Hi Folks,
I found this posted from an IB representative about their new Forex Launch.
Interesting things about the bucket shops most on here trade through...
IB Forex: IDEALPRO
To respond to the numerous comments on IB's newly released professional FOREX service, IDEALPRO (I will use EUR-USD as the basis for my examples):
Transparent fee model:
Most FX brokers make their profit by spreading the interbank market. They claim ?no commissions? but in fact they just build their commission into their spreads, typically 1.5-2.5 pips on the typical 3-5 pip USD/EUR quote. IB does not trade against our customers. We are a broker, not a trader, and our commission charge of 0.2 basis points translates to only 0.25 pips on USD/EUR. The 5 USD minimum is just the translation of this rate onto the minimum order size of 250?000 USD. No conflicts of interest with IB.
Product Range:
we launched IDEALPRO with the 6 base currencies supported by IB. We will release trading capabilities for the cross markets after the initial rollout is 100% satisfactory.
For those who are familiar with the FX market, all crosses -- even the majors -- actually trade against the USD in the interbank market. A cross on EUR-CHF, which, given the high correlation, one might think would be directly traded, is actually priced in two legs against the USD. Interbank players will measure the EUR-USD and the CHF-USD and hedge their cross trades in 2 pieces rather than looking for the direct layoff. Anyone familiar with settlement rules can prove this to themselves. If the natural 2 business day value date for a cross falls on a US holiday (for example CHF-EUR), settlement will be pushed to the next valid business day in all 3 currencies (CHF, EUR, USD).
Market Spreads:
EUR-USD is usually 3 pips on IDEALPRO. The next time there is an economic news release watch IDEALPRO and compare the prices to the ?bucket shops?. Try doing a trade: with IDEALPRO what you see is what you?ll get. In fast markets, most FX brokers will only trade with you when they have a locked in profit.
While we think the IDEALPRO spread is already competitive, we know we can make it better. As we develop this platform, we will add other liquidity providers to the IDEALPRO platform and you can expect the spreads to drop, reflecting the multiple price contributions. Because we are only acting in the brokerage capacity, IB has no vested interest in providing our customers with wide spreads.
Order Control:
With IB, on both IDEAL and IDEALPRO, customers can trade with each other as well as the street. When non-pros trades with an FX broker, they never have an edge. They are always trading outside the real market. With IB, traders can enter orders between the markets, as well as hit the posted prices, both from FX market-makers and other non-pros.
We will offer the full range of IB order types on IDEALPRO including all the stops (limits, trailing, etc), contingent orders, and time-in-force. You will be able to trade FX cash automatically against the GLOBEX futures, or do ADR pair trades (Daimler-Chrysler on US-SMART vs DCX in Germany) and have the currency risk automatically hedged using contingent orders.
No other broker that we know offers such control and flexibility.
Margins:
IB?s current margin structure was put in place to address generalized assets (stocks, options, cash, etc) denominated in non-base currencies. It is actually a haircut on the value mapped to base currency for the non-base currency assets rather than a margin per se. We understand that the current haircuts, at between 5-10%, are uncompetitive for true FX trading. We expect to decrease them in the near future in conjunction with extended trading hours.
To add some perspective, we can consider that margins charged by GLOBEX for FX futures are approximately 1.5% of the underlying value, or roughly 66:1 leverage. Given the current market volatility, this is already a remarkably aggressive margin rate. Traders who expect 100:1 leverage ratios will not find them at IB.
IB?s traders do not have to worry about whether their assets are actually at risk due to another trader blowing out. Remember that most FX brokers are small organizations with little capital. When they take losses due to poor risk management practices, customers end up taking each other?s credit risk since the broker?s pockets may not be deep. FX is an unregulated market, after all.
IB is a 1.7 billion dollar organization. We emphasize risk management and we don?t let undercapitalized traders put other customers at risk ? directly, as can happen at the small FX brokers, or indirectly, by passing losses to the broker who then must redistribute them via the commission model to other clients.
Trading Hours:
IDEALPRO is currently available from 03:00-17:00 EST. In the near future we will move the start time to 01:00 (after the daily reset), and thereafter to 20:00 EST, thereby offering a 21 hour trading day.
Minimum Order Size:
IDEALPRO is targeted to serious, professional traders. In forex -- where 2 million is called ?tiny?in the pro market ? trades for 10?000 USD are actually below the horizon. Consider a daily volatility of 1% (historically FX vols are closer to 0.6% but recent activity is considerably higher) and we are talking about only 100 USD expected portfolio variance.
If we assume a 2% margin, an account with 50?000 can trade 1 million in currency and have a 10?000 portfolio value variance. Compare that to the same account trading stocks where the margins will permit 100K in stock and, assuming a stock volatility of 2%, has an expected variance in the portfolio value of 2000.
While we may consider reducing the minimum size for IDEALPRO, the more likely direction will be to improve the pricing on IDEAL for small trades.
Summary:
IDEALPRO has been out for 5 days.
Try the market, trading or just watching. Even on the minimum 250K size, it is cheap to do so.
Over the next weeks, we will be adding features and capabilities to make the IDEALPRO FX service hard to beat. Long standing IB customers will recognize that is the IB way.
I found this posted from an IB representative about their new Forex Launch.
Interesting things about the bucket shops most on here trade through...
IB Forex: IDEALPRO
To respond to the numerous comments on IB's newly released professional FOREX service, IDEALPRO (I will use EUR-USD as the basis for my examples):
Transparent fee model:
Most FX brokers make their profit by spreading the interbank market. They claim ?no commissions? but in fact they just build their commission into their spreads, typically 1.5-2.5 pips on the typical 3-5 pip USD/EUR quote. IB does not trade against our customers. We are a broker, not a trader, and our commission charge of 0.2 basis points translates to only 0.25 pips on USD/EUR. The 5 USD minimum is just the translation of this rate onto the minimum order size of 250?000 USD. No conflicts of interest with IB.
Product Range:
we launched IDEALPRO with the 6 base currencies supported by IB. We will release trading capabilities for the cross markets after the initial rollout is 100% satisfactory.
For those who are familiar with the FX market, all crosses -- even the majors -- actually trade against the USD in the interbank market. A cross on EUR-CHF, which, given the high correlation, one might think would be directly traded, is actually priced in two legs against the USD. Interbank players will measure the EUR-USD and the CHF-USD and hedge their cross trades in 2 pieces rather than looking for the direct layoff. Anyone familiar with settlement rules can prove this to themselves. If the natural 2 business day value date for a cross falls on a US holiday (for example CHF-EUR), settlement will be pushed to the next valid business day in all 3 currencies (CHF, EUR, USD).
Market Spreads:
EUR-USD is usually 3 pips on IDEALPRO. The next time there is an economic news release watch IDEALPRO and compare the prices to the ?bucket shops?. Try doing a trade: with IDEALPRO what you see is what you?ll get. In fast markets, most FX brokers will only trade with you when they have a locked in profit.
While we think the IDEALPRO spread is already competitive, we know we can make it better. As we develop this platform, we will add other liquidity providers to the IDEALPRO platform and you can expect the spreads to drop, reflecting the multiple price contributions. Because we are only acting in the brokerage capacity, IB has no vested interest in providing our customers with wide spreads.
Order Control:
With IB, on both IDEAL and IDEALPRO, customers can trade with each other as well as the street. When non-pros trades with an FX broker, they never have an edge. They are always trading outside the real market. With IB, traders can enter orders between the markets, as well as hit the posted prices, both from FX market-makers and other non-pros.
We will offer the full range of IB order types on IDEALPRO including all the stops (limits, trailing, etc), contingent orders, and time-in-force. You will be able to trade FX cash automatically against the GLOBEX futures, or do ADR pair trades (Daimler-Chrysler on US-SMART vs DCX in Germany) and have the currency risk automatically hedged using contingent orders.
No other broker that we know offers such control and flexibility.
Margins:
IB?s current margin structure was put in place to address generalized assets (stocks, options, cash, etc) denominated in non-base currencies. It is actually a haircut on the value mapped to base currency for the non-base currency assets rather than a margin per se. We understand that the current haircuts, at between 5-10%, are uncompetitive for true FX trading. We expect to decrease them in the near future in conjunction with extended trading hours.
To add some perspective, we can consider that margins charged by GLOBEX for FX futures are approximately 1.5% of the underlying value, or roughly 66:1 leverage. Given the current market volatility, this is already a remarkably aggressive margin rate. Traders who expect 100:1 leverage ratios will not find them at IB.
IB?s traders do not have to worry about whether their assets are actually at risk due to another trader blowing out. Remember that most FX brokers are small organizations with little capital. When they take losses due to poor risk management practices, customers end up taking each other?s credit risk since the broker?s pockets may not be deep. FX is an unregulated market, after all.
IB is a 1.7 billion dollar organization. We emphasize risk management and we don?t let undercapitalized traders put other customers at risk ? directly, as can happen at the small FX brokers, or indirectly, by passing losses to the broker who then must redistribute them via the commission model to other clients.
Trading Hours:
IDEALPRO is currently available from 03:00-17:00 EST. In the near future we will move the start time to 01:00 (after the daily reset), and thereafter to 20:00 EST, thereby offering a 21 hour trading day.
Minimum Order Size:
IDEALPRO is targeted to serious, professional traders. In forex -- where 2 million is called ?tiny?in the pro market ? trades for 10?000 USD are actually below the horizon. Consider a daily volatility of 1% (historically FX vols are closer to 0.6% but recent activity is considerably higher) and we are talking about only 100 USD expected portfolio variance.
If we assume a 2% margin, an account with 50?000 can trade 1 million in currency and have a 10?000 portfolio value variance. Compare that to the same account trading stocks where the margins will permit 100K in stock and, assuming a stock volatility of 2%, has an expected variance in the portfolio value of 2000.
While we may consider reducing the minimum size for IDEALPRO, the more likely direction will be to improve the pricing on IDEAL for small trades.
Summary:
IDEALPRO has been out for 5 days.
Try the market, trading or just watching. Even on the minimum 250K size, it is cheap to do so.
Over the next weeks, we will be adding features and capabilities to make the IDEALPRO FX service hard to beat. Long standing IB customers will recognize that is the IB way.
