FXCM claims better spot FX execution than major futures venues and interbank market

FXCM Inc (NYSE:FXCM) has today provided FinanceFeeds with detailed information regarding the quality of execution for the company’s retail client’s orders after an execution study done by FXCM.

According to an FXCM, the study finds that FXCM retail client order execution is better than if the same orders were executed on the futures Market or the interbank market. The results show FXCM’s execution of orders provide customers significant advantages for FX.

Study Conclusions

FXCM concludes that it was equal to or better than the quoted futures price 90.83% of the time compared to the spot equivalent quoted futures prices on the CME leading to potential savings of $36,350,525 for FXCM clients.

* Better than the futures price: 86.47%
* Equal to the futures price: 4.36%
* Worse than the futures price: 9.17%

FXCM stated that it was equal to or better than the quoted interbank market price 95.31% of the time compared to the spot equivalent quoted interbank market price leading to potential savings of $55,121,988 for FXCM clients.

* Better than the interbank price: 92.19%
* Equal to the interbank price: 3.12%
* Worse than the interbank price: 4.69%

“We wanted to explain why FXCM’s liquidity providers provide better pricing on our retail trading platform for Retail Clients,” said Drew Niv FXCM’s CEO in a corporate statement.

“Our liquidity providers are only allowed to be price makers for our retail clients and not price takers,” Niv added. “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” – Drew Niv, CEO, FXCM.

What the FXCM execution study aims to highlight

The results of the study reveal that for Retail Clients, that if they chose to be market takers in the same venues where banks and HFTs are market takers, they will likely have experienced execution at higher prices. Retail Clients trading with venues like FXCM, where the retail clients are market takers and liquidity providers are only market makers will likely experience execution at lower prices.. For the full year 2015 during peak trading hours for FXCM and its affiliates4 and in the most traded pair at FXCM, EUR/USD, spreads were .1 pip or less 8.32% of the time with an overall average of 0.3 pips.

Each venue type plays a pivotal role in the FX market

The FXCM execution study objectively addresses the pivotal roles market participants play, including HFTs, Banks, and ECNs. FXCM strongly believes that these institutions provide invaluable service with respect to their role within the marketplace. High frequency market making is an essential ingredient of modern markets and is fundamentally just an evolution of an age old activity.

FXCM considers that banks are excellent market makers to the FXCM retail clients and are incentivized to provide larger trade sizes for our bigger customers.

Likewise, the ECNs compared in the study, CME, EBS and Reuters are the leading FX market trading venues for a reason; these ECNs play a big role servicing the largest FX trading houses around the world, providing that service that isn’t available at any other venue or for comparable pricing. If the banks and HFTs couldn’t be market takers on those venues they couldn’t fulfill their role properly as market makers for clients like FXCM. FXCM is not pretending in any way shape or form that it can use its platform to service HFTs and Banks as market takers.

More About the Study: This study covers the period from October 1, 2014 to August 31, 2015 and is based on the trade data of Forex Capital Markets, LLC clients on NDD. Assumptions made during the course of this study were designed to favor the futures market or interbank market in their comparison to FXCM order execution. A more in-depth description of the methodology and assumptions made is included at the end of the study presentation found here.

Futures Market Comparison

FXCM states that it was equal to or better than the futures price 90.83% of the time.

* Estimated savings to FXCM LLC clients: $36,350,525
* Average savings per order: $2.04
* Number of orders included in the study: 17,855,552

* Round turn trading costs including the spread, commission, and any additional exchange and regulatory fees are up to 58% lower at FXCM compared to popular futures brokers.

* FXCM LLC represents less than 25% of company’s entire retail client base. Extrapolated out to the global audience, the potential savings would be greater than $145M.

* The futures market data includes only the following currency pairs/contracts: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/CAD, USD/CHF, and USD/JPY

* The conversion of the futures price to a Spot price was based on Basis received from a 3rd party major international bank

These are the equivalent amounts of each Spot standard size contract on the CME:

* 125,000 EURUSD
* 125,000 USDJPY
* 125,000 USDCHF
* 62,500 GBPUSD
* 100,000 AUDUSD
* 100,000 NZDUSD
* 100,000 USDCAD

– The average minimum quote size for an FXCM Liquidity Provider is 1,000,000 units of the base currency. Accordingly, when the best quote on the CME was less than 1,000,000 units of the base currency, the next best quote was used as the basis for each order comparison.

Interbank Market Comparison: FXCM equal to or better than the interbank price 95.31% of the time.

* Estimated savings to FXCM LLC clients: $55,121,988
* Average savings per order: $1.94
* Number of orders included in the study: 28,378,957

* Extrapolated out to the global audience, the potential savings would be greater than $220M.

* The interbank market data was based on the following “direct” currency pairs: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/CAD, USD/CHF,    and USD/JPY
* Market data for currency crosses were derived from the direct currency pairs.
* In some cases, the interbank market data was not captured due to technical reasons. For those cases, the corresponding FXCM Retail Client orders were excluded from this study.

Methodology Used: Major assumptions

The comparison to each of the futures and interbank data is made at the time that the FXCM Retail Client order is executed. Normal market slippage and slippage due to rejections by liquidity providers are already included by the time the FXCM Retail Client order is executed. However, there is an assumption that there is no slippage on the futures or interbank market data.

In order to maintain consistency, futures market data and interbank data used the same acceptable ranges in market trades. 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.

Fees that a participant would pay on the futures or interbank market, such as CME Exchange Fees, NFA Fees, FCM Fees, Clearing Fees, and other commissions, were excluded from the study. Similarly, FXCM Commissions are excluded from the study.

For a full presentation of the study and an in-depth FAQ click here.

Photograph: FXCM headquarters in Downtown Manhattan, New York. Copyright Andrew Saks-McLeod