Can DMA forex spreads hypothetically get close to Zero?

kwickwool

Well-known member
291 30
All

Am wondering about forex pair spreads and if theorectically they can get better and better as technology moves on etc to at some stage get closer to zero, genuinely?

I am taking obviously about genuine ECN broker spreads and not SB's etc. Assuming that you have your commission costs, am I right is saying that the spread between the 2 parties is a cost that everyone would be ultimately interested in reducing?

The broker gets their commission so they are happy, all the customers in the ECN liquidity market say for eurusd regardless of cutomer type, buy or seller etc the spread is something that everyone has to pay when they complete a buy-sell contract, therefore everyone wins when the spreads are tighter? The spread is always paid for by the buyer and seller, therefore every customer is happy to see this reduced? Who would not be happy to see a spread reduced on an ECN forex transaction?

Is it just a technology issue? just liquidity? Or are their fundamentals here that I do not understand, come from a scientific background not financial so if I am being pretty dull here my apologies............I may be missing something quite big here?
 

Shakone

Senior member
2,458 665
For EURUSD I have seen zero spread on LMAX for example. However, this is due to the fact that there are liquidity providers who are not being matched against eachother. If two clients had the same price levels, one buying one selling, there would be a transaction, but not for liquidity providers. So it does exist, temporarily. And much of the time it is 0.5 or less. Interactive Brokers is typically 0.5.

I'm not convinced everyone wants the spreads to be reduced. Market makers may not. They may want them to be larger, but since market making is a competitive business of its own, they can end up very tight.
 
C

cablemonster

0 0
If you have enough large then you can open an institutional account which can include a price aggregate platforms. You shouldn't view the spread as something everyone pays, everyone only pays it in dealer based markets. ECN is not a dealer based market so you can be a maker or taker. If you are a maker then you dont pay spread init.

the forex markets stay OTC as people have vested interests in them staying that way - wont say more than that.

now take a look at this screenshot of an institutional platform, you can access this if you have 100 large down. notice cable is 14.7 bid Citigroup and 14.6 offer Morgan Stanley, your eyes are not deceiving you! the bid is higher than the offer i.e. the spread is inverted. so if you hit market order both sides right now at this precise moment you will receive +0.1pips less commission.

but dont fink you can make money this way as you cant get off any size, look at the quantities available on the inside init. the lots shown are institutional lots = 1M = 10 x retail lot.

happy trading
 

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kwickwool

Well-known member
291 30
If you have enough large then you can open an institutional account which can include a price aggregate platforms. You shouldn't view the spread as something everyone pays, everyone only pays it in dealer based markets. ECN is not a dealer based market so you can be a maker or taker. If you are a maker then you dont pay spread init.

the forex markets stay OTC as people have vested interests in them staying that way - wont say more than that.

now take a look at this screenshot of an institutional platform, you can access this if you have 100 large down. notice cable is 14.7 bid Citigroup and 14.6 offer Morgan Stanley, your eyes are not deceiving you! the bid is higher than the offer i.e. the spread is inverted. so if you hit market order both sides right now at this precise moment you will receive +0.1pips less commission.

but dont fink you can make money this way as you cant get off any size, look at the quantities available on the inside init. the lots shown are institutional lots = 1M = 10 x retail lot.

happy trading

Mmmmmm.......now that is very insightful and interesting information and expected to get shot down with my question but like that answer.

Will have a dig around for institutional platforms and see what i can find, any other information you have on this as in the main players here would be very helpful. Would the commissions be very similar and competitive to retail as in $10 per 1M?

Am trading with IB and Duk at the moment, fairly happy with my total turnaround costs here, but not totally. See the turnaround not as a fix cost but something that i want to narrow down to the smallest possible figure, as we all do :)

thanks again, and g/l
 

kwickwool

Well-known member
291 30
For EURUSD I have seen zero spread on LMAX for example. However, this is due to the fact that there are liquidity providers who are not being matched against eachother. If two clients had the same price levels, one buying one selling, there would be a transaction, but not for liquidity providers. So it does exist, temporarily. And much of the time it is 0.5 or less. Interactive Brokers is typically 0.5.

I'm not convinced everyone wants the spreads to be reduced. Market makers may not. They may want them to be larger, but since market making is a competitive business of its own, they can end up very tight.

thanks for the info, with IB and Duk at the moment and think when you consider total turnaround costs very similar on eurusd and the best i can find?
 

random12345

Established member
793 280
thanks for the info, with IB and Duk at the moment and think when you consider total turnaround costs very similar on eurusd and the best i can find?

As far as retail clients go, IB charge the least I know of in terms of basis points on top of the 'market' spread esp with a notional over 2 million as most of us interested in DMA would want - I think it is FinFX who actually charge a flat fee per contract, but I remember it only works out profitable vs IB when you trade very large sizes indeed. Larger than I was trading at the time.

I use LMAX and IB - LMAX basically charge 2.5 basis points on all transactions, which is 0.5 more than IB's largest. I am hoping they will reduce this in their current drive to get bigger & more clients as I have enjoyed my experience with them more than any broker thus far. Though I wouldn't be surprised if they're somehow going through IB themselves and paying a fee for it... it feels so very similar and that would explain the commiss mark up and the fact they have no liquidity issues now. All theory. Probably nonsense. I'm usually wrong.
 
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Shakone

Senior member
2,458 665
As far as retail clients go, IB charge the least I know of in terms of basis points on top of the 'market' spread esp with a notional over 2 million as most of us interested in DMA would want - I think it is FinFX who actually charge a flat fee per contract, but I remember it only works out profitable vs IB when you trade very large sizes indeed. Larger than I was trading at the time.

I use LMAX and IB - LMAX basically charge 2.5 basis points on all transactions, which is 0.5 more than IB's largest. I am hoping they will reduce this in their current drive to get bigger & more clients as I have enjoyed my experience with them more than any broker thus far. Though I wouldn't be surprised if they're somehow going through IB themselves and paying a fee for it... it feels so very similar and that would explain the commiss mark up and the fact they have no liquidity issues now. All theory. Probably nonsense. I'm usually wrong.

Do $50-100million a month notional at LMAX, and you can negotiate it lower than $2.50 per 100k
 

random12345

Established member
793 280
Do $50-100million a month notional at LMAX, and you can negotiate it lower than $2.50 per 100k

Shakone - you're kidding!? Thank you very much for this. That's considerably less than I trade with them, will call them Monday a.m.

I owe you half a pint of the cheapest.
 

kwickwool

Well-known member
291 30
with Duk you can get it down to $10 per mill for just $50 mill a month volume, includes rebates which are definate through IA. With the eurusd IB and duk virtually identical in costs and you get the JFOREX platform along with it.

Its not good enough though, want to half the costs, looking at integral software now through a few brokers and direct, obviously need to have bigger volume and more institutional than retail but rewards are there.

Anyone further info on institutional trading compared to retail am interested.
 
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