10 March 2013

Give Up Trading USD/SGD Cash FX

  • For a retail client using a platform like Saxobank's, there is a big difference in trading between cash FX and currency futures.
  • Cash FX : You trade counterparty is Saxobank. You are captive to their pricing. From my observation, this is roughly how their USD/SGD pricing works. Say interbank market is 83/84, last trade 84. Saxo platform will show 6-pip spread price of 81/87 (+3 and -3 from last trade). Let's say you place order to sell at 83. Your order has no visible impact on system which remains 81/87. You cannot narrow the market with your order. You will only be filled when interbank goes 86/87 (when Saxo goes 83/89) ie an immediate 3 pip profit for Saxo when they fill you.
  • Currency Futures : Transparent trading on a centralized exchange eg Globex. The Saxo platform is merely an execution conduit between you and Globex. Your position is held with Globex where everyone from Hungarian Whale to Mountain Tortoise gets the same price. When you join bid or join offer, your orders are FIFF (first in first filled). Under normal circumstances, bid offer spreads are always at minimal. If say, under fast market conditions, price spreads widen beyond minimal and you place an order in between, you can immediately see YOUR PRICE and QUANTITY on the screen narrowing the spread for entire global market. In short, a level playing field for all comers.
  • There is a unique 1-1 relationship between the underlying cash market and futures prices (= interest rate differentials). Pricing inefficiencies are arbitraged away by the thousands of sharks and their machines. FAIR carry funding is priced into the futures. In cash FX, the carry charges are always set at usury levels in favor of the house.
  • Having been a market maker in the interbank market for almost all of my trading career, I find it impossible to be happy operating under such cash trading conditions. I would rather pay futures commissions than to know that each cash trade fill for me can be immediately back-to-backed by the house into a 3 pip profit against interbank EBS. Pre-conditioned mental block by training. Or natural abhorrence to being taken advantage of, which is what it feels like.
  • Hence, no more USD/SGD trading for me, unless they come up with a SGD futures. Will square off the last of my USD/SGD long tomorrow and that's it for me. Finito.
  • Stick to futures only.


Don C said...

Hi TS,

Been meaning to ask you, on the Saxo trading platform, is there a price ladder module (ie like the common X-Trader one) available for trade execution ?


Taichiseal said...

Not that I know of, D.

Taichiseal said...

Squared balance of long USD/SGD at 1.2484

Taichiseal said...

D - not for FX .. but system does show depth of market ladder for Futures.

ks said...

we hv a common friend, Thomas, and I was introduced to your side by him. hv been following your website for the last few weeks.

re-saxo, I agree the spread is a rip off. I hv a saxo account, but also opening an ocbc securities account too. they provide voice service, and spread is interbank + 0.5 pip thereabts for usdsgd? for the majors, saxo is good enough.

good luck with your trading, and thks for sharing.

Taichiseal said...

Apart from this USD/SGD spread issue (which I think you get with most other platforms), I am actually very impressed with the Saxo system.

Unlike the MF Global PATS system which was virtually static for the 5 years I was using it, Saxo is constantly making upgrades and improvement to its system.

Taichiseal said...

Eg. MF Global refused to let us place GTC orders in PATS in spite of constant requests for it. When I asked why they said it was for our own protection, in case we forget to cancel them when no longer required. What BS. I suspect it's because they didn't want to invest in the software/hardware upgrade.

Taichiseal said...

Don - see this