OBFX Users Manual

8/17/2019 OBFX Users Manual

1/18

Trading with Global Order Flow Analysis

Version 03/30/11

There is a risk of loss in trading over the counter foreign echange! "nvest#ents into such #arket

should be undertaken under very risk controlled instances! $lients should also consider other relevant

risk factors such as their %ersonal financial situation and their available risk ca%ital! Order&ookF' is

not res%onsible for any use of data %rovided for in our services!

&lack (ight )ata (($

*0 +all ,treet- .th Floor Tru#% &uilding

ew ork- ew ork 10002

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2/18

Supply of history and Demand for Evolution

etail investors began entering the #arket%lace in the #id 14405s with online brokerages like $6$

6arkets! $6$ %rovided access to s%ot F' with two way %ricing based on li7uidity fro# institutional

networks and trade warehousing! "n the %ast 12 years we5ve witnessed a countless nu#ber of brokerstart u%s- so#e were short lived and others had a #ore #indful business #odel in %lace! As the

nu#bers increased- this %rovided a #ore co#%etitive #arket%lace for custo#ers to chose fro#!Trading s%reads reduced with this co#%etition and have done so even to the etent that brokers offer no

s%read- 8ust to obtain the trade flow fro# unsus%ecting custo#ers! The fact re#ains that well over 09

of #arket %artici%ants lose #oney for what beco#es a long list of reasons! ,o#e of which are risk

#anage#ent- trade set u%- funda#entally flawed theories and on and on! ,o retail F' has re#ained adouble edged sword for too #any years! es the #arket has develo%ed so#e ece%tional trading tools

in #any for#s and %roduct lines- fro# trading software to analytical charting %ackages and even

eecution and signal services! &ut if the retail sector is unable to ob8ectively view the #arket in itsentirety then the o%a7ue view has not been changed and the #arket as a whole is still suited for the

institutions to generate eorbitant gains at the e%ense of the uninfor#ed! ot a single trading strategywould survive without a co#%letely trans%arent view of its co#%etition- and all the regulation in theworld %rovides no benefit co#%arable to the trans%arency that F' so des%erately needs! +e deliver

this trans%arency!

Introduction

Order&ookF' has broken the veil of o%acity to %rovide true #arket trans%arency to an industryseg#ent that re#ains dis8ointed! The ai# of &lack (ight )ata is to acco#%any this trans%arency with a

uni7ue set of tools for its custo#ers! Today thousands of banks feed li7uidity into %rivate %latfor#s and

dealer networks- each of the# %roviding a s#all slice of global transactional volu#e- while no s%ecificnetwork %rovides users a view of overall su%%ly and de#and- Order&ookF' does!

There are etensive research %a%ers on #arket #icro:structure and %rice discovery #echanis#s! +ehave develo%ed an architecturally advanced li7uidity network that not only includes the ability to

analy;e %ublished theory- but also enco#%asses the technology to develo% new strategies and analytical

#odels! Our fra#ework %rovides the access and integration of data %reviously restricted to the astutetrader ! Our low latency analytical structure %er#its access of such high fre7uency data by third %arty

transactional engines and analytical %latfor#s for li7uidity analysis and syste# develo%#ent! +e

%rovide affordable access to data that all other analytical data feeds only drea# of! +e ho%e that you

find us hel%ful in your day to day trading and look forward to hearing fro# you in our foru# whichcan be found at htt%


3/18

Spot FX Market Evolution

"n #y .0 years of e%erience " have develo%ed several trading a%%lications and tools! All of which were

designed s%ecifically to assist the trader in #aking decisions #ore sea#less and s%ontaneous! "5ve

built ultra high fre7uency latency arbitrage solutions- statistical arbitrage %latfor#s- triangular arbitrage

engines and auto dealing syste#s! These were all welco#ed by a #arket%lace that still see#ed to berightfully secretive about infor#ation that could lead to an %ro%rietary advantage! And fro# what "

witnessed in .0 years- the #arket %lace has not funda#entally develo%ed one bit! "t is still 7uiteo%a7ue to the uninfor#ed trader and that5s who# " thought needed the #ost hel%!

"n .010 #y view of the #arket%lace was still lacking fro# the retail traders %ers%ective! "t hungered

for trans%arency- but how was a #arket that lacked regulatory insight into %roviding such going todeliver it= 6any discussions have taken %lace regarding centrali;ed F'! This is #erely a %i%e drea#

as the very %re#ise of free trade re7uires a freely echangeable currency structure- anything else is

#erely co##unistic!

Our #odel for %roviding trans%arency to the #arket as a whole is to level the %laying field for all! olonger can the brokers %urely take advantage of custo#ers inability to see continuous senti#ent and#oney flows across international borders! &lack (ight )ata has %roduced a truly global aggregation of

such trans%arency! Our architecture is such that it5s available for everyone to see without restriction

and it is useable for #anual and auto#ated trading functionality!

utili;ation for both #anual trading activity and auto#ated functionality!

ou have in your hands #any years e%erience in #arket research and trading %ractice in a deskto%a%%lication that truly #akes the whole world- one s#all trading roo#! For the futures traders who are

fa#iliar with being in an o%en outcry %it on the $6> or $&OT- Order&ookF' aggregates global

li7uidity into a low latency senti#ent function with deskto% visuali;ation! ow the world is a virtualtrading %it! "#agine standing net to your trading counter%arts while they all decided si#ultaneously to

sell short >??,)- would you still wish to eecute your buy order= ow you can look over the fence

and see your neighbors intentions on large scale as this is the focus of Order&ookF'!

Price Discovery

ow that you understand why Order&ookF' was develo%ed we can dive into the cru of trading with

order flow! +e have %ainstakingly sifted through strea#s of li7uidity to %rovide you a uni7ue view of

the #arket%lace as a whole!

Trading with order flow re7uires an understanding of its dyna#ics! +e #ust therefore briefly digest

the role of #arket #akers relative to su%%ly and de#and! This is by far the #ost %ro#inent %ricediscovery funda#ental when it co#es to understanding what5s ha%%ening with order flow!

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4/18

,u%%ly/)e#and econo#ics is si#%le- #ore buyers than sellers :: %rices #ove u%ward! 6ore sellers

than buyers :: %rices retreat lower! For li#it order books its a bit different as dealers who 7uote into

global >$5s do so to generate an inco#e on the s%read fro# their custo#er orders! "n today5s#arket%lace the #a8ority of retail o%erations %rovide their custo#ers with trading a%%lications such as

6etaTrader! This is what we see as 5closed end5 syste# as they the#selves have no direct connection to

the #arket%lace beyond what the #arket #aker %er#its and unfortunately that5s very li#ited! As atrader using 6etaTrader or any closed end syste#- your li#ited to seeing the two way %ricing that the

broker is willing to %rovide you and true #arket de%th is not available! As a #arket F' )e%th of

6arket has not been available until the recent %ublicity of Order&ookF'! For a #arket #aker to stay %rofitable they have to kee% their custo#ers 5in the dark5 and take the s%read each ti#e the custo#er

#akes a trade! 6ost of the ti#e dealers book their %rofits by %urely trading against their custo#ers

trades in the case of retail F' o%erations! This lack of trans%arency is the %ur%ose of Order&ookF'!&lack (ight )ata has not only develo%ed a %roduct to %rovide you leading access to global su%%ly and

de#and- but we show you statistically which #ethods are #ore %rofitable! 6ost of our tools ad8ust

%erfectly as the #arket changes so rarely will you ever see a strategy or indicator that beco#es less

effective in any ti#e set! +e5ve integrated evolutionary architecture to #ake sure we are always on theleading edge of strategies!

Supply and Demand

Order Equilibrium

ow to the 6arket 6akers! +ere going to stay away fro# detailed ea#%les here- but the conce%t is

rather si#%le! A #arket #akers %ricing is de%endent u%on custo#er orders! A #arket #aker is in the business to turn over inventory and reduce risk by li#iting the duration of trades! (ets look at your

brokers %ricing!!! at the ti#e you and your neighbor decide to buy and sell 100-000 >??,)- your

brokers %rice 7uotes are 1!3201 to 1!3203- your broker has to do nothing because he has sold you the100-000 >??,) that he has bought fro# your neighbor! At this %oint- su%%ly and de#and are in

balance! ow lets use the sa#e conce%t and assu#e your broker si#ultaneously received 10 orders

selling 100-000 >??,)! They confir#ed the %rice to their custo#er as they &O?G@T the inventory

of 1-06 >??,)! ow- they #ust enter the #arket and sell 1-06 >??,)! This trade beco#es a balancing trade of the first ten trades in the closed syste#- but the broker can take this o%%ortunity to

sell o%enly on an >$ or book the %rofits the#selves against their custo#ers losses! The #arket

#aker has the decision to book the trade the#selves or %lace an offer in the #arket to sell 1-06 at%riceB- slightly higher than the %rice that they %urchased it for- but at a level that would #ake the trades

%rofitable!

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5/18

Price Movement

There are a nu#ber of well %ublished theories as to order book i#balances and eecution strategies

within a li#it order structured syste# of echange! The su%%ly and de#and e7uation within

Order&ookF' is %resented for you in our senti#ent bar! ou5re able to select the de%th that you wish to

#onitor and the senti#ent bar is calculated for you- %roviding you a gauge to ob8ectively watch the#arket!

"t5s well %ublished and rather logical that %rice #ove#ents are the direct result fro# an i#balance between buyers and sellers! And rather identical to any other (i#it Order &ook #arket%lace- s%ot

foreign echange also needs an i#balance for %rice #ove#ents to take %lace!

OrderookFX!s Market Maker Sentiment

+hen we s%eak of su%%ly and de#and we are talking about the sellers and buyers in a given currency %air! 6arket 6akers are both sellers and buyers and their %ricing is based u%on a nu#ber of factors

including custo#er order flow and the %ricing they are able to obtain through other trading venues!

$urrene- @ots%otF'i- "ntegral- F'All and (avaF' are institutional trading venues! >ach with their

own li#it order book! Their %rices will correlate #ost of the ti#e and rando#ly will throw off arbitrage

o%%ortunities between the#! ,ee ockshore Cartners for latency arbitrage- triangular arbitrage and

#arket #aking solutions!B

There are three networks that we have %ur%osefully not #entioned here and those are >&, and euters

and &loo#berg! +ith >??,)- >&, ca%tures D09 of bank transactional volu#e each day! That5ssignificant two in as%ects! +hen looking to %ossibly aggregate data fro# >&, into our distribution- we

knew that it would %rovide fair volu#e inter%retation as we have done already! &ut econo#ically we

would not be able to %rovide the sa#e %rice structure for our subscribers!

EEE Our %lans do include integration of >&, as an add:on %roduct!

"t5s a well known fact that >&,- euters and &loo#berg are the large networks! And if you don5talready trade on the# you5re looking to in the future! +ith >&, s%ecifically : we know .29 of global

volu#e is traded daily there and that the rest of the networks< $urrene- @ots%otF'i etc! trade around

these %rices! This itself is critical infor#ation when you relate it to the ob8ective of the #arket #akers!

At this %oint- by not including >&, we have in theory included its actions and %rovided a clear %icture

of actual trade flow within it! @ow= A rather si#%le %rice discovery #echanis# by use of senti#ent

is what5s warranted here! The s#aller networks trade around the actions on >&,- a clear state#ent offact and crucial to effective %rice discovery! After the s#art #oney sells on >&, they also %rovide

li7uidity into the s#aller networks with bids- ca%turing the difference and the #asses selling to follow

suit thus creating a %assive yet rather 7uick arbitrage o%%ortunity! e#e#ber that the #arket #akers %ur%ose is to %rovide li7uidity and they do this not only to their custo#ers but to networks as well!

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http://rockshorepartners.com/http://rockshorepartners.com/http://rockshorepartners.com/http://rockshorepartners.com/


6/18

,o- if a %air is being sold on >&,- on Order&ookF' it is identified as a #arket #akers &id! e#e#ber

a #arket #akers ob8ective is to #ake 7uick %rofits and they do this between two networks 8ust as #uch

as custo#er order flow! Therefore- the #agic in Order&ookF' is that by visually seeing significant&ids by #arket #akers- they are the result of selling %ressure on the larger networks! This is a huge

advantage to the trader who does not have access to %rices or eecution on >&, because with

Order&ookF' you can follow suit and 8oin the #ove#ent!

Statistically Speakin"

+e are currently develo%ing a statistical #odel that will be available for free! This will allow users of

Order&ookF' to analy;e in real ti#e the statistics on li7uidity shocks and %rice #ove#ent! This will

%rovide a significant advantage for all users of Order&ookF'!

#sin" OrderookFX

$urnin" it On

+hen installation of Order&ookF' is co#%lete- this screen will %o% u% in a note%ad for viewing!B

?%on installing Order&ookF'- you should see a black icon with the blue Order&ookF' O net to theclock in your task bar! ight:click this icon at any ti#e to access Order&ookF' features- log in- log

out- etc!

Getting ,tartedT, O? ,>(>$T-

T@> 6O> )ATA T@AT +"(( &> ,>T TO O? A)

T@> &?,"> O? >T+OH +"(( &>

our subscri%tion choices are saved and will be auto#atically used whenever the ,trea# ,ervice starts!

,elect any o%tions you5d like on the General tab! "f you5re not sure what to select- 8ust leave thedefaults for now!

EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE

ow you5re ready to view the order bookI

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7/18

EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE

ight click the icon again- and this ti#e select (aunch Viewer

A black:background viewer window will a%%ear- with your currently subscribed instru#ents listed!

,elect the instru#ent for the first grid %osition and you5ll see the book a%%ear! ou can ad8ust the

window vertically to e%and the view of the book!

To ad8ust grid o%tions- such as %rice resolution- senti#ent bar o%tions- etc- select the J sy#bol 8ust

above the grid scroll bar net to the word AskB!

To add #ore grids- select the K icon on the right!

To delete a grid- select the J sy#bol and choose the )elete Grid o%tion!

Subscriptions to Pairs

F'(ite %rovides u% to 2 strea#s of %airs in de%th! F'&ook %rovides strea#s of all %airs available inOrder&ookF'! ,ubscribing to a %air is done fro# the settings window!

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8/18

Sentiment Depth

&y setting senti#ent de%th you ad8ust the natural band that the Order&ookF' senti#ent bar #onitors!

To do this go to either the settings tab on the windows tray icon or the settings function on a F' grid!


9/18

Settin" an %lert

Alerts are useful for users of Order&ookF'! @erein lies the visual and audible notification that a %rice

#ove#ent is i##inent! e#e#ber- based on %rice action on >&,- 6arket 6akers trading across

venues %lace bids or offers in the e%ectation that %rices will go that direction and thus e7uali;e their

%osition and %rovide the# %rofit!

?se the alerts function and #onitor #arket #ove#ent with the senti#ent bar as both are

interconnected! The senti#ent bar based on senti#ent de%th and the alerts being calculated as a %ercentage of the de%th and volu#es at that %reset de%th!

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10/18

Seein" %lerts

?sing Order&ookF' as a visual %rice verification syste# is rather si#%le! First we ask that you kee%

in #ind #arket #akers ob8ectives with %roviding li7uidity based on very short ter# trading styles!

These trades last #ere seconds and take %lace thousands of ti#es each day!

%lert&' >??,) %airing with significant bids de#onstrative of #arket #akers buying e%ecting

lower %rices due to selling %ressure on >&,!

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11/18

%lert&( Five #inutes later- %rices have drifted lower by %i%s- and now offers are heavy- an illustration

of #arket #akers having already %urchased e%ecting %rices to #ove higher!

%lert&) "s a continuation fro# Alert!.B of #arket #akers offers outweighing bids- as they havealready %urchased and are looking for %rices to #ove higher!

%lert&* Crices have #oved higher and #arket #akers have continued buying on >&, while ho%ing to

eit their trades on other networks- here ehibited by continued offers outweighing bids!

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12/18

$radin" the +e,s -eleases

There is significant research that revolves around order flow dyna#ics as a whole! Very little of it

%rovides us research based facts focused on %rice action between two networks! +e have s%ecifically

identified here what we see as the #ost fre7uent observation within Order&ookF' and #arket direction

itself!Developmental Strate"ies

A! Crior to news releases- you will see orders stacked- and these orderswill chase li7uidity in a fren;ied and volatile #arket! +e tend to stay away fro#

these %oints until after the initial li7uidity shock has been dissolved so#e!

@owever we see such a significant correlation to stacked orders and theresulting direction that we find a suitable strategy that 5waits5 until the senti#ent

agrees with the direction of overall stacking! The waiting is co#%lete after the

initial li7uidity shock and knee 8erk reaction the #arket ty%ically has!

&! A well suited strategy for using Order&ookF' is to #anually trade on&ollinger &ands- watching the to%s resistanceB and botto#s su%%ortB for# and

the resulting #arket bias for ra%id changes in swings of %rices!

1.


13/18

$he follo,in" is an e.ample of a March/ (0'' +e,s -elease of #nemployment

1laims& 2e have broken do,n actual market sentiment and provided for you a

clear tracin" of market activity&

Fi"&0'3 Must before the une#%loy#ent re%ort- we see a s#all %rice s%ike into a wave of selling! This

selling is clear because the 6arket 6akers have #a8ority &") in the the Order&ookF' senti#ent bar-which is calculated by aggregation of order volu#es in the viewer as well! This selling %ressure allows

you to follow the institutions and know eactly what the s#art #oney is doing! This i#age also shows

the alert being triggered on the bids- which #eans for Order&ookF' users- there is significant selling

%ressure on the bids %ushing %rices lower! " will show you how to ad8ust this alert level later on afterwe go through the rest of Fig! 01 N 11!

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14/18

Fi"&0(3 After the news release we see an i##ediate volatile dro% in the %air- followed by a fast

rebound- #any buyers would 8u#% in here- but #arket #akers are net buyers as order flow fro#

institutional sales %ushed %rices lower! The #arket #akers stand to #ake their return by covering %ositions here! +e show weakness here with #arket #akers covering short %ositions!

Fi"&0)3 +aves of selling have %ushed %rices lower and the alert is hit again on the &") side signifying

a %ossible continuation through the current bid level!

1*


15/18

Fi"&0*3 Figure * has s#art #oney buying and #arket #akers s%litting off inventory in large offers!

This shows clear %rice strength as institutions &anks- @edge Funds have %urchasedB! 6arket

senti#ent to the higher!

Fi"&043 Cressure is a%%arent- alerts hit on the offers identifying that #arket #akers have %urchased and

are now ready to hold or offload their %urchases waiting for higher %rices!

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16/18

Fi"&053 $ontinued %rice strength! Alerts on the offered %rice signaled! Cressure to the higher!

Fi"&063 After a fast L2 C"C s%ike- weakness in the s%ike is %revailing shown by buyers waiting forlower %rices! &id volu#es increasingI Crice dro% %ossible=

1D


17/18

Fi"&07 A few %i%s lower and s#art #oney has %urchased and willing to lay off %ositions at higher

%rices!

Fi"&08 Cossible failure of continuation of %rice #ove as sellers have retreated! ,ellers have sold-

#arket #akers starting to look for lower %rices!

1L


18/18

$echnolo"y %dvancements

+e have created Order&ookF' for you the trader in #ind! +e5ve taken #uch of the guess work out of

engineering intelligent trading algorith#s and never before has global li7uidity been available for

analysis! +e are confident that Order&ookF' will level the field for all #arket %artici%ants! Our

architecture is fleible- efficient- redundant and resilient! Our distribution servers are slated to s%an theglobe and this will %rovide you the subscriber with further advance#ents to the data we %rovide!

+e are diligently working on #ulti%le indicators that when co#%lete will be #ade available to all usersof Order&ookF' at no cost! These indicators and statistical engines will %rovide a core set of tools for

users of Order&ookF' data! "f you have a suggestion %lease feel free to e#ail

su%%ortblacklightdata!co# or visit our foru# at htt%

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