A Review of

Currency Management Corporatiion

It used to be the case that spot foreign exchange trading was only accessible to traders who were prepared to deal in large amounts. The trader who wanted to trade small sizes would either not be catered for or would be charged large spread prices that made trading on all but the longest time frame prohibitive. However with the growth of the internet had come new companies offering interbank foreign exchange trading at much more competive rates. The reason for this is that much of the trading is now more computerised and more efficient which means that the spreads can be decreased and the minimum transaction sizes reduced as well.

One of the pioneers of this service is Currency Management Corporation (CMC) which offers spot forex trading at interbank rates with small minimum deal sizes either over the phone or using their Market Maker trading software. CMC offer forex quotes with fixed 5 pip spreads (except when market conditions are extremenly volatile) for the major rates on deal sizes of $100,000 (or equivalent) or more. This might be a problem for traders of larger sizes who would normally expect narrower quotes though it is possible that this could be accomodated some how. The minimum account size is $20,000 though interest is only given on accounts of size $50,000 or more. CMC are regulated by the UK's Security & Futures Authority (SFA) and so clients are protected from the shady practices that have been associated with some spot forex operations in the past. However, the client has to sign agreements to be treated as a non-private client (as defined by the SFA) which means that the level of protection offered is less than for trading futures for example. This would include the lack of automatic compensation should CMC go bust. In addition the client has to sign an agreement that their funds are not held in segregated client accounts which again could cause problems should CMC go under.

As far as trading is concerned there are two ways of doing this. Traders can use the phone or the internet. The most appealing method is definitely the internet trading which is done using CMC's Market Maker software. The client establishes an internet connection and then starts up the Market Maker software. Live quotes are then immediately available for the most actively traded rates and cross rates. In theory these quotes can actually be traded whereas for normal forex operations one has to ask for a quote before dealing. To trade one simply double clicks on the desired rate, say Dollar/Mark whereupon an order ticket appears. The client then fills in the trade details such as Buy or Sell, the amount and whether the order is a Market order, a limit or a stop together with an associated price if necessary. The client is asked to confirm the transaction before it is sent off to CMC. Once the order has been accepted and processed then this fact is reported back to the client. This whole process can take the matter of a few seconds.

In practice the system works fine most of the time. However, there are times when the system really slows down to a crawl, especially around the time that the US markets are opening and when there is a key economic report due out. This can make the whole process extremely frustrating at best and at worst one sometimes doesn't know whether an order has got through or not. In such cases I usually resort to using the phone. Occasionally the computers even lock or crash at CMC's end which means that they don't know what your position is which can make things a bit fraught but they write down all the trades and things are sorted out eventually. I understand that many of these problems will be sorted out once the next version of Market Maker is released though it was originally scheduled for February 1998 and there is still no sign of it.

There is one other gripe which is that although the quotes are tradable in theory, CMC do reserve the right to update the quote when you make a request to trade. This is because sometimes the quotes have not been updated for a while and are a bit behind the market or the market may be moving very quickly. In such cases the client is offered a new quote with 10 seconds to accept it or reject it. My one complaint is that one never gets a better quote offered if the market has moved in ones favour, only if it has moved against the position that one is trying to put on. When trying to establish a position and when every pip counts I usually resort to the telephone as the quote received over the phone is guaranteed tradable and is up to the second.

The main worry with spot forex trading is that one is not trading on an exchange where the prices are regulated, the quotes that you are trading off come entirely from the counterparty, CMC in this case. In theory they could offer poor quotes as they will know your market position or even deliberately stop you out as they know where your stops are. In practice I only once had a stop deliberately taken out: during a quiet period the quote was banged down to hit the stop and then moved straight back up again. I immediately rang up to query this and they were very apologetic and re-instated the trade. I can only guess that it was a novice dealer who thought that it was OK to do this. Word would soon get round if a forex dealer were to operate in this manner and they would soon lose their clients. In general I have found that CMC have been very fair in their dealing.

In conclusion, CMC offers a good spot forex trading service aimed at the smaller trader and using cutting edge internet technolgy. Once they get some of their computer problems sorted out to cope with the huge increase in clients that they have had, then their services will be even better.