FXCM Study Shows its Execution Quality Saved Retail Clients $150 million

FXCM claims that its retail clients' orders received better execution, in terms of prices, than futures or interbank markets.

Forex Capital Markets LTD (FXCM UK) today issued its own “Quality of Execution Study” looking into the quality of the retail orders execution for its clients compared with the Futures and Interbank markets. The ECNs compared in the study are the leading forex market trading venues – CME, EBS and Reuters.

According to a report just released, FXCM claims that its retail order execution is better than if the same orders were executed on the futures market or the interbank forex market, hence it offers better prices for its clients.

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FXCM defined the quality of execution advantage as “the difference between the actual price at which the FXCM client’s order was executed versus the quoted price at which the same order could have been executed on the Futures or Interbank market.”

The study covers the period from October 1, 2014 to March 31, 2016, and it is based on the trade data of FXCM LTD clients on NDD forex execution.

The FXCM study’s conclusions include the following:

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Futures Pricing vs. FXCM Pricing

The study detailed figures reveal that in 81.34% of the cases its retail clients got a better price (74.97% % of the occasions) or an equal price (6.37% of the cases) than the spot equivalent quoted futures prices on the largest options and futures exchange in the world – Chicago Mercantile Exchange (CME). Only in 18.61% of the cases the traders would have gotten a better price if they were trading futures on CME. The better or equivalent prices offered by FXCM led to potential savings of $42,529,156 for its clients. The average saving per order was $1.02 and the number of orders included in the study was 41,559,576.

In explaining the reasons for the superior performance, FXCM says its liquidity providers offer better pricing to retail clients because they are only allowed to be price makers on retail client stream, and only a retail client can take a price from the liquidity provider. This gives liquidity providers the ability to make a market based on quality of price and liquidity rather than speed to protect against being picked off by predatory trading from other liquidity providers.

Interbank Pricing vs. FXCM Pricing

Looking at the comparison figures with the interbank forex market, FXCM prices were quite astonishing. The study data shows that FXCM offered to its clients a better or equal price in 94.84% of the occasions. In 91.56% of the times the price was better, compared to the spot equivalent on the interbank market and in 3.27% of cases it was equal. Only 5.16% of the time was the interbank price better than that of FXCM. Thus the broker’s clients potentially saved $114,588,455. The average saving per order was $1.85 and the number of orders included in the study was 61,853,010.

Source: FXCM
Source: FXCM

Methodology and Assumptions

Certain assumptions were made when analyzing the methodology used in the study. One example is that there is no slippage on the Futures or Interbank quoted price against which it was compared. Accordingly, actual results likely would have been even more favorable to FXCM clients. In addition, retail traders in the Futures or Interbank markets would be competing with HFT firms and other financial institutions, so more likely there would be slippage for the average retail client than for those participants on those venues.

FXCM’s competitors such as Forex.com and FxPro also publish their order execution statistics on a periodic basis. Earlier in April, Finance Magnates reported about FxPro when the multi-asset broker published its execution statistics for the first quarter (Q1) of 2016. The report revealed a greater percentage of trades executed with positive slippage then negative one: 46.93% versus 21.26% respectively, indicating that traders received better than expected prices nearly half of the time, while the orders executed at quote amount to 31.81%.

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