When it comes to trading foreign currency, most investors have at least heard of the two main camps that most forex brokers fall into. There are Electronic Communications Networks (ECNs) and Market Makers. Let me begin by first introducing each of these.
Market Makers behave pretty much as you’d expect from their name – they “make” the market. They have the ability to internally set both the bid and ask price of the quotes they provide. They can do this because of the actual liquidity that a typical Market Maker brings to market. In other words, they have to take the opposite side of your trade. So order fills can be a bit better with a Market Maker, as long as you understand that the “fill” you are getting begins and ends with your broker. Another important point with a Market Maker is they will usually have smoother spreads. What I mean by smoother is that the spread they offer is usually more predictable. Because they aren’t making money through commissions (usually), they make most of their money by offering a spread that they set. So as you might imagine, if you were a Market Maker you might think the same way – “This is my money that I’m using to fill your order, so I’m going to give you the price that works best for me.”
ECNs operate a bit differently. A true ECN will aggregate prices from multiple providers (like banks and even Market Makers) and offer you the best bid and the best ask. Their philosophy is very different from a Market Maker, because they will not manipulate the quotes nearly as much. They offer this because their money isn’t made in the spread, they make their money in charging you a commission on every trade. A fill on an ECN is not always guaranteed, which can make some traders miss their ideal price. Because ECNs offer quotes from many different sources, their prices are often more volatile which, depending on your style, can make it very difficult to be profitable. A common limitation that an ECN will have is on their servers. Due to the fact that they pull in multiple quotes from different sources, when those are aggregated they are also throttled. It wouldn’t be possible for them to provide every quote they receive to each of their traders. That would be very difficult, or at the very least it would be fiscally detrimental.
Now that we have introduced both, let me explain how the Apiary Fund works.
Apiary Fund operates like a hybrid of each of these camps; lets just say that we made our own camp. We have an interest in adjusting the spread like a Market Maker, except we don’t want to widen it for our profit. We want to tighten it so that the trader can profit. Also, we don’t take a dime of commission on any trade because we don’t want to add burden to any order regardless of direction. The only cost traders will experience in Alveo are the transactional fees required by our liquidity providers.
Like ECNs, Apiary works to negotiate with multiple liquidity providers to offer the best bid and ask with every quote. Unlike ECNs, Apiary works very hard to ensure that every quote we receive makes it to our Alveo trading platform. This is evident by watching a quote screen on Alveo compared to a quote screen on other platforms. When getting a new quote means the difference between your trade being profitable or not, wouldn’t you like to get them from a fire hose instead of a garden hose? We certainly think so.
Bottom line, where in the world does the Apiary Fund make money if this is true? The answer is simple. When our traders make money. We want to make that very clear. When one of our TRADERS MAKE MONEY then APIARY MAKES MONEY. It’s that simple. Our goal is to create as many profitable traders as we possibly can. So as you can see, our incentives are aligned with that of our traders. Just like in a beehive (aka apiary), the more honey each bee makes, the more sustainable life is for everyone. That’s our philosophy.