An In-Depth Interview with Our Head of Dealing

Rebate Tickmill

Our main aim is to be the lowest-cost provider in the Retail FX & CFD Brokerage space. It’s our mission to offer a competitive yet reliable brokerage service and, provide our global client base with the best pricing, regardless of changing market conditions.

Tickmill also offers an institutional liquidity solution. We’ve designed it specifically for institutional and high-volume traders looking for easy and quick access to institutional FX and CFDs on indices and commodities. Cultivated to create exceptional conditions such as ultra-low spreads, super-fast execution, and competitive commission rates, it’s an unbeatable offering.

So, Johnny, what is liquidity?

Liquidity is the main element that makes any market efficient and competitive. It’s the extent to which a product or asset can be bought or sold at a stable price that reflects its real value. In simple terms, it comes down to the fact that if there are more buyers and sellers in the market, then the liquidity will be deeper.

For a market to be highly liquid, there must be a substantial number of buyers and sellers. In FX, the liquidity is measured by the depth of the market, the trading volume, and the Bid/Ask Spread. The quality of the liquidity correlates directly to the quality of the trading experience.

Who are the Primary Liquidity Providers (LPs) in FX and what are their roles?

The primary LPs in the FX market are the large investment banks and financial institutions. They are the ones willing to quote a buy and a selling price on an instrument to their counterparties. The quotes they provide are usually based on how they anticipate currency movements will take place and what they believe the counterparty might be interested in doing. They often make their money by taking the counter position in the trade rather than relying on the spread.

In recent years, Non-Bank LPs have started playing a vital role in providing and improving access to liquidity in OTC FX products. Firms like XTX Markets have ranked in the top 5 largest FX liquidity providers globally.

So, it is better to work with multiple liquidity providers?

The higher the concentration of Liquidity providers the more competitive the environment will be in pricing the instrument. The more liquid an asset is, the tighter and more readily available the price will be. However, having multiple LPs can have its drawbacks. The broker will need to split resources and capital requirements, which is unwieldy and makes the business susceptible to errors.

At Tickmill we carefully select our LPs and constantly monitor their performance based on various metrics.

OK. So, what are the metrics that you monitor?

  • Response Time / Latency
  • Execution Speed
  • Spread
  • Fill Ratio
  • Slippage
  • Market Impact

I’d like to understand a bit more about who Tickmill’s Trading Counterparties are & the liquidity network constitutes. Can you tell us a bit more?

We’re connected to a large number of Liquidity providers that include Tier1 Banks, Non-Bank Market Makers, Prime of Primes & ECN Trading Venues.

Tier1 Banks Include: Barclays, JPMorgan, UBS, Deutsche Bank, Citi, Goldman Sachs, HSBC

Non-Bank LPs Include: XTX Markets, HCTech, Citadel Securities, Jump Trading

Prime/Pops: Saxo Bank, ISPrime, CMC, ADMIS, CFH

ECN Trading Venues: 360TGTX, LMAX

Wow, that’s quite a list! So, why are Tickmill’s Spreads lower than its competitors?

As one of the largest brokers in the world, we have spent years building a deep liquidity network and investing in our pricing technology. We capitalize on our established institutional relationships across the globe to provide deep liquidity pools with low-latency connectivity and extra tight pricing.

Our advanced order routing capabilities ensure client fulfillment even during the most volatile market fluctuations. Our highly developed liquidity networks provide intuitive, customizable pricing to facilitate superior trade transactions and reduce each client’s cost of execution. This also allows us to cater to all client types and all different kinds of trading strategies.

With all the investment in building the liquidity network, can you tell us more about the Infrastructure & Pricing Technology?

Our servers are located at the Equinix LD4 (in London, United Kingdom) and Equinix NY4 (in New York, United States) which are the world’s leading sites for FX low latency connectivity. To ensure ultra-low latency connectivity, we have established cross-connects with our Liquidity providers combined with state-of-the-art price aggregation and execution technology. For the past 5+ years, we’ve partnered with OneZero which is a global leader in trading technology and has been key in helping us achieve our current position.

A solid optimized technology infrastructure plays a large role in providing a seamless trading journey for the clients. We believe that investing in technology is one of the main factors for future growth and retaining quality clients.

Do you aggregate liquidity between different LPs?

In short, yes. To be able to get the tightest spreads, we aggregate pricing from various LPs and transmit the best bid and best ask from the aggregated pool to our clients. This will also ensure that in the case the connection with any single LP drops, there is a constant back-up that guarantees that the trading experience of the clients is not interrupted.

There are so many brokers out there advertising low spreads but they don’t seem to maintain the promise. How does Tickmill ensure that the current tight pricing will not deteriorate over time?

Part of our duty in the brokerage department is to monitor industry spreads to see where we stand and be able to offer that genuine trading edge to our clients. We tend to see lots of brokers offering tight spreads for a short period of time, only to see that pricing degrade. This happens because very few brokers have the technology, tools, and experience to be able to manage their flow & relationships with their LPs. Not all trading flow is of the same quality, and if that’s not actively and correctly managed, it eventually leads to problems between the Broker and the LP, which by default negatively affect the spread.

At Tickmill, we heavily rely on technology and experience to manage a large amount of business we face daily. We maintain very strong relationships with our LPs, based on trust and transparency.

We can group flow profiles in a meaningful manner based on several metrics that are closely monitored. We ensure that the flow sent to each LP within that pool is executed correctly upstream on the LP side.

As we know; the majority of clients focus on spreads. So, are there additional costs that they need to be aware of?

The spread is arguably the number one cost traders look at before trading. However, a lot of inexperienced traders tend to ignore other costs and fees that can highly affect their trading.

We’ll give a brief breakdown of these costs and explain where Tickmill stands on each one of them.

1- Spread

2- Trading Commission

3- Currency Conversion

4- Overnight Rollover & Financing (Swaps)

5- Account Balance Interest Fee

6- Inactivity Fee

7- Withdrawal Fee

8- Slippage / Rejections

1. Spread:

The Spread is the difference between the Bid & Ask price of a certain product. The tighter the spread, the lower the cost. At Tickmill we work very hard to obtain and maintain the lowest spreads in the market. Our spreads on FX Majors, Gold, and Major Indices place us among the top 3 providers worldwide based on our market analysis and the analysis of independent third-party providers that we continuously monitor. For example, our spreads on the EURUSD average 0.1 pips throughout the 24h hour trading day and come to 0 pips during the European & American sessions. On Gold, our spreads average 7 cents.

Additionally, given the large increase in demand due to the expansion of our business worldwide, we’ve been adding more liquidity on Exotic pairs. This has allowed us to provide hard to compete with spreads on currencies such as the Turkish Lira, Mexican Peso, and the Scandinavian currencies.

2. Trading Commission:

The trading commission is a charge that is debited from your account at the time you open a trade. The commission is usually charged on a ‘per million basis’ or on a ‘per traded lot’ basis. Brokers that can offer very low / zero spreads will usually be charging a commission.

Less experienced clients tend to forget about the cost of the commission since it’s usually not charged from the balance until the trade is closed. This allows some brokers to advertise low spreads while charging high commissions. At Tickmill with a 1 per side (10 per million) commission on VIP accounts, and a 2 (20 per million) per side commission on a Standard Pro account, our commissions are among the lowest in the industry. Factoring in both our spreads and commissions makes us arguably the lowest cost provider in the Retail FX space.

Let’s illustrate with a simple example:

Let’s assume you’re a Tickmill VIP client.

Tickmill’s spread on USDJPY is 0.2, and the commission on the Tickmill account is 1 per side for every 100K traded. Your total cost for opening a 1 lot trade and then closing it is equal to:

$2 in commission + $1.84 in Spread = $3.84

You’ve also got an account at another broker that has a spread equal to 0 on USDJPY, and a commission equal to $3.5 per lot per side. Your total cost for opening a 1 lot trade and then closing it is equal to:

$7 in Commission + $0 in spread = $7

So, despite picking the 0-spread broker, your total cost was 1.8X more.

By trading with Tickmill you would be saving more than $3 per round lot.

The argument here though is that not everyone can afford 50K to open an account and get VIP status with Tickmill, that’s a completely valid argument. So, in this case, the second-best option would be to open a Pro account that has a $100 minimum deposit requirement only. The spreads match the VIP account’s spreads, but the commission is higher. Despite that, the total cost will remain lower than other competitors.

With the above example in mind, the total trading cost for a Pro Account at Tickmill would be $5.84, which is still roughly 16% lower than that of the toughest of competitors.

3. Currency Conversion Fee

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/CAD, your profits will be automatically converted from CAD back to USD before posting to your account. Most brokers charge a percentage on this conversion and, the fee usually ranges between 0.5% to 1%. This is a fee that a lot of people overlook but, it can add up! This is especially true if you’re trading products that settle in a currency that is different than your account base currency.

At Tickmill we don’t charge any conversion fees, your PL is converted based on the live spot rate.

4. Overnight Rollover & Financing Costs (Swaps)

The rollover cost is something you should be paying close attention to if you hold trades for long periods of time. A rollover, also known as the swap, is the simultaneous closing of an open position for today's value date and the opening of the same position for the next day's value, at a price reflecting the interest rate differential between the two currencies.

Financing cost is another important cost that is usually bundled into the rollover fee. The ‘swap charge’ you see on your account for CFD products is usually financing costs. When you trade CFDs with leverage, your broker is basically lending you money to be able to open a position that you wouldn’t be able to open with your own equity. The broker charges a small fee to cover the cost of the money you've effectively borrowed.

At Tickmill we periodically review our rollover rates and adjust them to fit with current market and industry conditions. Just as with spreads, we leverage our relationships with our LPs to get the best rates possible. Any positive adjustment to the rate, we pass on to our clients.

5. Account Balance Interest Fee

Some Brokers charge interest fees on the account Balance that you hold with them. Given that we’re in a low/negative interest rate environment across the globe, some brokers charge you fees for holding money with them in the currencies such as EUR, CHF, and JPY.

If you have a balance with your broker in any of those currencies, make sure to check whether or not you are being charged. At Tickmill we don’t charge any negative interest on client balances.

6. Inactivity Fee

A lot of brokers charge your account an inactivity fee if you don’t trade for a certain period of time. There is no specific standard that brokers rely on in setting this charge. However, at Tickmill we do not enforce any account inactivity fee.

7. Withdrawal Fee

Withdrawal costs are also an important cost to consider when trading on the Forex market. To withdraw your profits from your brokerage account to your personal bank account, most brokers will charge a withdrawal fee. This is either done to cover payment processing fees or to discourage clients from withdrawing their funds.

Guess what… Tickmill doesn’t charge withdrawal fees either.

8. Slippage / Rejections

Last but not least, there are some indirect costs that clients incur and need to be aware of; those are mainly Slippage and Rejections.

So, what is slippage?

In simple terms, slippage is the difference between the price you saw on the screen before opening a trade and the price at which your trade got executed. When you click the BUY/SELL button on your platform, you’re basically placing a market order with your broker. The broker will try to get you the best possible price in the market, but that doesn’t always mean you will get the price you traded on.

Why does slippage occur?

The most common reason why slippage occurs is because of an imbalance between buyers and sellers.

When does this imbalance usually occur?

Slippage most often occurs during periods of low liquidity (such as Market Open, Rollover Period, Holiday sessions) or very high volatility (such as major financial announcements, unexpected news, important economic events, or simply during a sharp market move).

It is important to mention that the size of the trade plays an important role in determining whether the clients will be filled at the price they see on the platform or will be slipped.

Most platforms in the Retail FX space allow traders to see the Top of Book (ToB) price. The ToB liquidity may not be always large enough to cover a large order, that order would sweep the liquidity book and be filled on a VWAP (Volume Weighted Average Price) basis depending on the available liquidity. That’s why it’s important to trade with brokers that have solid liquidity relationships with major liquidity providers.

So, in summary, being slipped is an indirect cost that a trader should keep in mind.

The same applies to trade rejections, having your trade rejected is by default an opportunity cost due to the lost opportunity. Even though it is harder to quantify it relative to slippage, it is definitely something that you should be monitoring very well. After all what’s the point of having extremely competitive spreads if the broker can’t honor them.