Spread betting at FXCM

[lilbitpipsy]

Hi,

The idea of DMA Spread Betting has piqued my curiosity and I have a few questions. As far as I'm aware, the only two UK companies that do this and automatically hedge the trades are FXCM and FP Markets (although I could be wrong), so I have a few questions about FXCM.

I take it by DMA Spread Betting that FXCM simply mirror the underlying market and then add on their spread charge. Is this correct?

I may have missed this on your website but... What are the fees for opening/using a spread betting account with FXCM? (i.e. Brokerage charges, data feed charges etc.) Or are they all built into the spread?

Also, what are the charges for deposit AND withdrawing funds by the various methods available?

What, if any, features are missing from the web version of Trade Station as opposed to the desktop version?

What are the costs for rolling over an FX trade? Do you use the LIBOR rate (overnight rate?) +/- broker charge (eg. 2.5%)?

When will traders be able to use FXCM with NinjaTrader? Will this be available on the spread betting platform? I have seen on the NinjaTrader website that this has been near to completion for a couple of months now, but no updates for a quite a while, just says coming soon.

Thanks.

LBP.

 

[Jason Rogers]

Hi,

The idea of DMA Spread Betting has piqued my curiosity and I have a few questions. As far as I'm aware, the only two UK companies that do this and automatically hedge the trades are FXCM and FP Markets (although I could be wrong), so I have a few questions about FXCM.

I take it by DMA Spread Betting that FXCM simply mirror the underlying market and then add on their spread charge. Is this correct?

I may have missed this on your website but... What are the fees for opening/using a spread betting account with FXCM? (i.e. Brokerage charges, data feed charges etc.) Or are they all built into the spread?

Also, what are the charges for deposit AND withdrawing funds by the various methods available?

What, if any, features are missing from the web version of Trade Station as opposed to the desktop version?

What are the costs for rolling over an FX trade? Do you use the LIBOR rate (overnight rate?) +/- broker charge (eg. 2.5%)?

When will traders be able to use FXCM with NinjaTrader? Will this be available on the spread betting platform? I have seen on the NinjaTrader website that this has been near to completion for a couple of months now, but no updates for a quite a while, just says coming soon.

Thanks.

LBP.

Hi LBP,

Thanks for the questions and I'm happy to help.

Forex trading on FXCM's spreadbet account is via No Dealing Desk forex execution, also referred to as Straight Through Processing (STP) or Direct Market Access (DMA). With NDD forex execution, FXCM receives prices from 10+ liquidity providers, and the best bid and ask price from the liquidity providers is streamed onto the platform with a pip mark-up. The pip mark-up, which acts as a commission, is how FXCM is compensated. When you place a trade, the order is offset immediately with one of the liquidity providers.

For cfd trading on oil, gold, and stock indices, there are no re-quotes; however, FXCM is making a market for these products. The reason it is not DMA is because the lot size available on our platform is smaller than the minimum lot size on the exchange for the underlying product. Our traders asked for smaller lot sizes so that is what we offer.

There are no fees for opening a spreadbet account, and FXCM does not charge a fee when you deposit funds. There could be a withdrawal fee depending on the withdrawal method. There is no withdrawal fee when requesting a withdrawal back to your credit or debit card, and the list of fees for a bank wire withdrawal can be found here . The cost for trading is the spread on each transaction.

The features on the web and desktop versions of the Trading Station are quite nearly the same except for some indicators and chart studies not available in the web Trading Station. In the months ahead, this should change so that the web charting package has the same features and options as the desktop charting package.

The rollover you will earn or pay for each symbol can be found in the Simple view of the Dealing Rates window in the Trading Station platform. Forex rollovers are set by the banks based on overnight lending rates. The most common time you will see forex rollovers change is when a central bank changes their target rate, but rollover can change independent on central bank decisions due to fluctuations in actual overnight rates.

Lastly, NinjaTrader is on the way! There's no announced timeline on when the launch will occurr, but we anticipate beta testing to begin within the next month or so. If you would like to be a part of beta testing, please email [email protected] .

Let me know if you have any additional questions.

Jason

 

[lilbitpipsy]

Hi Jason Rogers,

Thanks for the information. I just need a bit of clarification about a few things.

Firstly, I am a little confused about the nature of DMA spread betting. I understand that when you are trading with a market maker that you are trading directly with/against the broker, but, from what you have said, that with FXCM you trade directly against the market?! I have heard the phrase DMA with a spread betting wrapper bandied about in this forum. Is this what FXCM do, and what does this actually mean in practice? Could you give an example of the trade process from start to finish.

Secondly, with regard to rollover; are you saying that there is no additional charge and that you only pay the LIBOR overnight rate, and not a markup of N%, which brokers usually charge? Also, do trades rollover naturally on the FX side of things, or do FXCM close the trade and then reopen the trade at current market rates?

Thirdly, I forgot to ask what FX data feed provider(s) do you use and is there an associated cost?

Thanks again.

LBP

 

[Jason Rogers]

Hi Jason Rogers,

Thanks for the information. I just need a bit of clarification about a few things.

Firstly, I am a little confused about the nature of DMA spread betting. I understand that when you are trading with a market maker that you are trading directly with/against the broker, but, from what you have said, that with FXCM you trade directly against the market?! I have heard the phrase DMA with a spread betting wrapper bandied about in this forum. Is this what FXCM do, and what does this actually mean in practice? Could you give an example of the trade process from start to finish.

Secondly, with regard to rollover; are you saying that there is no additional charge and that you only pay the LIBOR overnight rate, and not a markup of N%, which brokers usually charge? Also, do trades rollover naturally on the FX side of things, or do FXCM close the trade and then reopen the trade at current market rates?

Thirdly, I forgot to ask what FX data feed provider(s) do you use and is there an associated cost?

Thanks again.

LBP

Hi LBP,

The phrase you heard is correct in how it applies to FXCM. The spread bet accounts are simply the regular standard accounts offered by FXCM with the spreadbet wrapper. The spreadbet designation gives the advantage to UK traders of having a special tax-free status.

What distinguishes NDD (or STP and DMA) from a market maker is how the trade is offset once it reaches the broker. A market maker aggregates client positions and then manages the risk as it sees fit. If the positions are not hedged with their bank relationships, it means the broker could profit from trader losses and vice versa. With NDD forex execution, each order is hedged individually with oneo f multiple liquidity providers. I'll give you an example from start to finish of how this works.

How are the forex quotes determined?

FXCM receives pricing and liquidity from 10+ liquidity providers. As the liquidity providers stream their pricing to FXCM, our best bid best offer execution engine sorts the prices and displays the best bid/ask on the trading platform with a pip mark-up. Here’s a short example of how it works using two banks and without fractional pips to make things simple.

Let’s suppose Bank A and Bank B are each quoting prices for GBP/USD. Here’s what each bank is quoting.

Bank A: 1.5625 x 1.5627
Bank B: 1.5624 x 1.5626

The best price being offered by the banks on the sell side (you sell and bank buys) is at 1.5625 by Bank A, and the best price being offered by the banks on the buy side (you buy and bank sells) is at 1.5626 by Bank B. Therefore the bid/ask is 1.5625/1.5626. There’s a 1 pip spread between the buy and sell price. FXCM then adds a fixed mark-up which is our compensation. Assuming there is a mark up of 1 pip added to the bid/ask, the final price displayed on the FX Trading Station would be 1.5624/1.5627. You then see a 3 pip spread.

This process is occurring very quickly and with 10+ separate feeds to sort through. The price competition among the liquidity providers means that you see the best bid/ask spread plus mark-up currently being offered.

How does NDD work once you place the trade?

Continuing with the previous GBP/USD example, let’s say you want to buy GBP/USD and decide to click on the price 1.5627. When you submit the order, the order is sent to FXCM for the price 1.5627 and FXCM routes the order to Bank A offering to sell at the price 1.5626. If the order is accepted, Bank A has a short position at the price 1.5626, you have a long position at the price 1.5627, and FXCM has gained 1 pip in revenue. Each order is offset individually in this fashion. The trades are not aggregated like you would have with a market maker so at no point is FXCM taking on the risk of trading against clients as a market maker or dealing desk would.

If the market continues to rise, your long position becomes more profitable and the banks short position turns into a loss, and vice versa. If you close the trade at a $200 profit, the liquidity provider is booked with a $200 loss. If you have a $200 loss, the bank has a $200 profit. NDD forex execution eliminates the risk of traders being profitable, and eliminates the conflict of interest whereby it’s in the best interest of a dealing desk for its clients to lose.

We have also put together a video that goes over this process in video format.

FXCM's No Dealing Desk Advantage for Forex Trading - YouTube

Secondly, rollover for forex transactions apply if you hold a position open at 22:00 GMT, and you can either earn or pay rollover depending on the currency pair held. Rollover is accounted for separately in the "Roll" column of the open positions window rather than closing and re-opening trades as some brokers may do. This makes it more transparent for you to keep track of what you are earning or paying for rollover. More details on forex rollover along with an example of where to find the rollover amounts in the dealing rates window can be found here http://www.dailyfx.com/forex/education/learn_forex/using_dailyfx/fundamentals/2010-01-19-2142-Understanding_Foreign_Exchange_Rollover.html .

Lastly, FXCM's FX data feed is comprised of the 10+ liquidity providers streaming prices to FXCM, and there is no cost associated with having the feed.

Whew, that was a long post Hope it helps.

Jason

 

[lilbitpipsy]

Hi Jason Rogers,

Thanks for explaining the process in plain english. I have one question regarding the hedging process in this explanation. Do FXCM hedge a trader's order by simply making an opposite order in the same market? Or do they hedge in a different market? And how does this not incur a loss for the broker if the trader makes a profit? I wouldn't be suprised if I'm missing something simple here!

Also, with regard to rollover, you haven't said anything about the actual cost of rolling over an FX trade. I read through the link and got to rollover page. In the attached jpeg from the FXCM website (Forex Rollover Explained), the already highlighted FX pair (USD/JPY) shows Roll S = -12.00 ¦ Roll B = 10.50 ¦ Pip Cost = 9.11. Could you explain why the figures in this example are the way they are?

Thanks.

LBP

 

[Jason Rogers]

Hi Jason Rogers,

Thanks for explaining the process in plain english. I have one question regarding the hedging process in this explanation. Do FXCM hedge a trader's order by simply making an opposite order in the same market? Or do they hedge in a different market? And how does this not incur a loss for the broker if the trader makes a profit? I wouldn't be suprised if I'm missing something simple here!

Also, with regard to rollover, you haven't said anything about the actual cost of rolling over an FX trade. I read through the link and got to rollover page. In the attached jpeg from the FXCM website (Forex Rollover Explained), the already highlighted FX pair (USD/JPY) shows Roll S = -12.00 ¦ Roll B = 10.50 ¦ Pip Cost = 9.11. Could you explain why the figures in this example are the way they are?

Thanks.

LBP

The hedge is made in the same product, otherwise the trade wouldn't be hedged . So from the example yesterday, when you buy GBP/USD, you have a long position in GBP/USD and one of the liquidity providers has a short position in GBP/USD. The entire transaction takes place in the same product.

If GBP/USD moves up in value by 10 pips, you have a 10 pip profit and the liquidity provider has a 10 pip loss. If GBP/USD goes down in value by 10 pips, you have a 10 pip loss and the liquidity provider has a 10 pip profit. FXCM remains neutral having received the pip mark-up.

Regarding rolls, as explained on the webpage you linked to but updated in this example to reference GBP/USD, when you buy the GBP/USD pair, you are buying the GBP and selling the USD to pay for it. If the UK interest rate is 0.50% and the US interest rate is 0.25%, you are buying the currency with the higher interest rate and will likely earn rollover. If you sell the currency with the higher interest rate, you will likely pay rollover.

Taking the difference between 0.25% in the US and 0.50% in the UK implies a yield of 0.25% you would earn or pay on an annualized basis, and multiplying that times 10k mini lot GBP/USD position and divided by 365 days comes up with about £0.07 per day for rollover (£10,000 X 0.25%). This gives you a rough idea of how rollovers are calculated for the purpose of this example, but overnight lending rates can vary from the official central bank rate. DailyFX provides both the bank rate and overnight lending rate on the homepage if you look at the bottom right hand corner of the website DailyFX - Forex News, Currency Trading, FX News, Forex Trading News. Second, there is a spread between what you can borrow at and what you can lend at just as the interest rate you can earn on deposit in your savings account will likely be lower than the rate at which the bank will lend to you at. This is why the amount of rollover you pay will likely be higher than the amount of rollover you can earn.

Since we're on the topic of rollover, I may as well go over another important topic about rollover (if I haven't bored you already ) . Most banks across the globe are closed on Saturdays and Sundays, so there is no rollover on these days, but most banks still apply interest for those two days. To account for this, you will typically see 3 times rollover on Wednesday's. Additionally, while rollover may not occur on the day of the holiday due to the banks being closed, it will be taken into account on a previous day. Today is a special day in which we have a total of 4x rollover due to Wednesday's 3x rollover plus an extra day of rollover due to a bank holiday on Monday in the US. DailyFX has a monthly rollover calendar detailing any rollover changes here http://www.dailyfx.com/calendar/rollover_calendar/

-Jason

 

[Ross Spur]

Lastly, NinjaTrader is on the way! There's no announced timeline on when the launch will occurr, but we anticipate beta testing to begin within the next month or so. If you would like to be a part of beta testing, please email [email protected] .

Let me know if you have any additional questions.

Jason

Do you have any details about how it will work with SB data? Presumably the platform won't show a DOM, or include the ability to enter trades with buy/sell at the bid/offer, for instance?

 

[Jason Rogers]

Do you have any details about how it will work with SB data? Presumably the platform won't show a DOM, or include the ability to enter trades with buy/sell at the bid/offer, for instance?

Hey Ross,

I've heard that we intend to release a NT for spreadbet accounts eventually, but no timeframe. The initial launch will only be for regular forex/cfd accounts. I'll check on your second question, and let you know when I find out.

On another topic, I believe traders were asking last year for a spreadbet version of MT4, and I said to use Strategy Trader instead. I can now say that an MT4 spreadbet setup is on the way .

Jason

 

[tar]

Hi Jason , does the Nfa/Cftc check the records for these hedging transactions ?

 

[Jason Rogers]

Hi Jason , does the Nfa/Cftc check the records for these hedging transactions ?

Hey Tar,

Been a while since I've heard from you. I thought you had disappeared from the forums

I can't speak for them, but I am almost certain they do check the records. Saying one thing through our advertising, website, etc and doing another would be a big no no. Every NFA/CFTC regulated broker is also required to disclose in the trading agreement how trades are offset.

-Jason

 

[tar]

Hey Tar,

Been a while since I've heard from you. I thought you had disappeared from the forums

disappeared from the forums yes , but still trading 12 hours a day

 

[lilbitpipsy]

Hi Jason Rogers,

Thanks for the thorough explaination(s).

The hedge is made in the same product, otherwise the trade wouldn't be hedged .
-Jason

To me this isn't really hedging in the typical sense. This is just a counter-party taking the other side of the trade as usual. When you said FXCM hedges every trade, I thought FXCM actively either took the other side of the trade, or hedged the trade (for FX) in the options market for example. I've heard you can hedge an FX trade in the CFD market, but I don't know much about CFD's.

The already highlighted FX pair (USD/JPY) shows Roll S = -12.00 ¦ Roll B = 10.50 ¦ Pip Cost = 9.11. Could you explain why the figures in this example are the way they are?
LBP

I now get what you're saying with regard to rollover, but I'm still wondering what the figures in the pic on the FXCM website mean. Why is there such a disparity between Roll S and Roll B and what is the "Pip Cost", and why is it 9.11.

Thanks.

LBP

 

[Jason Rogers]

Hi Jason Rogers,

Thanks for the thorough explaination(s).



To me this isn't really hedging in the typical sense. This is just a counter-party taking the other side of the trade as usual. When you said FXCM hedges every trade, I thought FXCM actively either took the other side of the trade, or hedged the trade (for FX) in the options market for example. I've heard you can hedge an FX trade in the CFD market, but I don't know much about CFD's.



I now get what you're saying with regard to rollover, but I'm still wondering what the figures in the pic on the FXCM website mean. Why is there such a disparity between Roll S and Roll B and what is the "Pip Cost", and why is it 9.11.

Thanks.

LBP

Hi LBP,

Anytime

The broker is the counterparty to your trade whether you use a market maker/NDD/STP/DMA broker. The forex market is an over the counter market based on credit lines with the banks and trust is very much an issue because of this. The bank will not deal directly with you the trader directly as the counterparty since you don't have credit lines with them. Therefore you go through a broker which does. As described in previous posts, what distinguishes the execution method of each broker is how they offset their risk. A market maker will internalize the risk and offset it as they see fit as. NDD hedges each position one for one with the liquidity providers.

You may be used to trading CFD's whereby the broker charges a set rollover of LIBOR +/- (x)%. Forex rollovers are based on overnight lending rates, and the previous post goes through an example. The picture from the webpage is a screenshot of rollover from whenever the screenshot was taken based on overnight lending rates at that time. As overnight lending rates change, so will the rollover amounts. But again, the previous post has a rough example of how to calculate rollover based on the current overnight lending rates listed on DailyFX. FXCM's Trading Station platform will list the rollover rate for each currency pair in the Simple View of the Dealing Rates window in the RollS and RollB columns. RollS displays the amount of rollover earned or paid when selling the minimum lot size for that currency pair. RollB displays the amount of rollover earned or paid when buying the minimum lot size for that currency pair. The rollover rates don't change too frequently, but when they do you will see it updated before the current days rollover at 22:00 GMT.

Jason

 

[Jason Rogers]

disappeared from the forums yes , but still trading 12 hours a day

Good to hear you're still trading, and welcome back!

 

[Jason Rogers]

Please note the holiday hours for the below symbols due to the US holiday on Monday:

Added: There are no changes to forex trading hours. Trading will close on Friday at 22:00GMT and open on Sunday at 22:15 GMT as regularly scheduled.

 

[lilbitpipsy]

RollS displays the amount of rollover earned or paid when selling the minimum lot size for that currency pair. RollB displays the amount of rollover earned or paid when buying the minimum lot size for that currency pair.
Jason

Hi Jason Rogers,

I've tried looking on the DailyFX.com website, but I can't find anything about the current overnight lending rates. Also, you didn't mention what the "Pip Cost" means with regard to rollover in the FX market on the jpeg. Is this the cost of the rollover you earn/pay translated into pips (for some reason)?

Thanks.

LBP

 

[Jason Rogers]

Hi Jason Rogers,

I've tried looking on the DailyFX.com website, but I can't find anything about the current overnight lending rates. Also, you didn't mention what the "Pip Cost" means with regard to rollover in the FX market on the jpeg. Is this the cost of the rollover you earn/pay translated into pips (for some reason)?

Thanks.

LBP

Thanks for the reminder! I got carried away answering the other questions that I forgot about pip cost.

Pip cost displays the value of a 1 pip movement when trading the minimum lot size in that particular currency pair. The pip cost is also displayed in the currency your account is denominated in. Here's a screenshot of the current pip values in a GBP denominated account:

GBP/USD currently has a pip value of £0.63 for every pip the market moves up or down when trading a 10k lot position.

I can also give you an example of how the pip value is calculated. When trading 10k GBP/USD you are trading 10,000 GBP in exchange for USD. At the current exchange rate of $1.5804, your £10k position is worth $15,804. If the exchange rate moves up by 1 pip from $1.5804 to $1.5805, your position is now worth $15,805 for a gain of $1. But your account is denominated in GBP, so the pip value is converted back into GBP. To get the value of your $1 pip movement you convert it back into GBP at the exchange rate of 1£/$1.5805 which turns out to be (drum-roll please) £0.63.

The takeaway from this is that your profit is always in the currency of the second currency of the currency pair and has to be exchanged back into your account denomination. For a currency pair like EUR/GBP, your profit is already in GBP and therefore the pip value will always be equal to £1. For all other currency pairs, the pip value can fluctuate since the exchange rate itself is fluctuating. At a GBP/USD rate of $1.40 the pip value would be equal to £0.71 (£1 / $1.40).

The example above shows you how the pip value is calculated, but the Trading Station platform does this calculation for you as the exchange rates move up and down.

Is this the cost of the rollover you earn/pay translated into pips (for some reason)?

No, the RollS and RollB columns display the actual amount you earn or pay for holding the minimum lot size open at 22:00 GMT, and the amount is denominated in your account denomination.

Jason

 

[Jason Rogers]

I've tried looking on the DailyFX.com website, but I can't find anything about the current overnight lending rates.

Take a look at the attached image for the location of the overnight lending rates. It's towards the bottom of the webpage on the right hand side of www.dailyfx.com.

 

[Truth Seeker]

I've closed my account with FXCM because their market fills have got worse and their spreads are not competitive enough for me to accept the fills. I have been a customer for over 4 years and traded regularly, but I can't accept slipped fills with wider than average spreads.

 

[lilbitpipsy]

Thanks for the reminder! I got carried away answering the other questions that I forgot about pip cost.

Pip cost displays the value of a 1 pip movement when trading the minimum lot size in that particular currency pair. The pip cost is also displayed in the currency your account is denominated in. Here's a screenshot of the current pip values in a GBP denominated account:

Jason

Hi Jason Rogers,

Thanks for the update. I guess it didn't make sense to see Pip Cost on the right of the rollover costs. It should, of course, be on the left of Roll S!

By the way, is it possible to move/drag the columns around on Trading Station in the Dealing Rates window (desktop AND web) to suit the individual trader.

Thanks.

LBP