What are the current problems with pricing in retail FX and why are some traders concerned?
It all comes down to transparency and trust. At present, the standard practice for trading and quoting FX is very opaque, and traders don’t know how much of a mark-up or commission is added to the quotes. In addition, some brokers continue to make markets and set prices for customers, which may not be at the best price available.
How does FXCM’s new pricing structure work?
There are two elements to our new pricing model. We offer traders the raw spread, which is streamed to us from our liquidity providers. In addition, we’ve simplified our pricing and have made it fully transparent, so customers can clearly see what commission we charge them, what the market charges them, and what our volumes are – pure and simple.
This is part of FXCM’s commitment to take pricing and broker service transparency to a new level and offer greater trading opportunities to our clients.
How does this complement FXCM’s existing No Dealing Desk execution model?
Our No Dealing Desk forex execution model was critical in fostering both trust and transparency between FXCM and its customers – it provides best execution at the best price and removes any potentially hazardous conflict of interest, which is widely associated with the dealing desk model that is still prevalent today.
We display the best bid and best offer from our 14 different liquidity providers streaming prices into the FXCM No Dealing Desk execution system. FXCM does a lot of volume with our liquidity providers so we get very favourable rates. Aggregating those rates allows us to pass on extremely tight spreads to our clients.
Instead of adding our commission to the spread, we are now listing it distinctly as a commission, so clients see clearly what their transaction cost is. Our commissions are very low, so all in the client is seeing a 50 per cent reduction in trading costs on the top 14 currency pairs when compared to our old spreads.
What reaction have you had from customers?
We’ve received overwhelmingly positive feedback, and there has been a surge in global demand.
The new pricing model allows traders to easily scalp the market, while providing increased execution benefits to stop and limit orders. They also have access to a comprehensive suite of research and educational services through DailyFX.com.
Brendan Callan is chief executive of FXCM Europe.