Breaking: FXCM Australia Introduces Raw Spread Forex Pricing Model

FXCM, one of the world’s largest retail brokers, has announced that its Australian branch, FXCM AU will be introducing a proprietary FX pricing model which will allow the broker's range of platforms to display raw spreads being received from Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term providers. The reduced spread structure is compensated by a separate commission charge paid on each trade. The move to a commission-based structure reflects an industry trend where clients prefer to see raw spreads and pay commissions separately.

FXCM claims that “trading costs could be reduced up to 50% when compared to previous typical spreads”. When looking at specific currency pairs, the new pricing model introduced by FXCM claims to reduce the visible spread by over 2 pips on all major pairs.

For AUD/USD, FXCM’s typical retail spread is currently 2.5 pips, but under the new pricing structure, that spread falls to 0.4 pips with the client being asked to pay $3 per 100,000 traded. Spreads on EUR/USD will now be reduced from 2.5 to 0.2 and USD/JPY falls from 2.3 to 0.3, although $4 commission fees apply for every $100,000 traded.

Of note is the fact that FXCM AU charges clients on a 'per side' basis. This means clients must pay $3, $4 or $6 (depending on the currency pair) per side, with clients consequently paying $6, $8 or $12 total commission per 100,000 or $60, $80 or $120 per million.

FXCM Managing Director, Jessica Beckstead said: “We’ve received overwhelmingly positive feedback on our new pricing model in regions we’ve already rolled this out” and explains FXCM’s move as a response to the positive feedback received in other territories. As recently as late September, Forex Magnates reported that FXCM had introduced raw spreads and would operate under an 'agency' model in the United States.

In a press-release, FXCM announced that “Starting today new clients signing up for a live or demo FXCM AU account will see raw spreads from one of our 14 Liquidity Providers Liquidity Providers A liquidity provider (LP) constitutes either individual and/or institution that functions as a market maker in a given asset class. Broadly speaking, liquidity providers will act as the both the buyer and seller of a particular asset, thus making a market. In the equities space, many stock exchanges rely on liquidity providers who make the commitment to provide liquidity in a given equity. These liquidity providers commit to providing liquidity in the hopes that they will be able to make a profi A liquidity provider (LP) constitutes either individual and/or institution that functions as a market maker in a given asset class. Broadly speaking, liquidity providers will act as the both the buyer and seller of a particular asset, thus making a market. In the equities space, many stock exchanges rely on liquidity providers who make the commitment to provide liquidity in a given equity. These liquidity providers commit to providing liquidity in the hopes that they will be able to make a profi Read this Term”. The broker added that “eligible live clients will be upgraded automatically after the close of trading on Friday, 24 October”.

In addition, FXCM UK has initiated a new retail FX pricing model as well. FXCM UK platforms will be yielding client-trading costs up to 50% relative to previously offered spreads for the top 14 currency pairs. The new pricing is also slated to become eligible on Friday, 24 October.

In Context

The new pricing model should be put in context when contrasted with FXCM's 'compensation' policy.

On its website FXCM states: "When executing customer trades, FXCM can be compensated in several ways, which include, but are not limited to: charging fixed lot-based commissions at the open and close of a trade, adding a markup to the spreads it receives from its liquidity providers for certain account types, and adding a markup to rollover. Under the Dealing Desk execution model, FXCM may act as a dealer and receive additional compensation from trading".

The statement effectively means that the raw spreads being provided by FXCM could be amended accordingly depending on the firm's commercial decisions, hence clients would be paying a mark-up (spread) and a commission to follow. The question of broker discretion dependant on market conditions still stands - so although FXCM are introducing a new pricing model, the same market intricacies apply.