Since it launched its FXTrade platform in 2001, Oanda has carved out a reputation as an iconoclast and innovator in the foreign exchange industry. By making use of smart risk management tools, it has helped pioneer the delivery of tight spreads initially to retail customers but increasingly to institutions.
While execution in FX is undoubtedly excellent, when it comes to physical transactions the cost of dealing can be exorbitant. You only have to look at the rates offered by most bureaux de change – they might advertise that they are providing a free service, but with spreads often wide enough to drive a metaphorical bus through, there is undoubtedly a large intrinsic cost – it is clear that best execution is not necessarily guaranteed in FX.
That situation looks set to change with the launch of a new service by Oanda. The company is making inter-bank rates or better available to all through its new FXGlobalTransfer subsidiary platform. The company will charge flat fees – $25 for major currency pairs and $60 for more exotic ones – for access to the same rates it provides on FXTrade. The company says that transfers can be made from just a single dollar to $10 million (or £10 million and €10 million).
Transparency
In theory, settlement will occur on the day of the trade. It will be interesting to see how and if the existing physical delivery specialists respond. "Traditionally, the international payments business has been relatively opaque. Many clients don’t know that there can be exorbitant costs hidden in the spreads they have to pay. With FXGlobalTransfer, Oanda is providing the same level of transparency that we offer our FXTrade clients. The focus is on a flat fee. By doing that and offering interbank-like spreads, the service will be far more cost-effective for anyone who needs to transfer funds overseas," says Michael Stumm, founder and joint chief executive of Oanda.
"For the first time, many clients will know the impact of the cost of the spread before making their transaction. This is a service that we believe will change the way the industry does business," he says.