FXOpen’s Natalia Zakharova talks zero commission trading in FX/CFD industry
“I believe that this Zero Commission trend is a marketing tool used to attract more customers. Moreover, it’s not in line with the recent regulators’ efforts to make sure that the clients understand financial markets and the risks involved.”
FX and CFD brokers have been following the commission-free trading trend initiated by the US stockbrokers and introducing zero commissions in share CFDs as well.
Has trading really gone free or brokers are compensating for that loss by adding a mark-up to the spreads, rollover, and so forth?
We spoke to Natalia Zakharova, Head of Business Development of FXOpen, the leading retail and institutional FX broker, to ascertain her view on the matter, what it means for traders and for brokers.
Zero commission as a marketing tool
Ms. Zakharova started out by saying “should every broker start offering commission-free trading, it is going to make it harder to compete by charging commissions”.
“Yes, the commissions can be included in the spread. However, from the trading perspective, it would still be preferable to trade with tighter spreads and separate commissions”.
The broker still has to earn something, since running a brokerage is not cheap as maintaining licenses, client support, software, etc, doesn’t come for free.
“I believe that this Zero Commission trend is a marketing tool used to attract more customers. Moreover, it’s not in line with the recent regulators’ efforts to make sure that the clients understand financial markets and the risks involved. Every forex trader must be aware that a broker acts as an intermediary between the clients and the counterparty against whom the trade is being matched”, the FXOpen executive continued.
The only commission that an A-book broker can earn is the commission he charges:
- the difference between the commission of the LP and the end commission the client pays;
- the commission the clients pays (in case the position is matched against another position of another client);
- the spread mark-up.
So, ultimately, the broker’s commission is there somewhere.
Natalia Zakharova added that there may be cases, albeit less likely, when the broker decides to offer commission-free trading at their own expense, with the intention to compensate for it by raising the commissions later.
“I’m all for a transparent relationship between the customer and the broker. It entails both understanding of how the brokerage operates on the customer’s side, and honest communication on the broker’s side”.
Several brokers have joined the commission free trading trend, including FXCM, which disclosed the firm can be compensated in several ways, which include but are not limited to adding a mark-up to the spreads it receives from its liquidity providers, adding a mark-up to rollover, etc.