When researching brokerages and looking into where to trade, you may have stumbled upon a number of Multilateral Trading Facilities (MTF’s), in this article we explain what a MTF is and explain why Forex traders are increasingly discussing the merits of MTF”s.

What is a MTF?

The concept of an MTF was first introduced in Europe’s Markets in Financial Instruments Directive (MiFID) and refers to a particular type of non-exchange financial trading venue. These MTF’s are an alternative to traditional exchange venues and are typically built around computerised systems which bring buyers and sellers together, according to a set of pre-defined rules.

The Markets in Financial Instruments Directive (MiFID) lays out a number of rules governing how MTF’s are to be run. Multilateral Trading Facilities must ensure that:

  • There is pre-trade transparency, with the price of current orders being available on the MTF’s market data feed.
  • MTF’s must also be post-trade transparent, which means any trades carried out must be published in real-time.
  • Additionally, there has to be a rulebook which sets out how the MTF works.

MTF’s and Forex

While the majority of MTF’s primarily offer their customers the ability to trade Shares via their platform, MTF’s which offer other asset classes have been beginning to pop up. When it comes to Forex, there is currently only one Multilateral Trading Facility which is primarily focused on Spot FX. Authorised and regulated by the FCA, the LMAX Exchange allows traders to trade Spot FX pairings and Precious Metal CFD’s through their MTF. The LMAX Exchange has gained a significant degree of popularity with a number of retail FX traders and it seems likely that an increasing number of traders and firms will make the move towards the MTF model.

The Impact and Benefits of Multilateral Trading Facilities (MTF’s)

Many in the Forex world have been impressed by the performance of MTF’s, with some believing that MTF’s can often provide traders with tighter spreads and faster execution of orders.

MTF’s profit off commission charged to users of the platform, which means that there is no conflict of interest between the trader and the MTF. It should be also noted that STP and ECN brokerages also avoid this conflict of interest by routing orders via liquidity providers and/or an electronic communication network. Though some feel that the pre and post trade transparency rules which these MTF’s must obey gives traders greater clarity in regards to how their orders are fulfilled. Additionally, the ability to see full Depth-of-Market data is something which many traders value deeply.

With MTF’s matching traders who want to Buy and Sell, the venues can be very competitive in terms of cost even when factoring in commission. This is in part due to the fact that MTF’s tend to typically run a very tight ship, with all orders being routed through the venues systems. Currently, the LMAX Exchange is among the most competitive venues open to retail FX traders in terms of Spreads.

Typically, MTF’s have significantly higher capital requirements than the average FX brokerage, which means trading with an MTF may be out of the reach of many retail traders. The increase of interest in MTF’s, mirrors the move by FX industry to move towards ECN and STP execution models.

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