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JUN 25, 2018

Lowering Your Foreign Exchange (FX) Costs through effective Transaction Cost Analysis

An introduction to New Change FX

New Change FX (NCFX) was founded in 2012 with the goal of providing clients with an independent means of accurately assessing transaction costs in Foreign Exchange. The founders of NCFX have backgrounds in FX trading and Asset Management and have therefore seen the FX business from the perspective of both price maker and price taker. This unique perspective drove us to recognise that the biggest issue for any customer is in finding data that is independent of the customer’s own trading arrangements. NCFX therefore calculate an FCA regulated, independent mid-rate against which transactions can be measured. NCFX customers can understand and measure FX costs against benchmark rates that cannot be influenced or altered by their chosen liquidity providers.

Why spread alone tells you nothing about your costs

FX pricing is assumed to be about ‘spread’, that’s to say the difference between the bid and the offer. For example, a client might assume that if a price was made of 1.3262 – 1.3264 in GBP/USD, then the spread is the 2 pips of difference between the bid and the offer, and the cost is the 1 pip from the midpoint of the two prices.

The issue for the client is that they are obliged to believe that the midpoint of the two prices is in fact the midpoint of the market. This is often not the case for a variety of reasons, not least of which is the price-maker’s desire to make money. So, the reality is more likely to look like this:

The true midpoint of the price is at 1.3260, but the client is being read as a buyer of GBP with an actual cost of 4 pips, not a notional cost of 1 pip. This is known as the ‘skew’ of the price. Banks that are good at ‘reading’ your business – predicting your activity – will tighten spreads whilst increasing skew to maximise their profits. The spread is used attract clients, with predictable business, that view spread as a simple measurement of cost.

Why an independent benchmark is key

When making a price liquidity provider firstly considers their own liquidity, and then skew the price for each client according to a sophisticated model that considers credit, market conditions and the client’s likely activity. All historic client trade history is logged and this adds to the richness of this data.

It is impossible to identify the real cost of enacting business without a benchmark rate that comes from outside of the client’s trading infrastructure. By using an independent midrate, it is easy to compare liquidity providers and to understand their attitude to your business. By using a midrate to compare your activity against, a client can also be sure that they are using the same starting point for an assessment of their business as the liquidity provider itself is using internally.

Using NCFX to lower transaction costs

NCFX does not exist to argue that you should use bank or technology A or B. We are not brokers ourselves. We simply measure costs.

NCFX can be used as an automated component of your trading process. You simply submit your concluded trades to an SFTP location either inside your own infrastructure or within the NCFX infrastructure, and a results file is returned with the calculations you have specified. This can be linked to NCFX visualisations and reporting, or you can upload it to your own data visualisation tool.

Once costs are understood, achieving lower costs is simply a question of calling describe yourself essay providers and discussing costs with them. We generally see that costs (in BPs) drop significantly through this process:


Using independent midrate data you can use the same information a bank uses when they make you a price, and assess your costs accurately across all providers. Having done this, FX costs become simple to understand, and simple to manage. NCFX would welcome the opportunity to discuss this is more detail with you and can be contacted via info@newchangefx.com.


Shining a light on the true costs of trading foreign exchange.

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Belle House

1 Hudson’s Place

Platform 1 Victoria Station



Tel: 020 8152 4312

Email: info@newchangefx.com

Corporate Responsibility. NCFX adheres to the principles set out in the following international codes of ethical conduct: OECD Guidelines for Multinational Enterprises, UN Global Compact, UN Guiding Principles on Business and Human Rights, ILO Conventions: Child Labour (C138, C182); Forced Labour (CO29, C105); Discrimination (C100, C111); Freedom of Association (CO87, C098).

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