Why brokers do not like pipsers on forex market trading?
The Forex market is based and lives on the confrontation between supply and demand, which form the price of a currency instrument. Every millisecond, the unified quotation system receives supply and demand prices for different currency pairs, which is accompanied by the constant presence of one instrument with the presence of many orders with a slight difference in price. Sometimes this difference can expand and reach a difference of several points. The real values of the price of a currency pair are instantly sent to various brokers, thus appearing in the terminals of traders. To smooth out market noise, many brokers filter the flow of quotes, using averaging of their values, but when the market reacts to the price movement by an impulse, and the display of quotes may be accompanied with some delay. At the same time, not all dealing centers use this approach, many can throw quotes in their original form without smoothing the price. Without smoothing the price, a price movement is obtained, but the trader does not see this as if this movement was not being displayed.
One of the working conditions for a pipser is to have a lateral price movement in a rather narrow range to make a profit of several points. Typically, opening and closing a position occurs in a short period of time with a profit in a few points.
Manual trading is difficult to achieve and therefore pipsers use special automated trading programs. Provided that the market fluctuations of the price exceed the spread value, such a technique can bring not small returns.
To attract traders, dealing centers offer trading in currency pairs with a decrease in the spread size, which attracts pipsers, since the likelihood of making “easy” profit increases.
The main task of the intermediary between the client and the market maker is to monitor the risk relationship between the aggregate position that leads to the interbank market and the similar position of the market maker, and this ratio should not exceed the risk value laid down by the dealer.
At the moment of changing the direction and volume of the position of a financial instrument, the dealer makes corrective actions in his position, thereby maintaining the profitability of the position position + profit of the dealer. And here the interests of the dealer and the pipser diverge, as the pipsers eat up the dealer’s profit, because the instant change in quotes does not require the intervention of the dealer, but the profit from it goes to the pips trader. Such trade forces the dealer to introduce some restrictions in the trading process into the regulation - a restriction on the time a position stays in the market.
For a broker who brings his position to the interbank market, such trading does not bring big problems, but for kitchens that sell within themselves, this approach is extremely unprofitable. It takes some time for the broker to withdraw the transaction to the interbank market to close the position, and the pipsers, with their trading style, make significant adjustments to the total position in a short period of time.