Perhaps this is a standard proctice with all brokers. I have only traded a micro account, and if this happened, I never noticed it. I am going to open a larger account, prolly w/ IBFX, and I want to get some feed back on GFT’s policy of adjusting trades 3 days AFTER you close them, to account for changes in FX rates that happened during the three days. I thought that once you closed out a ticket, you booked whatever profit or loss, and that was it. Apparently not so at GFT. I was very interested in GFT because they have all the Dinapoli tools by subscription, but not after learning about this practice. Below I will post an explaination of this practice from their side.
"Let’s say you have a base currency of USD and want to take a buy position on EUR/JPY, this means, you’re converting your USD to JPY, then selling that JPY to buy EUR. So if you close this EUR/JPY position, it means you’re selling the EUR you bought earlier to buy JPY again. Now your profit is in JPY and would normally take 3 days to be converted back to USD which is your base currency.
If this is clear, then have you ever thought of how this happens, by just clicking a button? This process goes through a clearing that usually takes 3 days, and you know price is not stable. This adjustment we talk about are usually minor, actually, most traders don’t notice it, unless you’re trading a huge account. If you make profit of let’s say $2500, the adjustment usually could be $25. Do you call this adjustment? Even apart from ForEx, customers are responsible for price change."
A hell of a lot can happen to the exchange rate of JPY and USD in 3 days. This sounds scarry. Does your boker do this? Does IBFX?
Crassius
No the process is instantaneous, once you have closed out
your position that is that, I have never seen this before.
The opposite therefore should be true, you are credited with
money as well.
Hello,
I have two brokers: Deltastock and GCI.
Deltastock operates this way as well except that any fluctuations are ‘taken care of’ at their close THE SAME business day i.e. not three days later. Three days sounds absurd to be honest because as you correctly note: a WHOLE lot can happen in THREE DAYS. Their ‘example’ also worries me i.e. is it just coeincidence that the example quotes what amounts to ‘around’ 10% of the profit??? Now: $25 on a $2 500 profit I’d be able to live with BUT $2 500 (or ‘thereabouts’) on a $25 000 profit or $25 000 on a $250 000 profit??? Well THAT would ‘send me into orbit’!!!
Anyway: with the way Delta operates it’s never cost me money, nor has it ever made me money (well: if it HAS I’ve never noticed). As a matter of fact: you can actually see the fluctations on your account balance in realtime during the day (assuming you’ve just closed a position). I’ve never ‘shut up shop’ for the day and come back the next day to a ‘shock’ decrease (or increase) in my balance.
At GCI this does not happen i.e. once the position is closed it’s closed and ‘what you see is what you get’.
Actually: I’ve never really thought about this before but why would they operate differently??? Hmmm.
Regards,
Dale. (forexbrokersonline.net).
I think its a bunch of bull**** because nothing settles unless you take delivery of the currency, that’s what roll over is all about. Once the position is closed out, the broker isn’t on the hook for anything. No adjustment is called for. I think it is just one way this broker has found to build in another fee to make money.
Even if it were 1%, that adds up over time. Every one hundred winning trades you get to keep 99 and the house gets the average of one win. Meanwhile, you get to pay for all losses. But the point is, not only is it expensive, its bull****, IMHO.
Another way GFT makes money is they keep the roll over interest if you are holding the currency with the higher interest rate and pay you nothing, but charge you the interest at roll over if you are holding the currency with the lower interest rate. Unless you are trading in 100,000 lots.
I have been doing a lot of detailed reading of customer agreements. I like the dealbook frontend of GFT, but these two details make it impossible for me to do business with them. They are a market maker too, and with ECMs and no dealing desk ops out there, who needs that?
Crassius
I see the same thing with SaxoBank (the French branch at least, don’t know about the others).
If you have an account denominated in EUR and you take (say) a position in AUDUSD that ends up in profit by 100$ (the pip currency), then those 100$ have to be converted to the account currency at some point to be added to the account balance. The conversion is based on the EURUSD rate at some point in time (I believe at 00:00 on the day following the close of the trade), so fluctuations in EURUSD definitely end up increasing or decreasing the profit.
I think that this should not occur if the account currency is the same as the pip currency (an USD account trading on EURUSD, GBPUSD, AUDUSD, etc.).
This is an excellent point QuickSilver. That makes sense. I would say that policy would be fair as it takes place the same day. This really had me confused.
I think I get it now, but still think GFT is milking it waiting transaction day +2 to make this adjustment.
I have aways only traded EUR/USD, so this would never have happened to me. Perhaps that is why it struck me as odd when I saw it.
Crassius