How OANDA Innovation is redefining the Forex Market

Introduction

OANDA has a long history of innovation. As the Web became widespread back in 1995, we were the first to make comprehensive currency exchange information available over the Internet. Since then, “OANDA Rate®” has become the touchstone for corporations, tax authorities, auditing firms and even central banks. Today more than 35,000 organizations worldwide —including many Fortune 500 companies—rely on us, making OANDA Rates available internally and on their Web sites through our ASP services. And oanda.com continues to be ranked number one for currency exchange information.

In Q1, 2001, OANDA launched its leading-edge FXTrade^TM platform, allowing clients to participate directly in the forex market—the largest, most dynamic market in the world. From day one, FXTrade set a new standard for service and efficiency. By opening the forex market to a new world of traders through innovative, more efficient features. By offering tangible advantages to all traders — speculators, professionals, hedge funds or corporations. By redefining the market and changing the way forex trading is done.

Look to OANDA for more innovations in the months and years ahead. To make forex trading easier, more understandable, fairer and more rewarding. When it comes to new ideas that create tangible value for traders, we're just getting started.

First graphical-based forex trading

OANDA’s FXTrade was the first platform to show price movement in graphical form, dynamically updated in real time as new prices become available. It was also the first to make the spreads clearly visible, right on the graph.

While the interface is easy to use—even for novices, it is powerful, rich in features, and suitable for professionals. The graphs support numerous options:

The user interface is based on Java, the run-time environment to which the European financial services industry is moving as a standard. Java offers distinct advantages for this application:

• No software to install: The browser downloads the software automatically and transparently. No DLL mess or incompatibilities to worry about.
• Run on any computer: Windows, MacOS, Linux, or any computer with an Internet connected browser.
• Run anywhere: in any Internet-connected browser: at home, at work, in an Internet café, at an airport; no need to bring along any software—everything you need is on the FXTrade platform.
• Always latest code base: The browser always downloads the latest version of the software. No messy uninstalls and reinstalls.
• Secure: benefit from Java’s inherent security. The Java code cannot access any files on your computer and does not store anything on your computer.
  Communication is encrypted so no one can listen in.

First true 24/7 trading

OANDA’s FXTrade is still the only platform that allows true 24/7 trading, including weekends. Why is this important? It enables you to react to breaking news, which can occur anytime. Who was able to trade when Saddam was captured? Only OANDA clients. Others had to wait until the Asian markets had opened the following Monday morning—with rates vastly different from Friday’s close.

A surprisingly large number of OANDA clients make use of weekend trading. This seems to be a natural time to review current positions and adjust the portfolio. And more than a convenience, it’s what today’s traders expect. The world doesn’t sleep, so why should forex trading?

First fully automated end-to-end trading

We automate the trading process through our proprietary platform, with unique market-making and risk-management technologies. Efficiency is what drives us.

All trades are executed instantaneously with no human intervention. Stop-loss, take-profit, and general limit orders are executed automatically with no human intervention. Client account margins are checked automatically every second and, if necessary, a margin call is automatically initiated to protect client funds. Again, no human intervention.

We manage risk with the same approach. As a matter of principle and practice, OANDA avoids currency exposure and risk. We automatically hedge aggregate client positions with partner banks, second by second. FXTrade servers automatically communicate with multiple banks to obtain the best available price and then hedge extremely quickly.

The advantages for our clients of a fully automated trading system?

• Efficient execution
• Instant confirmation
• Instant settlement
• Lower overhead
• Tighter spreads
• No discrimination: same spreads and same prices for all clients

First and only platform to allow trades of any size

OANDA FXTrade allows you to trade the specific amount you want without having to round to a “lot.” You can trade $1, $250, $87,342, $1million, $10 million or anything in between. Risk as little as you like or trade precisely the amount you require. Consider the greater utility such flexibility provides:

• Overlays: A German client uses FXTrade to hedge the exchange-rate exposure of buying U.S. equity. Say she buys 100 shares of IBM @ $84.26 (USD) each; over the possible fluctuation in the price of the stock she has no control, but she can precisely limit her exposure to the fluctuation of exchange rates: when she buys 100 IBM shares for $8,426.00, she also buys 7,022 EUR/USD (at the current rate $8,426 = €7,022). Regardless of changes in the exchange rate, her ultimate profit or loss will depend only on IBM's share price (in USD).
  
  
• Incremental position adjustments: Client Z has open positions with large, unrealized net losses. Even though she is close to a margin call, because she believes her positions will turn around and appreciate considerably, she would prefer neither to deposit additional funds nor to close out her positions. With FXTrade she need close only 5% or 10% of her position to avoid the margin call. Other clients might use this flexibility to realize a portion of their unrealized profits or apply a dollar-cost-averaging strategy.
  
  
• Hedging: Consider a Silicon Valley software vendor that just signed a €135,000 contract with a European customer, with payment due in six months. How to mitigate the exchange-rate risk during this period? They hedge that exposure by going short 135,000 EUR/USD, closing the position when they get paid. Regardless of the prevailing exchange rate in six months, the vendor knows exactly how much they’ll be paid in U.S. dollars. No need to round this down to a lot of 100,000 units, where only a portion of the amount is hedged.
  Taking this one step further, imagine a company that accepts credit card payments over the Web in different countries and different currencies. With OANDA’s API and flexibility of trade size, the company can hedge its exposure on a second-by-second basis in a fully automated way.
  
  
• Testing: New trading strategies can be tested without risking large amounts.

The bottom line? Exactly: trading in “lots” can be just plain wasteful. At OANDA it’s never an issue.

First and only platform with no restrictions on account size

OANDA is known for its lack of sales pressure. You can use FXGame^TM — the demo platform—free of charge for as long as you like. And if you open a demo account, we will never call or jam your email box with repetitive solicitations. No pressure to open a real account and no pressure to deposit funds. We want clients to go at their own pace and feel comfortable with the platform before they trade with “real money.”

Whenever you’re ready, start as small as you like. At OANDA there is no minimum deposit, and you can start trading with as little as $1.

Students can, say, deposit $100 and trade the market under the exact same conditions as professionals. The beauty of having an automated system is that all clients, large and small, get the same service, the same features, the same tight spreads and the same prices.

First to offer immediate execution of trades with no requotes

OANDA FXTrade was the first Internet platform to offer immediate execution with no requotes. This is the forex market in its purest form. Your trades are visible in a blotter that is updated in real time, and the platform conveniently displays your entry and exit points right on the graphs. In real time.

First and only platform to calculate continuous interest, eliminating rollover swaps

OANDA makes continuous interest payments second by second. This is in contrast to other firms and other financial markets, where interest rate payments are calculated only once a day for that entire business day’s activity. What if your electric utility company based their monthly charge on the power you happened to be using at 7 PM on one day? Why do you think phone companies have largely switched to second-by-second billing? We have to ask: how do other financial firms get away with it?

OANDA also doesn’t conform to the complex and outdated rules requiring you to swap positions overnight. Instead, OANDA pays interest on long positions and charges interest on short positions, all calculated second-by-second while the positions are open. At OANDA, clients keep their positions open for as long as they want without having to do daily swaps.

Professional traders can exploit this flexibility by arbitraging the continuous and discrete interest-calculation scenarios through two trading lines—one with an established player, such as Citibank or UBS, and the other with OANDA. Whenever they sell a high-interest-rate currency (such as South African Rand) they can do so with the traditional player, where they will pay no intra-day interest for shorting that currency. On the other hand, they can always buy a high-interest-rate currency through OANDA, where they earn the “carry” (interest-rate differential) for the position, however briefly they may hold it.

First to offer fractional pricing or “pipettes“

OANDA FXTrade has been a clear leader in narrowing spreads. Spreads on major currency pairs, such as EUR/USD, went from 5 pips initially to 3 pips, then to 2, and now to 1.5. We introduced the fractional pip (or pipette, equal to 0.1 pip) for one simple reason: to obtain greater flexibility in pricing and to further reduce spreads.

To increase the profitability of our clients’ trading strategies, OANDA strives to offer the narrowest spreads in the industry without compromising our high standards of risk management. We use state-of-the-art technology and automation to narrow spreads overall and to minimize spread increases during periods of market turbulence and when markets are illiquid. Why this focus on spreads? Because it makes a huge difference to traders. Consider:

A professional trader uses an average leverage of two (e.g. US$1 million in capital and an average position of US$2 million), and has a return target of 25%. If he opens and closes five positions per day on average, then with a

• 2-pip spread: trader’s spread costs are 200% of return
• 3-pip spread: trader’s spread costs are 300% of return

The difference in spread costs can make the difference between being profitable and unprofitable:

		@ 2 basis points = profitable
Same trading strategy
		@ 3 basis points = no profit

Also see: Spread Cost Calculator

First to take transparency seriously

OANDA takes transparency to a new level: in the way we do business, and through the more efficient and equitable window into forex trading we offer our clients.

We are the only market maker to publish graphical spread statistics, open order summary statistics and client entry price statistics: critical market intelligence, aggregated from a large sample of active traders.

Only OANDA has an open forum where traders can publish their insights, questions, comments and complaints for the world to see. We are the only FCM that allows clients and non-clients to post messages without fear of having them deleted. You can read all of them on the OANDA forums (no need to register or open an account).

We'd be the first to admit that the postings aren't always flattering, but what do our competitors have to fear from open and frank discussion?