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).

FDIC insurance: Bank deposits may carry with them some form of government guarantee against losses in the event of bank default*. CitiFX Pro offers FDIC insurance for USD margin deposits (please see FDIC Insurance for more information).

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