FxPro Education

Explaining the Agency Model

Explaining the Agency Model

In the middle of 2012, FxPro moved to an agency model of trade execution. It is useful to explain what this means for you as a client and for us as a company.

An ‘agent’ can mean many things in finance, but generally it is thought of as someone or something that helps to facilitate a transaction, most often through matching buyers and sellers. The agent does not take on the risk of such transactions itself. Think of the difference between a real-estate agent and a property developer. The latter owns property in between buying and selling, whereas the former merely acts as a go-between for a buyer and a seller.

When a broker uses an agency execution model, it acts as the bridge between the client and the FX market. In doing so, it aggregates prices from major banks and displays these on its trading platform.

Implications for traders

An agency broker earns a small mark-up on each trade, so it has every incentive to ensure that the prices it receives from banks are as competitive as possible, otherwise its mark-up will be reduced or clients will see less competitive prices.

The agency also wants to ensure that clients trade successfully, because it earns money only from the small mark-up charged to clients. As with nearly any business, gaining new clients costs a lot more than retaining existing ones.

Because the agent stands between the bank and the client, the banks have no knowledge of where any orders (pending, profit or stop-loss) are placed. Your agency broker does, but it has no incentive to cut your winning trades or keep your losing trades running.

Implications for brokers

It should be clear that an agency broker wants you to trade successfully over time, given that it gains only from the spread charged, and not whether the client wins or loses.

An agency broker also benefits from ensuring that its clients are educated about FX markets, about trading and understanding risk, helping them trade more successfully.

In order to keep prices offered to clients competitive, an agency broker should give clients access to a wide pool of liquidity providers (banks) and work to ensure that the liquidity is the best on offer in the market.

FxPro UK 13-14 Basinghall StrCity of London, EC2V 5BQ

FxPro Financial Services1 Karyatidon, Ypsonas4180, Cyprus

FxPro Australia15 Lime St, S306, Sydney, NSW

www.FxPro.comwww.FxPro.co.ukwww.FxPro.com.au

FxPro Education

Explaining the Agency Model

FxPro UK 13-14 Basinghall StrCity of London, EC2V 5BQ

FxPro Financial Services1 Karyatidon, Ypsonas4180, Cyprus

FxPro Australia15 Lime St, S306, Sydney, NSW

www.FxPro.comwww.FxPro.co.ukwww.FxPro.com.au

Trade matching. How it Works

Implications for Trading

The previous pages highlight why the agency model more closely aligns the interests of clients with those of the broker. In terms of the implications for trading, the main points to note are;

You are not revealing information to the other side of your trade (i.e. the banks) on where your take-profit/stop-loss levels and other pending orders may be. As with any transaction, it is beneficial (to the trader) for the market to have as little information as possible regarding the real intentions and tactics of the trader.

You should have access to un-paralleled liquidity as offering competitive pricing through a range of liquidity providers is in the interests of the agency brokers, just as a shop should strive to provide goods people want to buy at prices that are competitive.

You should have confidence that your broker is working for you, not against you. This should allow you to concentrate on your trading strategy and the broker to ensure that you trade successfully by providing you with the best tools, information and education to do so.

FxPro Financial Services Ltd is regulated and authorised by the CySEC (license no. 078/07) FxPro UK Ltd is regulated and authorised by the FSA (registration no. 509956)FxPro (Australia) Pty Ltd (ABN 68 143 740 603) is regulated and authorised by the ASIC (AFSL no. 405750)

Disclaimer & Risk Warning

Disclaimer: This material is considered as a marketing communication and does not contain and should not be construed as containing investment advice or an investment recommendation, or, an offer of or solicitation for any transactions in financial instruments. Past performance does not guarantee or predict future performance. FxPro does not take into account your personal investment objectives or financial situation and makes no representation, and assumes no liability to the accuracy or completeness of the information provided, nor for any loss arising from any investment based on a recommendation, forecast or other information supplied from any employee of FxPro, third party, or otherwise. This material has not been prepared in accordance with legal requirements promoting the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. All expressions of opinion are subject to change without notice. This communication must not be reproduced or further distributed without prior permission of FxPro. Risk Warning: CFDs, which are leveraged products, incur a high level of risk and can result in the loss of all your invested capital. Therefore, CFDs may not be suitable for all investors. You should not risk more than you are prepared to lose. Before deciding to trade, please ensure you tunderstand the risks involved and take into account your level of experience. Seek independent advice if necessary.

FxPro UK 13-14 Basinghall StrCity of London, EC2V 5BQ

FxPro Financial Services1 Karyatidon, Ypsonas4180, Cyprus

FxPro Australia15 Lime St, S306, Sydney, NSW

www.FxPro.comwww.FxPro.co.ukwww.FxPro.com.au

FxPro Education

Explaining the Agency Model