Introduction to "Click 365" you may not know as much as you think: Part 2 Comparing Over-the-Counter Trading and Exchange Trading [Onishi Yohei]
Profile of Yohei Onishi
Financial journalist. After working at a publisher, he became independent in 1995 and has contributed articles focused on finance and economy to money magazines, business magazines, weekly magazines, and more. He has conducted numerous interviews with top executives of publicly listed companies, analysts, and strategists active at the front lines of the market. He is well-versed in FX and financial trading in general.
*This article is a reprint/edited version of an article from FX攻略.com October 2018 issue. Please note that the market information written in the main text may differ from current market conditions.
Market exchanges make it easier to compare brokers
While general FX is over-the-counter, “Click 365” is an exchange-traded product. Here, we will properly explain the differences between the two. First, over-the-counter trading is conducted at each FX company based on its own discretion and responsibility. It is essentially a relative trade, where the FX company offers its own conditions (spreads, swaps, etc.), and investors trading accordingly engage in the transactions.
In contrast, exchange trading is conducted on a common exchange (Tokyo Financial Exchange) no matter which brokerage handles it. The rates and other conditions are presented by the exchange, so there is no difference among handling companies (though some brokers charge a separate transaction fee, and the amount is set differently by each).
In fact, the foreign exchange market (the interbank market) itself also trades on a relative basis. Banks and currency brokers (intermediaries) quote conditions, and transactions are executed as investors respond to those conditions. Individual investors are not permitted to participate in the interbank market. Therefore, FX companies quote spreads and other terms based on conditions in the interbank market and relay individual investor orders accordingly.
In other words, the rates and other terms presented by FX companies to individual investors are not identical to those in the interbank market at that moment. A spread equivalent to an intermediary fee is added, and the width varies by FX company. Naturally, some providers offer more favorable conditions to investors, while others impose higher costs.
In short, when using over-the-counter trading, it is essential to rigorously compare each FX company and choose the one offering the most reasonable terms. The heavier the cost burden, the more profits are eroded. In that regard, “Click 365” narrows the number of handling companies to about a dozen, and spreads are common, so you can simply compare differences in transaction fees.
