IB new forex spreads
- Thread starter oktiri
- Start date
OK, here's the issue with the AUD markets. It is effectively traded only against the USD directly. This is true for several currencies, including CAD and HKD. Even though EUR and JPY are super-majors, they still aren't as good as USD in terms of interbank liquidity against AUD (CHF, for example, might be as good against EUR as USD).
So what happen is as follows:
USD/EUR is quoted 0.8-1.5bps (basis points) wide, USD/AUD is quoted 4 bps wide so you would expect a quote no wider than 4 bps. But in fact the dealers will hedge your AUD/EUR trade by doing USD/AUD and USD/EUR legs in the triangle, rather than trying to find an outlet in the direct AUD/EUR interbank market. So they'll give out quotes equal to the sum of the spreads rather than the max. Let's say we are talking 5.5 bps to be pessimistic. On a 1.6050 AUD/EUR that makes the quote 9 pips. A more reasonable quote should be 6-7 based on a MAX function. And to close this long-winded explanation, do the same calculation on a 4 pip USD/AUD and 2 pip USD/EUR and you are right at 12-13 pips in AUD/EUR. So in this cross, it is not surprising to see the spread having such large variations, especially when the number liquidity providers at a moment in time is low.
[I used fulll bid-asks in my examples. The more precise presentation would be in terms of half spreads, but the logic and math bring one ot the same conclusion either way]
The answer for improving the spreads, of course, is more providers who specialize in Pacific rim currencies.
Really good to hear that IB is improving the Forex-offerings, and features. (like the P&L problem and contacts-trading, both issues already solved when you use ButtonTrader as front-end, but still good when IB will solves it as well in the future).
Adding new Currencies and crosses is good, if, and only if, the spread is competitive. So I'm looking forward to the adding of new marketmakers.
Trading Forex is also about selecting the right (most effective and profitable) instrument. In this context the Globex-Futures are absolutely the best choice for the big-majors: EUR.USD, GBP.USD and JPY.USD (and even CAD.USD and AUD.USD). When you do the calcs then IDEALPRO is only competitive during out-side RTH (8:30-16:00 EST) in the big-Majors (or the other-crosses in all other time-frames). Daytrading and scalping is best done with the Futures, UNTIL the moment that IB changes the Leverage and adds enough marketmakers with half pip spreads.
Really: if you trade normal sizes of 125k till 2.5M (equal to 1 to 20 Futures) and you have a normal account-size, then you are a thief of your own money when you select IDEALPRO above the Globex-Future.
Because of the fact that Globex-Futures are better, it is ButtonTrader that has added a new innovation: Inverted trading of JPY-futures. So now it is possible to trade the JPY-Future in 118.99 quotes (instead of 0.0008404), which is a lot easier as it is the same as the Forex-pair USD.JPY. ButtonTrader has this also for CHF and CAD futures.
I'm a big fan of Forex trading, and will add many more features and innovations for it in ButtonTrader. And I'm a big fan of IB, and see it as a great advantage that I can trade the Futures side-by-side with IDEALPRO: watching both markets at the same time gives a real trading-edge, and selecting Cash for one trade and Futures for an other trade gives great freedom. Oanda, might sometimes show a better spread, but their market is not transparent and they don't give me the FX-Futures side-by-side.
Adding new Currencies and crosses is good, if, and only if, the spread is competitive. So I'm looking forward to the adding of new marketmakers.
Trading Forex is also about selecting the right (most effective and profitable) instrument. In this context the Globex-Futures are absolutely the best choice for the big-majors: EUR.USD, GBP.USD and JPY.USD (and even CAD.USD and AUD.USD). When you do the calcs then IDEALPRO is only competitive during out-side RTH (8:30-16:00 EST) in the big-Majors (or the other-crosses in all other time-frames). Daytrading and scalping is best done with the Futures, UNTIL the moment that IB changes the Leverage and adds enough marketmakers with half pip spreads.
Really: if you trade normal sizes of 125k till 2.5M (equal to 1 to 20 Futures) and you have a normal account-size, then you are a thief of your own money when you select IDEALPRO above the Globex-Future.
Because of the fact that Globex-Futures are better, it is ButtonTrader that has added a new innovation: Inverted trading of JPY-futures. So now it is possible to trade the JPY-Future in 118.99 quotes (instead of 0.0008404), which is a lot easier as it is the same as the Forex-pair USD.JPY. ButtonTrader has this also for CHF and CAD futures.
I'm a big fan of Forex trading, and will add many more features and innovations for it in ButtonTrader. And I'm a big fan of IB, and see it as a great advantage that I can trade the Futures side-by-side with IDEALPRO: watching both markets at the same time gives a real trading-edge, and selecting Cash for one trade and Futures for an other trade gives great freedom. Oanda, might sometimes show a better spread, but their market is not transparent and they don't give me the FX-Futures side-by-side.
From Hoi
Really: if you trade normal sizes of 125k till 2.5M (equal to 1 to 20 Futures) and you have a normal account-size, then you are a thief of your own money when you select IDEALPRO above the Globex-Future.
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Hoi, thanks for the insight. I am going to compare the futures for EUR.USD. What is the equivalent in futures?
I started the tour from Buttontrader , very interesting
Really: if you trade normal sizes of 125k till 2.5M (equal to 1 to 20 Futures) and you have a normal account-size, then you are a thief of your own money when you select IDEALPRO above the Globex-Future.
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Hoi, thanks for the insight. I am going to compare the futures for EUR.USD. What is the equivalent in futures?
I started the tour from Buttontrader , very interesting
Ticker on Globex is EUR (for the EUR.USD), it always has a 1 tick spread and a good liquidity and huge volume (about 120.000 contracts per day).
I'm right now, writing a document which has 2 chapters dedicated to the comparison between FX-Cash and FX-Futures trading. I hope to release this doc in 1 or 2 weeks from now.
Good post. If you are going to trade cash forex. Do so on an ECN and do make sure you are doing so with large enough position to make it worth your while. Like Hoi said ---anything under 20 contracts does not really make sense. However, I would add --the Forex ECN's make trading crossrates alot easier than spreading the futures. It is also a WHOLE lot easier to get size done on the Cash ECN's. On the Hotspot institutional platform running TT---I was staring at 100million plus on the Euro/USD all day long and only one tick wide. CME does not have that kind of liquidity and will not in the Near future.
The leverage of Ideal Pro is 3% for all yen pairs and 2% for all others. The 3% for yen pairs is high (for small to intermediate positions) and should be brought down. For all others, I don't see how having more leverage helps you do anything other than take larger risks. I guess if you are daytrading the Eur/Usd on CME it is better to be at 1% intraday. Maybe that is something Ideal Pro can do on Positions during daylight American Hours ---reduce the forex margining to 1% to accomodate daytraders. (fwiw --you can get Eur Cme futures margin under 800 dollars intraday).
We have thought about an "intraday margin" for FX positions but the problem is we treat an FX position just like any other asset denominated in a given currency. To the risk system, EUR cash and EUR denominated stock have the same currency risk. We don't distinguish between EUR generated as a result of an FX trade versus EUR resulting from a stock trade or pnl versus EUR just deposited directly. If one is measuring one's wealth in USD, they are all the same in terms of risk but they generate different responses (in terms of liquidation) if the account goes under margin.
I agree the JPY margin looks high. For some reason even the CME margins this currency more expensively than other majors.