How do spread companies calculate their spreads?

[ISX Markets]

We have institutional accounts with market maker, our clients will trade through our account.

Clients can go straight to the Market Makers, however they will not receive the same rate.

As we have an institutional account and we have large volumes going through one acc, we are better able to negotiate. We also provide rebates on a volume basis;

Forex interbank spreads. If you trade £20,000,000 or equivalent on forex in a month we will rebate £1,000.

CFDs, at market prices, 0.2% commission. If you trade £10,000,000 or equivalent on CFDs in a month we will rebate £1,000.

We can do the above as we have negotiated volume rebates with Market Makers.

In short we aim to aggregate all orders and thus provide a lower rates for all clients, irrelevant of volume traded.

In terms of calculating an INDEX price using fair value, This is the case with a number of market makers. I have worked within these organisations as a dealer and am aware of there pricing policies. Ther will be times when this is not the case, i.e. on market opening or when the futures are not trading. At these times it is a very manual process, and this is why you will see the prices move out of line with the underlying index.

 

[Marc100]

ISX Markets

Just out of interest:

What percentage interest do you charge on your long & short CFD positions?

Thanks.

 

[ISX Markets]

Marc 100

We are looking to charge the daily overnight rates. However we are still negotiating the finance rates. We will update our website with all info by Monday.

Thank You for your comments.

 

[smallfry]

Well ISX, it strikes me that you're current charging structure makes this totally uneconomic. What exactly are you getting out of all this? By aggregating client orders, you are going to your institutional brokers and getting better prices.

But that's assuming that your clients all buy or all sell. For how long do you run your own positions before buying or selling to cover your internal exposure? This therefore tends to contradict your assertion that you aren't making a market doesn't it?

At any moment, clients will both buy and sell. So are you netting these or following your clients exposures slavishly, i.e. they buy 10 you buy 10, they sell 11 you sell 11?

When your brokers' prices move, then you have to change your quotes, but at what price are clients trading? Are you quoting a real price on your website or the last traded? Does this mean a client will always get a requoted price when they trade with you?
Have you heard of D4F and their problems doing this...

Regards
Simon
(or Mr Green as he was known to D4F...)
NZ

 

[ISX Markets]

Our CFD service is direct market access. We provide level 2 trading, and also allow client to interact with the order book and take part in auctions.

As for how we hedge our positions, we hedge all our positions either with another broker or the underlying market. The prices you will see are going to be the underlying market prices.

As we offer BEST EXECUTION, we can not just requote clients. We are obliged to offer market or better prices to our clients.

 

[probookie]

ISX, if you're providing genuine direct market access for futures and CFDs, there is no possibility of you "aggregating" client business for hedging purposes. The client is trading in the real market and you have nothing to "aggregate".

So are you genuinely providing direct access, or is the plan to try to match market prices and run a book yourself, hedging when you get a large enough position?

And are you aware how minuscule the profit margin is in either case, once you've paid for your office overheads? (I mean, are you aware that across all sb and CFD firms, only the biggest 3 actually manage to make a decent annual profit and the rest are barely breaking even/actively losing money?)

Good luck anyway. You're going to need it.

 

[ISX Markets]

We aggregate by volume traded. We have contracts in place with clearing firms where we will direct volume to there desks and they will in return charge us smaller commissions.

We are fully aware that it is difficult to make money in this sector. We are looking to gain market share. Our main business is commercial foreign exchange (www.isxfx.com). We are looking to gain market share and therefore are happy to have a small profit margins.

Thank you for your comments.

 

[Robertral]

ISZ there are a few spelling mistakes on your site. Just thought I'd mention it as I know it's a new site and these thinsg can get overlooked.


Best of luck with it all, it sounds as if you have been working really hard

 

[raf110]

Thank you for your help. We will check the site and update.

Thanks