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payment for order flow???
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payment for order flow???

  #1 (permalink)
Trading Apprentice
stamford ct usa
 
Trading Experience: Advanced
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payment for order flow???

Hi
Im deciding between futures brokers and was filling out a new accnt form at AMP.
one of the disclaimers I was asked to sign dealt with payment for order flow - sending my futures trades to third parties.
This is exactly what I am NOT looking for.

I was shocked to see this right there in print........

"When firms provide execution services to customers, either in conjunction with clearing services or in an execution only capacity, they may, in some circumstances, direct orders to unaffiliated market makers, other executing firms, individual floor brokers or floor brokerage groups for execution. When such unaffiliated parties are used, they may, where permitted, agree to price concessions, volume discounts or refunds, rebates or similar payments in return for receiving such business. Likewise, on occasion, in connection with exchanges that permit pre-execution discussions and "off-floor" transactions such as block trading, exchanges of physicals, swaps or options for futures or equivalent transactions, a counterparty solicited to trade opposite customers of an executing firm may make payments described above and/or pay a commission to the executing firm in connection with that transaction. This could be viewed as an apparent conflict of interest. In order to determine whether transactions executed for your account are subject to the above circumstances, please contact your executing firm account representative."

so my question is - Is this the industry standard? Or are there some firms that truly just let your trade go straight to the market without falling into the hands of another party with a conflict of interest?

Thanks -

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  #2 (permalink)
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  #3 (permalink)
Elite Member
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I didn't know this could happen, I have always been under the impression that all futures trades had to go directly to the exchanges. Hmmmmm, it'll be interesting to see what some think of this.

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  #4 (permalink)
Elite Member
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asker View Post
Hi
Im deciding between futures brokers and was filling out a new accnt form at AMP.
one of the disclaimers I was asked to sign dealt with payment for order flow - sending my futures trades to third parties.
This is exactly what I am NOT looking for.

I was shocked to see this right there in print........

"When firms provide execution services to customers, either in conjunction with clearing services or in an execution only capacity, they may, in some circumstances, direct orders to unaffiliated market makers, other executing firms, individual floor brokers or floor brokerage groups for execution. When such unaffiliated parties are used, they may, where permitted, agree to price concessions, volume discounts or refunds, rebates or similar payments in return for receiving such business. Likewise, on occasion, in connection with exchanges that permit pre-execution discussions and "off-floor" transactions such as block trading, exchanges of physicals, swaps or options for futures or equivalent transactions, a counterparty solicited to trade opposite customers of an executing firm may make payments described above and/or pay a commission to the executing firm in connection with that transaction. This could be viewed as an apparent conflict of interest. In order to determine whether transactions executed for your account are subject to the above circumstances, please contact your executing firm account representative."

so my question is - Is this the industry standard? Or are there some firms that truly just let your trade go straight to the market without falling into the hands of another party with a conflict of interest?

Thanks -

i think that means there not a clearing firm, there not clearing all there trades. i think a lot of brokers do that.

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  #5 (permalink)
Trading for Fun
Merida, Yucatan, Mexico
 
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bradhouser's Avatar
 
Posts: 101 since Nov 2010
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Third parties pay to see your orders before they get sent so they can get an edge on the market. Your broker makes money off you and by selling your trade information. If i understand it correctly, it creates a disadvantage for we little guys.


Sent from my iPad using futures.io

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  #6 (permalink)
Market Wizard
North Carolina
 
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This has nothing to do with futures. There is no such activity in futures (to the best of my knowledge). What has happened in the past with various equities (stocks) is that there are two datafeeds. A slow datafeed and some exchanges offer a fast datafeed for HFT firms. The slow datafeed is what the regulators look at for best execution. The HFT firm will pay for retail order flow and use the fast feeds to basically front run the small orders or to take the other side. Some claim that the HFT can deliver better fills then the market but this is suspect. They know a retail trader will not have enough volume to move the market so they take the other side for a subpenny (? not sure if they are still doing that-- don't trade equities). This in theory does save you money but it also means that there is less liquidity shown. You can generally specify the fill algo your broker uses even if they sell your orders.

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  #7 (permalink)
Trading Apprentice
Little Rock, AR, USA
 
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This is normal as I understand it. AMP Clearing, when operating as an FCM guarantees your contract. They are saying that the "how" of that guarantee may vary(whether it happens at your price, or another price due to any number of circumstances), but the guarantee remains. As far as them "seeing" your trades - this is 100% normal.

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  #8 (permalink)
Elite Member
Houston, Texas
 
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learning0101's Avatar
 
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Hi @mattz
Since you are in the industry and if you get time would appreciate your insight here concerning the OP comment.
TIA

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  #9 (permalink)
 Vendor: www.optimusfutures.com 
Boca Raton
 
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learning0101 View Post
Hi @mattz
Since you are in the industry and if you get time would appreciate your insight here concerning the OP comment.
TIA

Thank you for the mention and the sentiment.
I can not provide legal interpretation for AMP FCM's application, but I can give you my view and opinion.
If you send an order via GLOBEX using the ES instrument to the exchange from your platform, it goes directly to the exchange. There is enough liquidity between buyers and sellers where the exchange will match buyers and sellers.

However, other businesses may happen between customers and FCM, and FCM to FCM.
For example, you may find a USA based FCM that does not have an LME membership, so he may direct this execution to other FCMs via a give-up agreement for those who require such arrangements. This is something we have encountered at Optimus when a customer wants to add additional foreign contracts.

Also, You may have a situation where you need to price an Option that is way far out in terms of price and time. You may need to use the expertise of a market maker to price such a transaction.

Further, there are OTC deals, SWAP deals, etc. that are typically institutional and as such do not apply to retail traders. As such, FCM applications must cover all possible scenarios legally whether they apply to the particular trader or not.

I hope this helps, and if anyone needs help with the AMP application, they may contact us.

Thank you and have a good weekend.

Regards,
Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #10 (permalink)
Trading Apprentice
Tallahassee
 
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payment for order flow real answer


a lil background. trading for 15 years. series 3 licensed broker for 10 years. branch manager futures trading prop firm for 2 years before going independent.

1. asking a broker about order flow and routing is nit smart. brokers are motivated by making money off of you. especially when they start an answer with..im not legally allowed to comment. nothing against this broker or others but here is a fun exercise if you trade futures live.
call your broker. even if discount. say. hey i want to know when i click the mouse on my dom and place a mkt order in the emini.be specific! what exactly happens as far as routing? broker will immediately take defensive. well..it goes to globex trade engine..say ok but exactly how does it get there step by step? his voice will crack..he will say..you click.the order comes here and is checked for risk then it is sent to globex thru your trade system (front end). say..ok but how does my front end get it to the exchange? wait for it...well u need to call the frontvend company...say does my fcm have a connection to the exchange..he will say im not sure. lie. then say ok i will call fcm. fcm will freak out more because they cannot believe how smart you are getting! you are getting warmer. fcm will say no we do not have a connection directly to globex. if truthful. they will say call your broker. at this point they will say..what us your account number? who is this? trust me they are all against you gor the kickbacks! eventually you will find out that 70% if fcms and 90% of mainly retail fcms use CQGs direct connection to the exchange. cqg has api that most fcms make it look like its an internal program but no.its cqg. oec trader is cqg api. so truthfully your order goes to cqg then pushed to the convenuence gateway at the cme..then to the market segment gateway then it finally makes it to the trade matching engine. before all that you have lots of internet hops and skips and multiple api to connect to etc. to answer your question properly you almost need a court order and you should get the real answer. optimus probably uses oec trader or an inhouse front end that just uses CQGs api and then routes to the exchange. ONLY a direct connection goes straight to the trade engine if choice. there are 17 engines at the cme product specific.
lastly. you do not need an ib to trade. you can go directly thru an fcm. trade fees are negotiable based on volume. personally having a broker can be a very good asset if he is honest and has time for you. yes along the way someone somewhere an a.i. machine sees your orders. thats why you trade with stops wide enough so the prop desk at wedbusch executing doesnt move the mkt a few ticks to pick you off with some wash trades. be smart question everything. make the calls force the answers!! you are paying lots of money to get answers. good luck!

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