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FXTrade spreads
The graphs below display the minimum and maximum of the spread (i.e., difference
between bid and ask price) for each 15 minute interval over the course of the previous 7 days and for every
currency pair traded on FXTrade (with each day shown as midnight to midnight Eastern Standard Time.)
OANDA's strategic objective is to offer consistently narrow spreads
to its clients. OANDA considers the spread to be one of the
most important parameters of an FX trading system, and as a result,
OANDA FXTrade is one of the few platforms that shows the spreads explicitly in many of its charts,
updated in real time. State
of the art technology is used to minimize the spreads overall,
and to minimize any increases of spread during periods of market
turbulence and over holidays. The minimum and maximum spreads that existed
on FXTrade over the last 7 days are published here to enhance transparency.
OANDA is counter-party to trades executed over FXTrade. Trades
are matched, and any net exposure above predefined thresholds is
hedged with partner banks at the current market spread.
Global market liquidity and volatility can result in large spread increases on the foreign exchange
markets following news announcements, during political uncertainty, or at the close of business day.
In market conditions such as these, OANDA is forced to
pass on some of the spread increases to its clients.
For the FXTrade client, spreads are important because they
significantly affect the overall profitability of a particular
trading strategy. A professional trader who opens and closes a
position once per day, pays approximately 5 percent in spread costs
per unit of market exposure during the course of a year. For example, with an
average leverage of two for his trading strategy (e.g., 1
Mio USD in capital with an average position size of 2 Mio USD),
the trader pays 10 percent in spread costs on his equity base.
With an annual return objective of 15 percent on his equity, the
spread costs amount to 66 percent of his return. If the trader
has to pay an average of 3 basis points as opposed to 2 basis points,
the same trading strategy will only yield 10 percent as opposed
to the targeted 15 percent return. For a trader executing 5 trades
per day, the annual spread cost per unit of exposure is 25 percent.
With an average leverage of two and a return target of 25 percent,
his spread costs are 200 percent of his return. If the trader has
to pay 3 basis points spread as opposed to 2, the same trading
strategy that was highly profitable at 2 basis points will not
generate a profit at all.
To increase the profitability of the trading strategies of its
clients, OANDA strives to offer the lowest spreads in the industry
without compromising its high standards of risk management.
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