Retail Forex: A dirty little secret?

K

KaliKali

I'm a Forex-only trader with no experience trading anything else. I've traded with FXCM briefly and primarily with Oanda. Since there is a lot of info on this board about IB, being highly recommended and having significant improvements recently, I am researching them.

Since I trade frequently, the recommendation to use ButtonTrader sounds like a great idea. I went to their website and went through part of their tutorial. Looks like it would be very helpful. One part of the tutorial mentioned something that stopped me in my tracks:

"At ButtonTrader, trades are executed according to the buy on the bid/sell on the ask principle, which IB does as well."

Well, my trades aren't executed that way at Oanda. I get the bid price when I sell and then my spread of 1.5 for eur/usd is added to that.

I've been checking IB's demo and executing some demo trades at market to see what price my entry is at. It is appearing consistently that when I enter sell at market of say 1.2065/66, my entry price is 1.2065. So my big question is this: Is that my true entry? Or is there an add'l spread of 1-2 pips tacked on that is not showing anywhere in the execution window? I realize there is a commission, but that is not really what I'm confused about. I want to know if there is an actual difference in how IB and other similar brokers execute trades on the bid/ask then retail forex brokers do. If so, my admittedly limited mathmatical reasoning skills are causing me to wonder if these brokers are effectively profiting from the spread TWICE.

I'm also curious how it works with other instruments besides forex, even currency futures.

If I'm totally off base here and doing the math all wrong, please set me straight.


KaliKali
 
Quote from KaliKali:


I've been checking IB's demo and executing some demo trades at market to see what price my entry is at. It is appearing consistently that when I enter sell at market of say 1.2065/66, my entry price is 1.2065. So my big question is this: Is that my true entry?
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Yes. What you see is what you get.
 
Oanada has a spread of 1.5 points, so lets say they
are showing 60/615, if you sell do you not get 60 and
if you buy do you not get 615. I have never used
their system and I am confused about this adding of
points that you mentioned.


Quote from dcraig:

Yes. What you see is what you get.
More...
 
Right GWAC,

So if bid ask is 68/69.5 and I place a sell order, my entry is 68. When I do this, I also am -1.5 pips, meaning in addition to getting the bid price when I sold, I must wait for the market to move 1.5 pips before breaking even. This is how it appears to work to me.

So if on IB, bid ask is 68/69, and I place a sell order, my entry is 68. From that point on, I break even. I paid the spread at time of entry, meaning I essentially sold at 69 but paid a pip and got 68. That's it, nothing but commission after that point. And since on Oanda, I get .5 pips worse entry than at IB, PLUS have to wait 1.5 pips movement to breakeven, that commission doesn't look as expensive.

Is this really true?

Kali


"Pay no attention to that man behind the curtain."
 
U have to wait 1 point for B/E on IB and 1.5 point B/E on Oanda
so you are .5 points better at IB less commission. Assuming
spreads on both remain the same.




Quote from KaliKali:

Right GWAC,

So if bid ask is 68/69.5 and I place a sell order, my entry is 68. When I do this, I also am -1.5 pips, meaning in addition to getting the bid price when I sold, I must wait for the market to move 1.5 pips before breaking even. This is how it appears to work to me.

So if on IB, bid ask is 68/69, and I place a sell order, my entry is 68. From that point on, I break even. I paid the spread at time of entry, meaning I essentially sold at 69 but paid a pip and got 68. That's it, nothing but commission after that point. And since on Oanda, I get .5 pips worse entry than at IB, PLUS have to wait 1.5 pips movement to breakeven, that commission doesn't look as expensive.

Is this really true?

Kali


"Pay no attention to that man behind the curtain."
More...
 
That was the gist of my initial question. The first respondent said, what you see is what you get, which I assumed was that if my entry says 68 in the execution window, that's my entry plain and simple, no waiting from that point? I start at 0. Are you saying you start at -1?
 
Kali, The above is true if you are hitting the market. However, one advantage with IB is it's fully transparent and all customers and market-makers compete on a price-time priority.

So using your quotes above, if you send a limit order to buy at 68:
If you are using a single dealer model with 1.5 pip spreads, as above, then you will not get filled until the market is 66.5 / 68.

If you are using IB style model, and you bid 68 you would join the queue of bidders at 68. It's then possible that other traders could trade against your bid and thus, you could be filled, with the displayed quote remaining at 68 / 69
 
Quote from KaliKali:

I'm also curious how it works with other instruments besides forex, even currency futures.
More...

Yep it is the way Steve_IB explained very well.

And to answer your question about other instruments: All normal markets work that way (Futures, IB-Forex, Stocks, Options, warrants, Bonds)...When you want to Buy, you can JOIN the Bid in the row (the book) and wait your turn, or you can enter a limit price just above the Bid, in which case your order becomes the best Bid (and you are first in line), and if the Ask moves your way you will get the execution.

You are correct the EUR.USD only has 1 pip spread with IB. When you add the commission for a 100k forex-trade, you will even get a better result than the 1.5 pips of OANDA. (but for me the properties of an ECN-market for Forex is more important than the spread).
 
Hi Hoi,

Thanks for confirming that. Thanks Steve IB as well. Very helpful.

Again coming from the perspective of having only traded retail fx, would you mind elaborating on how the ECN model benefits me as a trader?

Much appreciated.

Kali


"Pay no attention to the man behind the curtain."
 
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