February 17, 2017

Guide to FX Trading in The OTC Markets

PRICING TRANSPARENCY GUIDELINES

  • Never leave an ‘order’ with an FX broker (unless it’s a “fixing order”)
  • Don’t trade over the phone when you can avoid it
  • Always call multiple brokers to “shop your deal”
  • Always know where the market is, verified by an independent market data source
  • Always ask for a ‘two sided’ price, both a bid and offer

price transparencyThese guidelines all help to achieve the objectives of maximizing price transparency and minimizing the opportunity for the banks to pad their profit margins. Your FX bank preys upon the “friction” created when commercial enterprises do their trading inefficiently, compensating the bank far beyond what’s necessary for the risk they’re taking. Part of the Atlas FX Risk Management process is for our clients to trade at thesame time of month, and to the same maturity date (the 3rd Wednesday of the month). All of our trading occurs on the last day of the month at the 7am Pacific / 10am Eastern.

Taking this approach gives us the opportunity to offset client transactions against each other, thereby saving the spread paid to the bank and passing the savings on to our clients. Unlike relationships within and between other asset classes, there exists an explicit relationship across two currency pairs with a common base currency and their cross currency pairing. While many market practitioners understand the linkage between two spot rates and their cross rate, fewer people understand the relationships between the volatilities and correlations associated with these currency pairs.

Disclaimer

The information contained in this publication is provided for information purposes only. The information contained herein has been obtained or derived from public sources believed to be reliable, but we do not represent that it is accurate or complete and should not be relied upon as such.Any opinions or predictions constitute our judgment as of the date of this publication and are subject to change without notice.

All rights reserved. Please cite source when quoting.

© 2017 Atlas Risk Advisory LLC

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