“A swing trade is a trading strategy where the trade is executed by one exchange and then on one or more other exchanges, in an effort to reduce margin exposure,” says Charles Liu, head of FX at FXCM, one of the largest international FX traders. “It’s very easy for an individual to understand because they look at a trade in a simple way and they just go with the flow.”
“If you have an investor that wants to buy shares of a particular company at a particular price and you send their money to a big exchange and they want to trade there too, it makes sense for the trader to trade one market and they want to get the best possible price. As part of that they send their money to multiple trading venues,” explains John Kocis, CEO of the global FX brokers EMEA. The other party (the trader in our example) may have to wait for the best option, but that doesn’t stop it. By creating multiple exchange platforms, more liquidity is provided.
It’s still important to understand that if someone had an initial purchase order for USD100 on one exchange and then traded it on another exchange, the USD100 trade would be at par or below par when it came out of the other company’s clearing channel.
How do you see FXCM becoming more of a broker-dealer rather than a trader-broker?
“The primary purpose of a broker-dealer is to manage a customer’s portfolio, with a broker-dealer we can take care of the customer’s trades in the margin accounts. But we want to do more to help them to optimize trading and trade to an optimal position, and that means taking a broader view and seeing other markets around the world,” says Liu.
The two big players that Liu points out are the NYSE AMEX and the London Clearing Houses and they each have their own platforms. New York-based FXCM recently opened a subsidiary in Shanghai that will focus on Chinese equities.
“Our goal for the Shanghai subsidiary is to offer the customer a simple, convenient way to trade in local markets, whether it is Chinese equities or Japanese equities,” says Liu
Kocis sees the potential for the new China-based platforms as a way to improve liquidity in the FX markets by making it easier to trade foreign-currency pairs, which is another strategy for traders.
“These new platforms will bring FX trading into the light of day, and that’s very positive
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