Banks vs Brokers for Forex
Banks have their benefits.
The institutional FX market has traditionally been served by banks—most of them large, international banks with legacies in FX trading. Recently, however, the Margin FX market, comprising of smaller clients (institutional and individual) that trade on cash margin basis has developed into a significant market segment. Independent brokers have played an important role in developing this market, mainly by adapting and implementing electronic trading technology and low-cost distribution methods. Recently, banks have also begun serving the “retail” segment and clients have often wondered about what banks bring to the table, especially in comparison to FX brokers. The following points may help to clarify the value that banks bring to Margin FX clients.
Dealing Practices: When a margin FX client deals with a major international bank, they should be able to benefit from best practices that have been developed over decades in this market. Citi, for instance, has dealt in FX for over 100 years. What does this mean for clients? Clients should be able to rely on best practices regarding pricing, order-handling, controls against manipulation and other unfair practices that can affect client-service. These practices are usually supported by well-structured control functions (compliance and audit) to ensure these practices are not violated.
Credit risk: Margin FX clients take significant credit risk when they place deposits with their FX provider. Large, international banks are publicly traded companies with widely available information regarding their management and finances. This should provide clients with all the information they need to make an informed decision on the credit risk they are undertaking. In addition banks often provide an additional level of security via government guarantees on deposits* (see next point).
Direct Liquidity: Major banks participate in the interbank FX market, which forms the foundation for liquidity in the FX markets. Typically, banks provide institutional clients with vast amounts of liquidity via their access to these markets. Margin FX clients can now also avail themselves of this liquidity directly instead of via indirect sources (brokers that receive prices from banks and transmit those prices to clients).
Research: Large, international banks have invested a vast amount of their global resources and cross-product experience into bringing high-quality research to their clients. In the case of Citi, this research usually includes Economic Research, focusing mainly on macro-economic factors that influence the market as well as Market Commentary, which focuses on Flow Analysis, Technicals, as well as Intraday market occurrences.
Geographic coverage: Citi is proud to have an unparalleled network of FX trading rooms over the globe. Clients can benefit from liquidity in 130+ currencies and research from local sources in these markets.
*clients need to evaluate exactly which deposits are guaranteed and up to what amount
Trading foreign exchange involves a high degree of risk. CitiFX Pro offers trading on margin. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should ensure that you understand the risks and can withstand the losses and that you seek advice from your advisors as appropriate. Please review the Full Risk Disclosure for customers in Asia and Privacy Disclosure carefully before opening an account. The views in this communication should not be considered as investment advice. Any trading or investment decision you take should be based upon your own independent judgment and/or advice from your advisors, as you deemed necessary. CitiFX Pro is a service offered to you solely by Citibank N.A., New York, 390 Greenwich Street, New York, NY 10013 and not by any other branch, subsidiary, or affiliate of Citibank NA (including Citibank (Hong Kong) Limited and Citibank N.A. Hong Kong Branch). Citibank N.A. is an entity organized under the laws of the United States of America. You should note that margin funds transferred to an account of Citibank NA in Hong Kong in respect of CitiFX Pro is not currently protected by the Deposit Protection Scheme in Hong Kong. Margin funds transferred to an account of Citibank NA in Singapore in respect of CitiFX Pro, will not benefit from protection under the Deposit Insurance Act, Chapter 77A of Singapore. In Singapore, CitiFX Pro is provided by Citibank N.A., New York branch under an arrangement with Citigroup Global Markets Singapore Pte Ltd ("CGMSPL"). CitiFX Pro is directed only at persons in Singapore who qualify as an "accredited investor" or "expert investor" or "institutional investor", each as defined in the Securities and Futures Act, Chapter 289 of Singapore (“SFA”) save that the definition of "expert investor" in the SFA is, for the purposes of CitiFx Pro, subject to the modifications in the next paragraph. For the purposes of CitiFX Pro, an individual will qualify as an "expert investor" only if the individual has experience in trading in financial markets, as part of the individual’s business or employment and shall not include individuals whose experience consists solely of trading in financial markets in a proprietary or personal capacity. For the purposes of CitiFX Pro, a non-individual will qualify as an "expert investor" only if it is (i) a company or association or body of persons, corporate or unincorporated, whose business involves the acquisition and disposal or the holding, of "capital markets products" (as defined in the SFA), whether as principal or agent; and (ii) wholly-owned by persons who themselves qualify as an "accredited investor" or "expert investor" or "institutional investor" (each as defined in the paragraph above) in their own right. If you are not an "accredited investor", "institutional investor", or "expert investor", you will not be permitted to open a CitiFX Pro account. For more information on CitiFX Pro and/or information regarding how to demonstrate your qualification as an "accredited investor" or "expert investor" or "institutional investor", please refer to the application form or contact us directly at +65 3158 0363, or at sales@citifxpro.com. Copyright ©2011 Citigroup Inc.