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ADVOCACY ALERT: Leading Forex Broker Dramatically Lowers Spreads

ADVOCACY ALERT: Leading Forex Broker Dramatically Lowers Spreads

When I was a bank trader I once quoted a 200 pip bid-offered spread and another bank dealt on it. Retail forex traders do not realize how good they have it as the spreads they are getting are ones that I could only have dreamed about when I worked for a bank or ran a fund. Now, a leading forex broker has made them even tighter by changing its pricing model. In this article I will show why tighter spreads matter and give details on the broker’s new pricing model.

Before I go on, I have to make it clear that we are not an IB for this broker nor do we benefit directly if you decide to open an account. The broker is FXCM and its new spreads can be seen by CLICKING HERE (scroll to lower left to see the spreads).

The article below indicates why tighter spreads can make a difference. The press release announcing the details of its new pricing model is posted at the end of this article.

Why Spreads Matter

  1. Tighter the spread, the less chance of getting stopped out as brokers execute a buy stop when it is at its offered price and a sell stop when it is at its bid price. So the tighter the spread the better the chance of the stop not getting triggered when it is a close call. We have all had times when we got stopped by a hair and a tighter spread can make a difference. 

  2. With stop entry orders, a tighter bid-offered spread means your order will have a better chance of getting executed when the price is closer to the interbank market rather than waiting for a wider spread quote to reach your entry level.

  3. Limit orders have a better chance of getting filled when the spreads are tighter. How many times has your limit order gotten close but never filled? It has happened to me and tighter spreads give you a better chance of getting your order filled when it is a close call. 

    So spreads can matter and trading with tighter ones can boost your P&L over time. While some may prefer no commissions if it is built into the spread, trading a tight raw spread + commissions has advantages as I outlined above. It can also add up over time as you will have more than your share of close calls. It remains to be seen whether FXCM's new pricing model and tighter spreads will pressure the retail forex industry to become more competitive. 

    In the meantime FXCM now offers some of the tightest spreads in the industry and has provided us with a link with more details. New FXCM Spreads.

Press Release:

September 22, 2014

FXCM Launches New Pricing Model Offering Raw Forex Spreads On Average Reduces Trading Cost by 50% on Top 14 Currency Pairs Implements Tighter Spreads and Commission Pricing to be more Competitive and Transparent

NEW YORK--(BUSINESS WIRE)-- FXCM Inc. (NYSE:FXCM), a leading online provider of foreign exchange trading and related services worldwide, today announced that its US subsidiary Forex Capital Markets LLC ("FXCM US") has introduced a new retail FX pricing model. FXCM US platforms will now display raw spreads and mark-ups previously included in the spread will be separately displayed as a commission*. As part of this introduction, FXCM also reduced client trading costs.

"We are excited to offer raw spreads with no mark-ups on all currency pairs as it will provide clients with a superior and transparent Forex trading experience," said Drew Niv, CEO of FXCM Inc. "As part of FXCM's commitment to its clients, we are taking pricing and broker service transparency to a new level and bringing greater opportunities to clients."

The FXCM platforms will now display raw spreads from one of our 15 different liquidity providers streaming prices into the FXCM no dealing desk execution system. "On average we reduced trading cost on the top 14 currency pairs by 50%," added Mr. Niv.

FXCM's new pricing model allows traders to easily scalp the market, while providing increased execution benefits to stop and limit orders. Furthermore, FXCM clients will continue to benefit from no re-quotes**, fast, efficient and transparent execution, with no restrictions, along with a comprehensive suite of educational services through DailyFX.com

 

COST-REDUCTION¹ HIGHLIGHTS: MAJOR CURRENCY PAIRS

 

Old Spreads

New Raw Spreads

Commission/10K Order

Total Reduction with New Model

EUR/USD

2.5

0.2

$0.40

60%

USD/JPY

2.3

0.3

$0.40

50%

GBP/USD

2.3

0.4

$0.40

39%

1 Listed spreads and commissions will not apply to some customer accounts due to their relationship with certain intermediaries

 

The US is the fifth region to begin migrating new and existing clients to this transparent pricing model. The US entity has also raised the open account minimum from $50 to $2,000. Other select targeted jurisdictions began offering a similar commission structure and raised their account minimums as well.

"These super tight raw FX spreads will be ideal for scalping and can help improve trading execution across the board. We believe that this pricing model reflects FXCM's core business principals, offering direct access to quotes from multiple liquidity providers with no mark-up and transparent low commissions that we believe will be very popular with customers," added Niv.

*In some instances, accounts for clients of certain intermediaries are subject to a markup.

**FXCM maintains a no re-quote policy. Circumstances exist based on order size, trading pattern, and market conditions where individuals may not receive execution at the requested rate. Orders are executed at the next available rate within the trader's parameters, subject to market conditions. The difference between the requested rate and final execution price may be more or less advantageous based on the market activity and available liquidity.

Disclosure Regarding Forward-Looking Statements

In addition to historical information, this release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect FXCM Inc.'s current views with respect to, among other things, its operations and financial performance for the future. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. FXCM Inc. believes these factors include but are not limited to evolving legal and regulatory requirements of the FX industry, the limited operating history of the FX industry, risks related to the protection of its proprietary technology, risks related to its dependence on FX market makers, market conditions and those other risks described under "Risk Factors" in FXCM Inc.'s Annual Report on Form 10-K and other SEC filings, which are accessible on the SEC website at sec.gov.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this presentation and in our SEC filings. FXCM Inc. undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

About FXCM Inc.

FXCM Inc. (NYSE:FXCM) is a leading online provider of foreign exchange (forex) trading and related services to retail and institutional customers world-wide.

At the heart of FXCM's client offering is No Dealing Desk forex trading. Clients benefit from FXCM's large network of forex liquidity providers enabling FXCM to offer raw spreads on all currency pairs. Clients have the advantage of mobile trading, one-click order execution and trading from real-time charts. FXCM's U.K. subsidiary, Forex Capital Markets Limited, also offers CFD products with no re-quote trading and allows clients to trade oil, gold, silver and stock indices along with forex on one platform. In addition, FXCM offers educational courses on forex trading and provides free news and market research through DailyFX.com.

Trading foreign exchange and CFDs on margin carries a high level of risk, and may not be suitable for all. Read full disclaimer.

 

FXCM Inc.
Jaclyn Klein, 646-432-2463
Vice-President, Corporate Communications
jklein@fxcm.com or investorrelations@fxcm.com

Source: FXCM Inc.

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