Hi everyone. I am a new member in search of some advice. I am in the process of vetting potential forex brokers for a relatively high deposit account (not high enough to qualify for prime of prime service). Requirements include a US based ECN broker. I will be fairly high volume (in excess of 500 mln per month) so commission schedules are important but I would sacrifice at the margin for reliability of execution and protection of funds (i.e. Interactive Brokers at $20 per $1 million notional is more appealing than FXCM active trader at $18 per $1 million because IB is SIPC). I am purely manual execution with no automated API plug-in strategies. I am not concerned with high powered charting as I will have Bloomberg pro. Ironically, the two brokers I am most seriously considering are FXCM and IB. I like the safety and versatility of IB (even though 95% of my trading is forex I sometimes use e-minis/gold/TY to hedge so a consolidated marketplace is nice). But the reviews of IB front end platforms (FXTrader/TWS) are pretty unfortunate. FXCM has it's share of ugly user reviews but most seen like disgruntled complaints looking to blame a broker for trading shortfalls. FXCM certainly has a usable front-end and seemingly better customer service, but obviously safety of funds is a concern in the case of another black swan (which seems to happen every few months now). I would very much appreciate any commentary or suggestions as to the best fit for my trading profile. Thank you all !
IB TWS's criticism is most of the times (I estimate > 90%) due to the lack of knowledge or intelligence of the user. I have traded discretionary fx positions via IB and either entered the order manually in TWS or via one-click within the FXTrader module. Note: I generally trade >500mln per month. One thing you want to be aware of with IB is that you can only trade 5mln at a clip on their retail platform. If you want higher limits then you need to go institutional with them but spreads would also widen. Another huge advantage of IB is the high quality of execution. I often submit market orders even for orders of size 2mln or 3 mln. I get more or less what I saw on the screen when I submitted the order. Sometimes better by 0.1-0.2 pips, sometimes worse but on average more or less spot on (I do perform TCA on a regular basis). I would never even want to attempt sending market orders via FXCM because of its lousy reputation (I do not and never had a FXCM account, and will never have one because I do not believe their interests are aligned with mine). Note: I also trade >500mln usd equivalent notional per month and IB.
Thank you very much for the feedback volpunter. If you'll entertain a few more IB questions I would be most grateful: 1) Does FXTrader provide any depth of market view? For instance, I assume one of IB's LPs is EBS -- if there is a large market order (i.e. a resting bid for 500 USD/JPY at 120.50 on EBS) does FXTrader have a market depth ladder for viewing? 2) Does FXTrader allow for easy/fast order entry? For example, in fast market situations where a trader elects to place limit orders, does FXTrader allow for one-click entry if order defaults are pre-set? Again, something like a ladder view in which a trader can simply click on a price below or above market to leave a T/P at a certain level (as opposed to aggressing across a spread). 3) A bit off-topic but I assume you are a profitable forex trader on IB. Have you found a straightforward way to opt out of section 988 treatment and into the more favorable 1256 cap gains treatment? Resources like GreenTrader make it sound simple to make a contemporaneous election ("election made pursuant to IRC section 988(a)(1)(B)") prior to trading in a given year, but a deeper investigation reveals that the election should be made on a "transaction by transaction basis" -- an administrative nightmare for high volume traders. I've spoken to reps at both FXCM and IB about this topic and was surprised at a lack of standard protocol (I take this to mean most traders stay in the default 988 treatment?). FXCM was completely unhelpful while IB directed me to a third party software provider (TradeLog). My CPA advised that the simplest solution is to have the broker indicate on daily/monthly statements that the trader has made the election. Have you had experience with this/found a viable solution? Thank you again for taking the time!
1) I do not look at market depth when trading and managing positions in currencies. As such I am not absolutely sure, but I do not think IB provides market depth for spot fx. Why do you ask? Are you trying to get a better idea about how much aggregate size there is on either side? 2) Yes, it does. You can configure pre-sets for limit orders and many other orders as well: https://www.interactivebrokers.com....ebook/configuretws/primary_order_settings.htm Also you can submit order with a simple mouse click on Bid or Offer, given you have properly configured your order presets. Also, yes, there is an order book (like a DOM) and you can set limit and stop orders there directly. 3) I am not sure what you are talking about here. 988 or 1256 rings zero bells. I am not American nor trade out of the US, I am subject to completely different capital gains treatment than, for example, an American. As such I do not require such indications by IB.
Thank you again for the color, volpunter. I am leaning towards IB at present. Dependability, reliability, versatility of product offering -- good combinations. In regards to our conversation: 1) Even though OTC FX is the single largest market (daily volume) in the world, market depth is still a very important indicator. While it is absolutely true that a lot of indicated liquidity is "shadow liquidity" flashed by HFT and other automated systems, the big boys still submit the majority of standing market orders via EBS (directly or through the bulge brackets). 9 times out of 10, sizable EBS orders indicate real interest. I've been lucky enough to trade on very robust proprietary platforms that differentiate liquidity of different LPs (color coded in my case) in order to allow the trader to judge whether the liquidity is actionable or "fluff." Can be very handy especially near important levels and barrier prices. Example a 500 mln EUR offer in EUR/USD at 1.1195 is probably barrier protection and you can bet there is an equivalent market stop should the 1.12's trade (making assumptions about the c/p short the barrier etc). Anyway, I believe it is very beneficial to see market depth, especially for retail. There are times when a retail trader can effectively trade "long gamma" by trading with the market interest without ever paying for premium! Good deal. 3) Disregard the 988 vs 1256 stuff if you're not paying Uncle Sam. But if you're curious, in America forex gains and losses are default section 988 meaning they are treated as ordinary income. HOWEVER, a trader may elect to have section 1256 capital gains treatment such that 60% of his/her forex gains are taxed at the long-term cap gains rate (20%) and 40% are taxed at the short-term cap gains rate. This is the same preferential treatment that futures receive. Downside is if you have capital losses, you can only offset gains by the standard $3,000 in a 1256 election where as in a 988 election you can off-set any capital gains by the full amount of the forex loss. To keep it simple, a profitable trader would want to make a 1256 cap gains election on Jan 1. whilst a loss-making trader would be better served with the default 988. Out of curiosity, what percentage of your trading is forex?