Can an FX provider offer its clients better execution than the futures market or the interbank market? According to a report just released by Forex Capital Markets, LLC, orders executed by FXCM Retail Client Services had prices that were equal or better than those of futures or interbank markets in majority of categories.
The study's conclusions include the following:
FXCM was equal to or better than the quoted futures price 90.83% of the time (Better: 86.47%) compared to the spot equivalent quoted futures prices on the CME --leading to potential savings of $36,350,525 for FXCM clients.
FXCM was equal to or better than the quoted interbank market price 95.31% of the time (Better: 92.19%) compared to the spot equivalent quoted interbank market price leading to potential savings of $55,121,988 for FXCM clients.
In explaining the reasons for the superior performance, Drew Niv, FXCM's CEO, said the following: "?Our liquidity providers are only allowed to be price makers for our retail clients and not price takers. Only our Retail Clients can take a price which protects the market maker from potentially being picked off by larger or faster predatory market takers, making them more comfortable and giving them the ability to make a market based on quality of price and liquidity rather than speed."
The study covers the period from October 1, 2014 to August 31, 2015 and is based on the trade data provided by Forex Capital Markets, LLC clients on NDD. The study reveals that retail clients who choose to trade in the same venues where banks and HFTs are market takers will experience execution at higher prices in a majority of their trades.
Retail clients that trade with venues like FXCM where they are market takers and the liquidity providers are the market makers can experience execution at lower prices. The study covered the full year of 2015 during peak trading hours for FXCM and its affiliates and covered the most traded pair at FXCM--EUR/USD. The results indicated that spreads were .1 pip or less 8.32% of the time with an overall average of .3 pips.
The execution study does not infer in any way that the FXCM platform can be used to service HFTs and banks as market takers. It goes out of its way to point out that HFTs, Banks, and ECNs provide an invaluable service with respect to their role within the marketplace and that they are excellent market makers to FXCM retail clients. FXCM also acknowledges that the ECNs compared in the study--CME, EBS and Reuters--are the leading FX market trading venues because they play a big role in servicing the largest FX trading houses around the world, a service that isn't available at any other venue or for comparable pricing.
Certain assumptions were made when analyzing the methodology used in the study:
Futures market data and interbank data used the same acceptable ranges in market trades in order to maintain consistency. The summary of findings is based on the assumption that the maximum acceptable difference between the FXCM price and the interbank/futures market price is 5 pips in either direction.
The comparison to each of the futures and interbank data was made at the time that the FXCM retail client order was executed. The assumption was that there was no slippage on the futures or interbank market data.
Fees that a participant would pay on the futures or interbank market, such as clearing fees, CME exchange fees, FCM fees, NFA fees and other commissions were excluded from the study as were all FXCM commissions. FXCM Inc. (NYSE:FXCM) is a leading provider of online foreign exchange trading, CFD trading, spread betting and related services. They provide global traders with access to the world's largest and most liquid markets while meeting strict financial standards and offering innovative trading tools and other features.