Forex Trader's Bill of Rights

Excerpt from upcoming September Futures cover Q&A with Michael Stumm

In our upcoming September issue we talk to Michael Stumm, co-founder of forex broker Oanda. Stumm and high school trading buddy Richard Olsen founded Oanda, which has brought institutional efficiencies to retail forex traders. In 2005 Oanda put together its, “Forex Trader’s Bill of Rights.”

Here we discuss with Stumm the importance and logic behind each of those rights.

Futures Magazine: In 2005 your firm published a “Forex Trader’s Bill of Rights” that enumerated your philosophy on markets. Why was it important? Have others incorporated these rights in their models or is it still unique to you?

Michael Stumm: That was published six years ago and we are a little surprised that it is as valid today as it was back then. Things haven’t changed that much. It has moved a little in the direction of the Forex Bill of Rights because the regulators have forced the hand of some of the brokers, but a lot of the points still are very valid. When we published it, the first few people we showed it to said, ‘Oh man everyone else in this industry is going to get very angry, particularly the big banks.’ For us, what was important was to disclose to the public some of the practices [at] forex firms and banks because a lot of clients don’t know what is going on. It is such a non-transparent business. In that sense, even today we find very positive reaction to it when people read it, they say ‘I didn’t know this was occurring, this is outrageous.’

FM: Lets go over why each of them is so important: 1) The right to immediate, uncensored access to the marketplace.

MS: This has to do with the practice that when you trade and the market makers realize they won’t make as much money on it or may lose money on it they immediately reject the trade. When you trade, that trade should be executed as quickly as possible and the slippage shouldn’t be large. The trade shouldn’t be delayed and you shouldn’t be rejected; that all has to do with quality of execution.

FM: 2) The right to trade real spot?

MS: Typically there is a two-day settlement for fx trading and you have to wonder why; 30-40 years ago it made sense--you had to move paper, you had to send confirmation of the trade from one bank to another and that took two days. Two days was very efficient 50 years ago but today when you can send off a message and it is there in less than a second, it really doesn’t make sense. We just wonder why that is still there. You should be able to trade [real] spot.

FM: 3) The right to know?

MS: This is again where different clients are treated differently. In most brokers and banks different clients get different prices depending on how much they can get away with. You can notice that by going to your bank and complaining about your spreads being too wide and threatening to walk away, they will lower the spreads on you. The same thing goes for information. Many of the banks have market insights, they have their ear to the ground, they know what is happening in the market; that is valuable information and so they will disclose that perhaps to their very best customers. Sometimes they will ask for extra money for that but why not make that information [available] to the trading public? You want everybody to be on equal footing and have a fair chance and if you only provide information on a limited basis, it is wrong. Everyone should have a fair chance with the markets. I am convinced that the retail clients are very good at what they do and they will do very well if they have equal access. Part of that is information.

What positions are our clients in? What are their open trades? What are the spreads that we provided? What are the orders that exist in the system? You see resistance levels when you look at where the orders are placed. All those things are interesting: are the clients primarily long or primarily short? That is information that is simple to give out, it costs you nothing to give out and it helps the trading public make more informed [trading] decisions.

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