It started with Oanda. "Trade any size you want!" they say. It was true. You can trade 1 unit if you want. (1/100,000th of a standard lot) Then along comes GFT. Flexi lots of 1 to 20,000,000 units. The question is: Why don't pro firms like IB also introduce flexi lots and swallow then entire retail spot FX market, essentially shutting down firms like Oanda, Refco etc. Is it not feasible? Just a question by the way, not a request. I have an account with both IB and Oanda.
It's a different model. IB's is an ECN type model where everyone can trade with each other. I don't think we'll be very popular to the client who posts a $1m bid, and then gets hit by traders selling him $1 a time! The other firms don't mind to offer this, because you are always trading against one entity - themselves. Our minimum is $25,000 per trade, which still only requires a tiny $500 margin. (NB we're still offering flexi-lots - it just has to be a minimum size of $25,000).
Never seen this happen with GFT and Oanda. Maybe because they take the other sides of all trades. Don't your liquidity provider just take the other side of everything? Thanks for taking the time to explain this rather dumb query. I'm just curious why Oanda/GFT are able to do $1 lots.
Correct, you don't see this happen because the other brokers takes the other side of all trades. With IB, all market participants can trade with each other. Sure, we could allow supertiny size, but it's more likely to annoy the majority of traders, would you like to see an inside market which shows size of $1x$1?! Remember how the market works: Consider this scenario: IB's market 111.60 111.62 ANOther's market 111.60 111.62 Customer A sends in an order to buy at 111.61 to both IB and ANOther. Customer B now sends in a market order to sell at both IB and ANother. With IB, Customer A's order now becomes best bid, so the market is now 111.61 111.62 Customer B's market order executes against the best bid. Thus, Customer B is executed at 111.61 Customer A is executed at 111.61 Now, with ANOther: Customer A is not executed. He is still bid at 111.61 however, this bid goes into ANOther's bucket, and is not executed until ANOther's ask comes down to 111.61. The market remains at 110.60 110.62 Customer B gets executed at 110.60.
Of course the commission free glorified spread betters will happily scalp you for an amount of money you are willing to put up, $10 or $1,000,000.
I feel silly replying to my own post but I have a question With IB if I go long 125,000 Euros at 1.2001 in the cash market and buy a futures option put with a strike of 1.2000 how much margin do I have to put up? Or can I use futures option to free up available margin cash FX?
There's no offset, so you'll need to put up margin for each seperately. Approx. $3,000 (125,000x1.2001x0.02) for the EuroFX position. For the option it will be variable, so best to use the Check Margin function on the TWS.
Steve_IB Yes the "commission free" ads are funny because the comms is already built into the spread. Especially back then when the spread was 3 pips wide. (compared to CME's 1 pip...i'll happily pay comms) Though now the 1.5-2 pips spread is "okay" for traders with a low budget. It still bugs me that they charged me US$30 for withdrawal though. T_T
Apologies for my ignorance but is it possible to trade forex via IB? What is the min. account size please? Is this better than trading forex futures?
I think min. account size is $2k. (check out www.interactivebrokers.com) If you do 250,000 units per lot you might get a better deal on commissions than FX Futures. Otherwise, the comms is much higher than futures for standard 100k lots. If you're doing less than 100k lots, you're better off with a spot fx dealer like Oanda or GFT.