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New Account
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Forex Traders Bill of Rights
Spreads
OANDA Innovations
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7. The right to understand costFeeding time at the spread troughYou know what you're making, but how much do you get to keep?Spreads matter: see the Profitability Calculator at the end of this chapter for the difference one pip can make.Opaque spreads and hidden processes make it hard to know what kind of deal you're really getting. You know your absolute cost, but how many intermediaries took a piece of that? And what—if anything—did they do to contribute to best execution? Pricing in the forex market is highly subjective. Even when your market maker guarantees the spread, if it's inflated you should know why. Because intermediaries build into the trading process a secret franchise of participants. Maybe they're part of your market maker's organization, maybe they're not. But each is guaranteed a piece of the action on every trade. Who are they? And what, exactly, do they do? You have the right to know.
Such bureaucratic layering can only add to your total cost, with not much to show for it. Meanwhile, the market keeps moving, and there goes your ability to seize momentary opportunity. In forex trading today, none of this constitutes criminal behavior. For traders it's just bad business; for the market maker & associates it's the proven path to riches. Worst of all, traders' acceptance of bad practices just perpetuates them. Inside a regulated, national economy, enforcement agencies might be expected to step in and ensure or, at least, encourage fair practices. But the global forex market is not regulated. Change is way overdue. And for this market the only agent of change will be the individual trader. So, what can you do? The right to understand costKnow what you're getting for the excess spread you're paying. If intermediaries are adding value, how can you quantify that? And have you taken the trouble to do so? Know what you're giving away. Use the Spread Cost calculator to figure your profitability at your current spread; then see how much difference a one-pip reduction could make. Use your new-found perspective to reexamine your trading relationship. Challenge your market maker. Listen carefully to the answers you get. Be prepared to make a change—or settle for the tradeoff between what you're paying and what you're not getting for that excess cost. Back: The right to choose and manage risk Return to: Table of Contents |
