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InvesttechFX offers fixed spreads on STP? I'm not buying…

Jul
13
2010
Posted by Michael Greenberg in Brokers
5 Comments

I already wrote once about the shady tactics of this company which claims to be a STP while offering fixed spreads. This is an oxymoron.

STP brokers will always display variable spreads because their liquidity is coming from several liquidity providers which in turn form a liquidity pool. Pricing in this pool is subject to supply and demand forces (Bids and Asks if you will) which result in fluctuating prices. Plainly speaking, STP and ECN brokers will always display variable prices and spread.

Market Makers will always display fixed spread from exactly opposite reasons – they determine Bid and Ask themselves, aren’t subject to market supply and demand forces, and therefore can offer a fixed spread. Fixed spread is the number one identifier of a Market Maker.

Now, this honest NDD and STP (isn’t STP same as NDD?) broker is offering reduced spread on 6 majors and is offering only 1/2 pip spread. What a great deal…

The thing is, that as I said, this can’t be an STP broker, nor can you find anything about the identity of its ‘liquidity providers’ or even the management of this company. Their PR reeks of shady marketing efforts aimed at attracting noobs who have absolutely no idea what this actually means and all are looking for is lowest spreads possible. Try Googling reviews of this company and you’ll see what those noobs end is going to look like.

I would also suggest the Canadian authorities to investigate this company as I’m sure that false promises of STP execution aren’t going to be their only crime.

Update: A good friend alerted me that there is a broker with a similar name: investtech.com, this broker isn’t related to investtechfx in any way.

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5 Comments on this post

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  1. Asaf said:

    There has been some confusion between the different terms being used by the brokers (ECN, STP, NDD etc.) and I think that the marketing folks at InvestTechFX and using this confusion to mislead their customers.

    I have one advice regarding them – NEVER TRADE WITH AN UNREGULATED BROKER!!

    – Asaf.

    July 13th, 2010 at 9:11 am
  2. Jack Lamont said:

    Isnt it possible Michael that the borker absorbs the fluctuations in the spreads and passes a smoothed out fixed spread to their end user client. i.e. if they are fixed at 2 on the EURUSD, perhaps someitmes they get a 0.7 from the liquidity pool and make 1.3 on client trades, and sometimes they only get 1.2 from their pool and therefore make only 0.8?

    July 13th, 2010 at 9:36 am
  3. Michael Greenberg said:

    Technically probably possible, though very costly and conceptually doesn’t make any sense. Obviously not when the spreads are fixed at 1/2 pip spread – it’s impossible to commit to such spreads on an interbank market. Check out other STP/ECN broker spreads, they rarely get as low as that and only on EURUSD which is the most traded currency pair. As Asaf points out it’s their marketing effort to attract noobs who have no idea that this is impossible.

    July 13th, 2010 at 10:33 am
  4. Asaf said:

    Jack,

    In theory it is possible but that would mean that the broker is not a STP because the positions are not going to the bank at the same price they are going to the trader.

    In practicality – there isn’t a broker in the world that would lose money to present a narrow spread to its trader – and if there is I wouldn’t touch it with a 10 feet pole because his risk level is uncorrelated to trading which means he is bound to have a liquidity issue at some point.

    – Asaf.

    July 13th, 2010 at 2:16 pm
  5. Michael Greenberg said:

    Not exactly: STP brokers mark-up interbank prices, they have to make a living. But their mark-up is fixed which is how it should be.

    July 13th, 2010 at 3:21 pm
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