Oanda's New Conversion Rules

This is the email that i just got from Oanda. What do you all think of this change? Do you all know of other brokers doing this? Looks to me like another way to get more money…

Beginning in Q2 2020, we will be changing the way in which currency conversions of profits, losses and trading costs take place on the platform.

This means that trades you place on products which have a different base currency to your account currency will now incur a conversion charge. This charge is based on the prevailing mid-price of the applicable FX spot rate for the conversion, plus an additional spread of 0.5%. For example, placing a EUR/USD trade in a CAD based account your trade settles in USD and then it is immediately converted to CAD at the USD/CAD rate with the added 0.5% spread.

This charge is applied to profit & loss conversions and to any trade related cash booking applied to the account which is not in the account currency, for example:
Financing costs
Commissions
Dividend adjustments

You will receive additional details about this change and an updated Client Agreement in the coming weeks.

sound like a money grab?

i check FOREX.COM look like they have the same rules, i got this from their site

Is there a currency conversion charge?

Trading in markets that settle in a different currency from your account’s base currency may incur a currency conversion charge. For example, if your account base currency is US Dollars and you trade USD/JPY, your realized profit or loss as well as any associated fees, charges, and commissions will be automatically converted from JPY back to US Dollars before posting to your account. Our standard charge for this conversion is +/-0.5% from the market rate at the time of conversion. Conversely, you will not incur this charge if you only trade products that settle in your account’s base currency, such as EUR/USD in a US Dollar based account.

Hmmmm well it sounds like it is in line with what other brokers are doing then and therefore not so bad… Guess ill have to just live with it since I don’t have any other issues with Oanda.

Thanks!

i don’t have to deal with it but if your cool with it that’s all that matters

If one trades EURO/USD 20,000 units, how much would be charged (with the .5% charges) by Oanda. if the base currency is Cad?. If it is a lot, it is best to trade using banks.

Well if I sell EURUSD at 1.07625 and it goes down 100 pips it will be 1.06625. So if closed that means .01 X 20,000 = 200 profit in EUR. They say that it will incur a charge to bring the EUR’s back to CAD’s. This is calculated by finding the mid point price of EUR/CAD. Lets say the bid is 1.5583 and ask is 1.5590. The midpoint is them added and divided by 2. In this case 1.55865‬. However you need to take the 1.55865‬ and multiply it by (1-.5) So we now we have 1.55085. Take our new number 1.55085 x 200. Now we are left with 310.17 CAD. Had they not used the new method we would be left with something close to 1.5583 X 200 = 311.66. In this example, the lost profits is 311.66 - 310.17 = 1.49 CAD.

So to answer the question for 20,000 EURUSD it will cost an additional 1.49 CAD.

Here is what is on their website.

Home currency conversion with OANDA (Canada) Corporation

This FAQ contains the following information:

What are currency conversion fees?

When will I be charged a currency conversion fee?

How are the fees included in currency conversions?

Example 

What are currency conversion fees?

Trading products in a different currency from your account’s home currency will incur a currency conversion charge.

OANDA charges a 0.5 % mark-up on the midpoint price at the time of conversion. This is the mark-up/mark-down portion applied to currency conversion rate.
When will I be charged a currency conversion fee?

Home currency conversion charges are applicable only when a trade/transaction is conducted in a different currency to the account’s home currency, and therefore needs to be converted to that home currency. It is applied to any realised profits and losses, adjustments, fees and charges that are denominated in a currency other than the account’s home currency and as such, needs to be converted to the account’s home currency.

How are the fees included in currency conversions?

Below is the methodology of how OANDA clients’ transactions are converted to the account’s home currency:

Formula:
New bid = midpoint price x (1 - x%)
New ask = midpoint price x (1 + x%)

Where x% = mark-up (0.50%)
Midpoint price = (ask + bid)/2
Example

Assumptions:

A client has an account denominated in GBP. They opened a long position on 1 unit of US Wall St 30 @ 29,000 and closed their trade at 29,100. They generated a profit of 100 USD.

A client has an account denominated in GBP. They opened a long position on 1 unit of US Wall St 30 @ 29,000 and closed their trade at 29,100. They generated a profit of 100 USD.

How this is calculated?

In order to convert 100 USD of profit to their account home currency (GBP), they would use the USD/GBP exchange rate plus the currency conversion fee.

Let’s assume the USD/GBP exchange rate is:
(Bid) (Ask)

0.77000

0.77005

In this case, the profit is a credit to the account, so the bid price is used (if it had been a debit as a result of a loss, the ask price would have been used):

Profit converted to GBP without the mark-up = 0.7700 X 100 = 77.00 GBP

However, OANDA’s methodology is to charge a mark-up on the mid-price for the currency conversion to a client’s account’s home currency:

Midpoint price = (0.77000 + 0.77005)/2 = 0.770025

Calculation:

Fee adjusted exchange rate to convert USD to GBP = 0.770025 x (1 - 0.5%) = 0.766174875

The 100 USD profit on the trade will result in a credit to a client’s account when it is denominated in GBP of: 0.766174875 X 100 = 76.61 GBP

This is 0.39 GBP less than using the straight exchange rate and represents the cost of trading in USD when the account is denominated in GBP for this example.

Its an additional expense for sure but it appears rather small.

NScrilla,

Thanks a lot for your answer. it does not seems to be a lot. I am not sure when they are going to implement it given the fact we have new corona emergency

Oh no worries i had to calculate it myself to figure it out anyways. I’m getting that you use Oanda also. I think there’s a high probability the change gets put on hold for awhile. The email that they announced it said there would be more follow up but i have yet to see it and Q2 is rapidly approaching.