TheCollectiveFX: The first zero spread padding, zero commission Forex trading brokerage?

I took the time this week to interview Gary Slingo, one of TheCollectiveFX founders, in order to understand what they are all about.

Based on their own statement: TheCollectiveFX is a Forex brokerage operated by traders for traders offering zero commissions and the tightest spreads you’ve seen. For real (screenshot attached, scroll down).

(The TheCollectiveFX people name themselves by numbers, after the Star Trek Borg Collective (there are seven of them) and Gary is fourth so in the transcript below he’s named 4of7…).

Michael: Hi Gary, thanks for finding the time for this interview. What I’d like to know is who the founders are, what your background is and how you came up with the idea.

4of7: We are all experienced forex/futures traders; I think I'm the novice, having been around for 7 years. We are 100% focused on our own system auto trading and thus we are very focused on technology solutions to facilitate that.

Clyde Wallace and I, Gary Slingo, are the techies of the group and drive everything in that respect. We've all bounced from broker to broker to broker over many years looking for that 'fair' and cost effective trading environment. Whilst we acknowledge that pure ECN's are great, the cost was just too prohibitive to trade with the frequency that we desired. So eventually we came up with the idea of leveraging our existing cumulative trade volume together with a view to getting higher up the food chain with regards to pricing. Even that though didn't provide too much extra benefit, we were still shackled to another broker, but with discounted pricing, the 'games' didn't disappear.

And so we decided to create our own 'private' brokerage and talk directly with 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. It was only when we were going through the details with the lawyers that they pointed out that we could 'recruit' others to join us and boost our volume further. It really wasn't a business that was conceived, it evolved.

Michael: So instead of working through brokers which mess up your algorithms, you just STP yourself to 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 as if you were brokers and that's it?

4of7: Bingo, no broker to play games with our trades.

Michael: This brings me to my next question: so if you are making enough through trading algos, why come out of the dark and why open your services to others? What’s your business interest/model here?

4of7: Volume: more volume = cheaper prices. The more volume we trade monthly the better rates we are able to achieve with the liquidity providers. It’s a standard wholesale/retail/consumer relationship that happens in every other business in every other market place. Here’s an example of how it works. We go to the biggest forex pools in the world, the one whose prices are the best. We then ask if we can buy from them. We tell them we have one yard of volume. They give us a price, i.e. best price + 0.5pips, we say thanks. Then the next month we go back and say what my price for 10 yards is, they say best price + 0.4pips and so on. The higher up the distribution model the cheaper the prices become.

Michael: I understand. You state that you are able to offer anything from 0-0.5 pips how does that work?

4of7: Those are typical EURUSD main session quotes. The current average is a fraction over 1pip all sessions. So whilst 0.5 is nice, 1 pip average is less nice. Consider that the interbank market may average 0.3/4 all sessions.

Michael: I see you haven’t been really publishing your services, why is that?

4of7: We don't market or advertise anywhere, maybe four or five forum announcements, that’s all.

Michael: And how many people/traders/volume were you able to attract since you opened your service to others?

4of7: Quite a lot, far more than we thought, but then we had no idea how many to expect as there wasn’t a business plan with forecasts to refer to.

Michael: BTW, do you offer solution for money managers?

4of7: We have a MAM platform available.

Michael: So if I wanted to start trading with you tomorrow, how would I do that?

4of7: Open an account, deposit some money (With us and we immediately forward it to our LP, we are not legally able to be counterparty EVER, so we can't hold the trading funds) and away you go.

Michael: What about regulation?

4of7: Obviously NFA or equivalent regulation is very important in this business when it comes to allaying fears and as a massive marketing tool.Yet on the basis that we don't really ‘need’ extra traders, as we don’t earn our living this way, then it certainly wasn't a major issue for us. Judging by other reactions we've had from new members then it would appear that regulation is important to those less experienced traders whilst the old hands recognize that regulation is really nothing significant.

What’s important is that the funds are with SEC, NFA and FSA registered LP’s and as we never hold funds we are never a counterparty therefore we don’t need membership to the NFA.

Michael: Where do you envision TheCollectiveFX in few months/years, and what is your goal?

4of7: The goal is more volume until we can go no further. As traders ourselves it serves our own purposes so it will always exist whether that is months or years. All the time it adds value to our trading then by default it must be adding value to our members' trading.

Michael: Gary thanks for your time and I wish you, and others luck. All the best of luck in this tough Forex world.

4of7: Thank you Michael, we certainly hope that this model will benefit all traders. Also, we wish you the best with your awesome blog which we can’t stop reading since it launched!