Frustrations over Lack of Transparency in trading of Oanda's CFDs

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Hi guys, I’m new to this forum and have been trading for 5 years, with Oanda being one of my first brokers. Generally they have been good with execution and spreads apart from the typical widening of spreads during news events that might trigger stops. However when I recently started trading their CFDs in commods and indices, lots of questions emerged and the lack of transparency given by Oanda’s replies to my queries below had been frustrating me so much so that I am seriously considering jumping ship to other DMA brokers instead of a market maker like Oanda:

• Identities of underlyings for CFDs

When I asked for what are the specific underlyings of the various CFDs that Oanda offers, I was informed that Oanda is unable to disclose them. So when I am trading say 1 unit of Soybeans on Oanda, I have no way to know which underlying contract I am exposed (further elaboration on point 3 below) when I trade in their CFDs.

• Interest rates determination

Oanda pays/charges interests on their CFDs and can be easily calculated with tools available on Oanda, however how they determine the interest rates remains a blackbox and a concern for traders (especially those doing carry trades) with the wide fluctuations for some of the interest rates.
When probed on how Oanda determines the interest, Oanda’s reply that demonstrates a total lack of transparency and a failure to answer the crux of my query is as follows: “the interest is based on a discounted futures price. In order for the CFD price to converge at the future contracts expiration date. The interest will increase/decrease depend on the future price. E.G Current Soybean price 11.61 but futures price is 10.9, thus the higher interest is given to slowly converge at the same price later. Frequency of interest rate change would depend on when we roll-over our future contracts. The interest will normally change every 1-3 months. However we do not provide our roll-over dates and prices.” I was also told in live chat that Oanda “applies such an interest to smooth the transition between” and that Oanda is a private company and hence there is no need to disclose such information.

• Pricing of CFDs

With no clue on the exact underlying of the CFDs being traded on Oanda’s platform, there was no way one can determine on how spot prices would be printing on Oanda’s platform.
Case in point: Soybean CFD price was around 11.30-11.40+ on Oanda’s platform on 13 August, but front month CBOT Soybean August contract (ZSQ14) was trading at around 12.45-12.90+ during the same period, while CBOT Soybean September contract (ZSU14) trades around 10.80 with soybeans currently in backwardation. When queried on the significant discrepancy between Oanda’s spot price and the Aug and Sep contracts, I was informed that Oanda’s “Soybean spot price is referencing the September Price, which is at approx 11.00.” When asked why is Oanda’s spot price referencing the far month Sep contract when the front end Aug contract only expires on 14 Aug, was told by Oanda that they “deem it reasonable to roll over a CFD derivative near the end of the current month contract to the next month” and were unable to disclose how they price their CFDs nor how and when they do the so-called rollovers. If the purpose of such rollovers is to “smooth the transition between” the underlying contracts, isn’t such a purpose served by the interest rates mentioned above?

Apologies for the wall of text above, anyone with similar frustrations dealing with Oanda? Please feel free to share your experience and comments! Would also greatly appreciate if anyone can share their recommendations for a good DMA broker, I’m sick of dealing with a MM like Oanda.

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1sgtrader, those are really important questions to ask and I 100% understand your frustrations. I’ve been a fan of Oanda for forex trading for a long time, especially for anyone who’s severely underfunded but trying to learn (because of the granularity of their position sizing). Their platform is easy to work with and sensible.

But if these are the things you’re running into with CFDs, I’d stay away. As far as recommendations for a broker, I have no clue. At that point you’re probably better just moving into futures where you get all the transparency and benefits that come with trading on the actual exchange. I’ve heard good things about TD Ameritrade’s Think or Swim (though I haven’t used it) and personally use Interactive Brokers which does fine for me. If anything, a futures broker isn’t nearly as complicated as finding a good forex broker since they all end up at the same exchange anyway unlike forex where you have to worry about this DMA/MM/STP.

Good luck on your search and let us know if you find anything that helps you out.

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Hi 1sgtrader,

OANDA’s CFD prices are derived from certain underlying reference markets (indices, commodities, bonds).
For example, the GERMANY30 price mirrors the cash price of the 30 blue chip stocks on the Deutsche Boerse, the DAX index. Specifically, we derive the price from the DAX futures contracts trading on the Eurex Exchange under Reuters’ code FDAX.

Similarly, for our other index-based CFDs, price off the stock index futures as a proxy for the underlying cash index, however we seek to mirror the cash index price.

To provide our clients with price continuity, OANDA seeks to smooth CFD prices, even as we roll from one contract to another.

Accordingly, we adjust the financing rate on CFDs, such that the near-term futures contract is equal to the present value of the next futures contract. Hence any financing costs paid/received are offset by the difference between the CFD price and the futures price narrowing toward the future price at expiry.

Using the GERMANY30 as an example:

  1. The GERMANY30 price is derived from the FDAX Index Futures. The bids and offers are filtered by our pricing system and generate a mid-point. This removes most of the bad ticks, spikes and other noise, with the intent of maximizing data quality. In turn, it creates our baseline reference price.
  2. The CFD price is calculated by discounting the underlying futures contract between today and the expiry date. The discount rate depends on a variety of conditions, with a goal of having the GERMANY30 price track the DAX cash index price as closely as possible.
  3. Normally we will price off the futures contract with the earliest maturity date (assuming there is sufficient liquidity). As the futures expiry date approaches, we will roll to the next liquid contract. These roll dates vary from contract-to-contract and from month-to-month
  4. The futures contract roll may cause us to change the financing rates applicable to the CFD. Our pricing methodology seeks to smooth the CFD price from contract-to-contract.
  5. We do apply a bid/offer spread that reflects the volatility and liquidity of the underlying futures market conditions.

Hope this helps clarify. Please let me know if you have further questions.
Bernice