Dealing Desk or No Dealing Desk – or FXCM?


Following their recent IPOs US brokers GAIN Capital and FXCM now seem to be engaged in a battle for the hearts and minds of retail forex traders instead of investors in their respective businesses. In a press release today FXCM announced a new section on their website which they call the FXCM Forex Execution Center. I can't help but wonder if that announcement is in any way related to the  new Pricing and Execution section on GAIN's website and their Trade Execution Scorecard, which was announced in a press release yesterday.

FXCM's offering explains what they call "The Truth About Forex Trading". This consists of a couple of cartoons explaining the differences between FXCM's "No Dealing Desk" execution model, and "Most of the Other Guys" execution model, which apparently involves a "Dealing Desk".  There are also a number of other videos outlining a variety of scenarios in which FXCM's customers might be able to benefit from price improvement on their orders. On the other hand are obviously one of the "other guys" FXCM have in mind, since they proudly proclaim:

The benefit of trading with versus a so called ‘no dealing desk’ broker is that we take full responsibility for providing you with consistent liquidity, low spreads, and quality execution on every trade. We don’t outsource that responsibility to third parties, which can result in longer execution times, erratic spreads, and slippage.

whereas FXCM maintain that:

Unlike most other forex brokers, who act as market-makers, FXCM operates on an agency execution model. This is significantly different from brokers who operate a dealing desk execution model, where the revenue per trade is not as transparent. There are common practices, many times unknown to customers, which allow dealing desk firms to make more than just the mark-up attached to the prices streamed from large financial institutions. These practices include, but are not limited to, re-quoting customer trades, taking the opposing side of customers trades, and even preventing customers from trading or managing their positions during news events.

Sounds as though the two companies don't quite see eye to eye on what exactly constitutes "the truth about forex trading", doesn't it?

When it comes to any sort of "objective" truth, in the form of hard numbers for example, FXCM offer the following bullet points:

  • Euro/U.S. dollar spread is frequently 2 pips, British pound/dollar 3 pips
  • FXCM's average monthly trading volume of over $250 billion drives price competition
  • Our trading platform is tested in all market conditions, routinely handling over 310,000 trades per day.

whereas highlight:

  • EUR/USD, minimum spread 0.9, typical spread 1.9
  • GBP/USD, minimum spread 0.9, typical spread 2.9
  • 99.7% of trades executed in less than 1 second
  • .08 seconds average execution speed
  • 73% of limit orders executed at a price better than the requested price
  • 0.71 pips average difference between requested and executed price of price improved limit orders(currencies only)
  • We routinely handle over 120,000 trade requests a day

Here at the Trading Gurus we take all this public sparring with a very large pinch of salt. At the end of the day the truth about forex trading is that quality of execution is extremely important to a trader's bottom line, but you can only get a handle on which broker best suits one of your trading strategies by executing lots of real trades on live accounts. That's the sort of thing you won't find out about in forex broker's press releases,  or even in impressive sounding averages posted on their websites.

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