The spread in some of your CFD contracts are huge. Like NGAS that has a 10 tic spread. If i compare 100 cfd contracts (that is the same as 1 futures contract), the cost with FXCM is 100 $, instead of 10$+com that it would be with a futures contract with 1 tic spread.
Why donīt you change so CFD becomes commission based (as you did with FX) instead of a spread? That spread makes CFD useless for daytrading in my opinion.
I cant say for FXCM itself but I can quess - based on that what others do.Reason is that index/commodity based CFD's produce large numer of profits now for brokers.Much more then Forex.Revenue from index CFD are somethimes 2 or 3 times bigger then that on currencies so its easy to understand why it is like it is
In fairness, this is not an apples-to-apples comparison. If you trade a natural gas futures contract, the minimum trade size requires you to risk at least $10 per tick. By contrast, FXCM lets you trade in micro lots with our NGAS CFD allowing you to risk as little as 10 cents per tick. That's 100 times less than in the futures market.
For those looking to place smaller trades than futures markets allow and with less margin, FXCM's CFD products with micro lot trade sizes provide the solution. Many CFD brokers don't even offer micro lots and require traders to risk at least 1 pound per tick. Despite providing our clients with the flexibility of smaller trade sizes, FXCM's NGAS CFD spread is competitive with other CFD brokers.
As you have mentioned, with our No Dealing Desk (NDD) forex execution, FXCM offsets each client order one-for-one with the best prices from competing liquidity providers. We make no money on these raw FX spreads and instead profit by charging a commission on your trades.
Such a commission-based model is not possible for CFDs like NGAS because our clients can trade CFD micro lots (10 cents per tick) while the smallest trade size FXCM can offset with liquidity providers is $10 per tick. Simply put, our FX liquidity providers are able to individually offset micro lot FX orders, but our CFD liquidity providers can't offset micro lot CFD orders in a similar fashion -- at least not yet.
If you have questions about our services at FXCM please send me a Private Message.
i trade with both interactivebrokers and fxcm. interactivebrokers also has cfds: the advantage of trading them rather than the futures ( which they also have) is the small lot size. the disadvatage - which applies to both fxcm and interactivebrokers - is the spread on cfds.
Jason has already explained the reasons.
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Jason explain mostly why CFD are good for begginers.And I totally agree with that what he says - it is good to learn how markets move, especially if you are watching ( and analize) real futures quotes but trade on CFD.It is much better then sim ,,trading''.And even more - somethimes CFD are better then futures - for example CFD on Dax where I have less costs (spread + commission = 0.5/1 point) then on FDax.
But why cfd provider make big profits ? Mostly on swap's and spread.For example corn futures vs cfd:
CFD on corn 0.40 spread vs 0.25 on futures ... not bad isnt it ? But... if ZC quotes are 400/400.25 then you can buy at 400 and sell at 400.25.On cfd spreads are 400/400.40 so market must MOVE by 2 full ticks to 400.50 ... and you earn only 0.10 point on that.
Gold - futures tick is 0.10 vs also 0.10 on many ECN platforms ..but again,with futures you can place order inside spread while cfd must move 3 (!) tick's if you want to earn any money.
This is the reason why almost every week here in Europe we hear that new broker is created.This is extremally profitable bussiness...
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Thanks for the link Chris. From the link I would gather that FXCM is only showing the average spreads for the mini account. I was hoping someone on this forum would give me their first hand experience concerning the spreads that they paid on a mini account.