The forex broker I trade through is commission free and for USD/EUR has typical spread of 1.8 pips and as low as 1.0 at times through a No Deal Desk. I always thought this was pretty good. Am I missing something?
IB's commission is 0.2 pips (with a $2.50 minimum). Their spreads on the USD/EUR are typically 1 pip and sometimes just 1/2 pip. Do the math and you'll see that commission free isn't always the cheapest way to go.
The cost that impacts the bottom line the most is not the commission and not even the spread paid, but it is derived from how your broker executes you, fills you, what liquidity he provides, and whether it is a pure ECN or someone who take the other side. This is where all execution risk lies and where most brokers fail, and in my opinion, Interactive Brokers is shining in this regard among all other retail brokers. Do I shill for them? Sure, if you want to call it like that. I trade with them for over 15 years, fx over 4 years on a personal account basis. Nothing is perfect, but its a business relationship that works for me. Let me ask you a question. Lets say XYZ bank defrauded thousands of investors, raped your bank accounts and got away with it. The reputation turned so bad that they changed the name. What most of you guys talk about FXCM, Oanda, and the like is the same as if you plan on putting your nest egg into XYZ bank again just because they changed their name (in fx space, call their "new" model "no dealing desk"). Doing so is plain stupid. Someone who lies many times and cheats many times suddenly changed and turns into a responsible business entity? Give me a break. IB charges amongst the lowest commission (pure commission plus spread) but where they really stand out is their execution and fill capabilities especially during more volatile markets, thats where most people get raped by bucket shops. Enough said!!!
I use most of them and all of their platforms. So I'm with FXCM, IB, InterbankFX, and FXDD. But not OANDA. I would say that IB has good consistent spreads. the most divergence I've seen is about 4-5 during highly volatile periods. However IB calculates spreads to the 5th decimal point. i.e. AUD/USD: bid = 0.84505 ask = 0.84510 So a 1 pip spread for IB is really a half pip spread compared to most bucketshops. this means that when I say 4 pip spread: i.e. bid = 0.84505 ask = 0.84525 it is really only a 2 pip spread due to the fact that they calculate the currency pairs to the 5th decimal place. i.e. FXDD might have a spread of; bid = 0.8450 ask = 0.8454 where as IB, if you set the quoting out in similar fashion it is; bid = 0.8450 ask = 0.8452 ... notwithstanding that the fact that there is no rounding in my example above. IB can do this b/c they charge about a $2-2.50 commission per leg (i.e. about $4-$5 per trade overall). Some people might be wary of this but think about it; if you have 100K and your trades are around $10 for every 1 pip movement and you stand to make 20 pips off a profitable trade then you make $200. $5 is pretty miniscule. Whereas if you trade with a bucketshop and the spreads are 10 pips during highly volatile periods, then you missed out on $100. For bigger account sizes and large volume trades, $2 commissions are not huge. Your broker has to make a living somehow, and they can either take spreads or commissions, or do a combination of both. I don't mind paying commissions so long as the broker is providing a good service and is committed to improving its infrastructure and technology, and is not in the game solely to trade against you like the bucketshops are. In terms of execution and data and so forth, I think there are enough reviews for you to figure out where IB stand. I will say this, whether you choose to use IB or not depends a lot on your trading style and what/how you trade. If you're just interested in forex solely then I think it is not really necessary to switch to IB, given all the complexities of their system and minimum capital requirements. The learning curve is quite steep with IB compared to say; using MT4 and taking simple trades. If you're a good trader you will still be able to make money in a bucketshop environment. However if you have a large account size, and trade other things aswell; i.e. global futures, stocks, bonds and commodities ... then IB as a broker becomes a lot more attractive as a value proposition. Good luck with your trading.