. They communicate your orders and the results of them between all the parties. So they have to interact with your trading platform on your desk to pick up the order, they have to check with the FCM to make sure you have enough margin in your account to make the order, they have to get the order to the exchange's servers so the order can be matched to another on the opposite side, they have to get the result of the match (if it's matched, and the price it went for if it was) back to the FCM so it will register to your account, and back to your trading platform so you will know what happened.

All this electronic routing is why we no longer have to have a bunch of guys shouting to each other in the trading pits, with runners getting the orders by phone from the FCM's (who got them by phone from their customers) and literally running out to the pit to give them to the pit traders to get them executed. But thinking of their role in these terms may help.

For this to work, the routing service will have to interact with the FCM, so they will have to have some arrangement with them on a technology level, and of course on a business level, and also with your trading platform so they will communicate back and forth.

3. Your trading platform on your desk. It also has to have a connection with the routing service, or nothing gets routed in the first place. So the company that makes the trading software has to have support for the routing service's system, which is also another business relationship.

So you need these first three to get your trades to clear, basically, and there has to be compatibility among the different elements for this whole thing to work, which means there has to be business agreements between them. These roles can be combined in different ways, so in some cases one company can fill many or all these roles, but these are the elements that are going to be present.

4. The Introducing Broker. If you have an IB, which you don't have to, they don't have a direct role in getting your trades processed, actually, at least not in their capacity as an IB. Now, they may provide the trading software -- such as NinjaTrader, an IB, does -- so they may have a role in that way. They will have an introducing relationship with some FCM's but not others, so that might affect the routing service they provide. and for their own reasons they may prefer to use some routing firms but not others.

In, for instance, the case of NinjaTrader, they are intense competitors in the trading software world with Sierra Chart, so the chances of their ever using Teton to route trades executed on their platform is close to zero (or below ), whether they use an FCM that is compatible with Teton or not (they presently own their own FCM, NinjaTrader Clearing, so this will not come up with them. But in the past, they have used other FCM's, and you can believe they would not have used a direct competitor's routing service.) So this would be a case where the decisions of the IB would govern whether something that the FCM offers is made available to the IB's customers. There might be other situations.

---------------------

I hope this is clear enough. If not, I suggest just referring to the list given previously of which firms, both FCM's and IB's, support Teton.

There may be other wrinkles that could be added to this outline, but it's meant as an outline to make the general relationships more clear. I hope it does this.

Bob.

--------------------

Edit: to add to all this, an FCM is free to offer more than one routing service if they wish. For instance, they may offer support for different trading platforms, and some may only work with particular routing firms. Then an IB that uses that FCM could pick and choose from what the FCM provides, if they had a preference.

The key is that these different elements are not necessarily independent, but they are separate pieces and can be combined in different ways.

--------------------

Edit 2: I left completely out of all this the role of the Clearing Members or Clearing Brokers, which is another wrinkle. Briefly, Clearing Brokers are all FCM's, but not all FCM's are Clearing Brokers. The Clearing Brokers are actually responsible for clearing the trades.

But this is not going to address this question, and I probably shouldn't have brought it up. I just had this urge to dot the i's. Google it or go to the CME site and spend some time there if curious, or just check here for the basics of what FCM's and Clearing FCM's do: https://www.investopedia.com/terms/f/fcm.asp