WARREN, N.J. -- Just as electronic communications networks leveled the playing field for equity trades, the Internet is opening the doors for low-cost foreign exchange trading services traditionally available to only the largest players.
One of the latest to go live is the service offered by GAIN Capital in Warren. GAIN wrapped up initial testing and launched its live, round-the-clock foreign exchange trading service at the end of May. GAIN officials would not release trading volume information after the first week; a spokeswoman said, however, that volume was "higher than we expected. "
Mark Galant, founder and chief executive officer of GAIN, said the service provides small and midsized institutional traders with the same immediacy, pricing and trade transparency usually offered to the very largest FX traders.
The ability to trade directly from live bid/ask quotes is the centerpiece of the GAIN service, which will "level the FX playing field," Mr. Galant said. The service -- which offers commission-free 24-hour trading and provides investors with access to real-time charting and technical analysis tools -- is best suited for investors executing transactions of between $100,000 and $10 million, he added.
Meanwhile, seven of the world's largest financial institutions announced last week the creation of an online FX service for their clients. FXall.com is a joint undertaking by Bank of America, Credit Suisse First Boston, Goldman Sachs & Co., HSBC Holdings PLC, J.P. Morgan & Co. Inc., Morgan Stanley Dean Witter & Co. and UBS Warburg.
FXall is designed to offer clients of the seven banks a low-cost web-based mechanism to access the FX market, according to an Fxall spokesman.
GAIN's Mr. Galant said the $1.5 trillion foreign exchange market has been dominated by large global commercial banks that are able to negotiate favorable interbank FX dealing spreads, usually five points or less on all major currencies. The banks earn a significant portion of their profits by expanding the spread to as much as 100 points for smaller customers executing trades in the market area being courted by GAIN. Using the new system, "institutional and retail traders can execute transactions of between $100,000 and $10 million at dealing spreads of five points or less," Mr. Galant said.
The GAIN system should be attractive to international equity managers that have foreign exchange risk and use currencies to hedge against unwanted exposure to future price movements in the currency market, Mr. Galant said.
GAIN traders don't have to request a price before executing a trade, and online trades are executed and confirmed in seconds, he added. The real-time bid/ask quotes facilitate instantaneous executions and allow investors to compare deal spreads with other pricing services.
The GAIN system also includes order entry capabilities, portfolio management, profit and loss analysis, margin analysis and overnight position management.
Mr. Galant was global head of foreign exchange options trading at Credit Suisse First Boston and managed the FX options desk at Chemical Bank.