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skipcube

Why Are 3rd Party Datafeeds Recommended?

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Hi,

I'm learning to start trading forex. I'm not sure I understand why I need to invest in a reliable datafeed that is not provided by the forex broker.

 

For this case, lets say the broker is truly routing the orders to his network of banks.

 

Since forex is traded "off exchange", I'm naively thinking the price given by the broker's feed is the best executable price possible.

 

Or is there more to that? How does a 3rd party datafeed help here? Even though it may be reliable and fast, possiblity of order being filled by the broker and its network would be smaller?

 

Partly, I see external datafeed's value for exchange based trading. But I'm having a hard time understanding their value for forex. Please throw in your 2 cents.

 

Sorry if this has been asked before. Google search didn't turn up much.

 

-Skip.

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After looking some more, looks like third party pricing data feeds are very hard to evaluate -mainly because the broker's liquidity network may or may not be able to execute on the orders. To this end, is there a trading strategy that needs a secondary feed?

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there is nothing wrong with the data feed from the brokers. imho...

 

just want to add something...

remember that data may be different from one to another...if you are going to automate a strategy and trade live, use your broker's data feed to test it...

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Partly, I see external datafeed's value for exchange based trading. But I'm having a hard time understanding their value for forex. Please throw in your 2 cents.

 

Skip, your post is 100% correct in every way. You seem to understand how orders work in the forex interbank market, versus an exchange, which is to say that you are more knowledgeable than 90% of your forex peers. Your broker's price that he quotes you is THE price. Another broker may quote another price, or a data feed may reflect a different set of prices, but that does not matter. In the forex world, you get what you are quoted, and in forex there is no real price.

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most Forex brokers that are avalible to small traders are using their own market, meaning they create a market out of the real interbank market by tweaking the quotes a little in their favor, usually what they do is marking up the spread, if they are using the straight trough processing model, the dealing desk brokers might tweak the quotes even more in their favor, so much that it directly will put the client in disadvantage, ECN's are taking their quotes from the interbank, it then goes into a pool of clients together with the brokers liquidity providers, it's somewhat like a internal TCP network, this is most often if not allways other brokers who states as liquidity providers, ofcourse they would not sell anything unless it favors them so it can be discussed if this is a real true ECN model since the price comes from the liquidity providers, not the liquidity providers clients, note that the liquidity providers are brokers to and note that this is only FX, there is no way we as small clients can trade on the interbank Fx unless we have millions to trade with. the quotes that most recembles the real interbank quotes are from the ECN and STP and DMA model, they are the most stable and is very near the interbank quotes. there is also a new thing called DMA which is aprox the same as STP and ECN together, out of these the best in order is DMA, ECN, STP, dealing desk, there is outside sources line Kinetick, eSignal and others you can subscribe to on a monthly basis, they are the real thing but unless you can trade directly through the platform using these feeds they are not much of use to you. in that case they are just for comparison to other feeds, with most Forex brokers you are forced to use the brokers feed, especially STP brokers because they earn money from the spread so you would still pay the spread no matter what feed you are using. with equity and stock brokers you can use whatever data feed you want, this goes for stocks eft's options futures etc, these are traded on the real quotes, there are no markups or other tweaks made to the feed, they are traded on the exchanges around the world so the datafeed you would get from this kind of broker are very exact from the begining so an external datafeed would not be of interest unless the broker don't have a own feed, in that case you are forced to subscribe to an external feed. hope that helps:)

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