Bid-Ask Spread on Oil: CMC vs FXCM
Firstly a note on spreads: Today Mr J (one of my trading buddies at the office – remember try not to do it all alone!) pointed out that CMC Markets offers trading in Crude with a 3.5 pip spread – compared to FXCM’s 5 points – that’s a 30% saving. Of course this assumes that all other things are equal – the most relevant issue being transparency and efficiency of fills. I will see how CMC performs on that – ideally I will process some oil orders on both platforms simultaneously to enable a direct comparison. Some people will say that a spread difference of 1.5 pips is not really going to make a significant difference at the end of the day. Well if you are going for 30-40 point target/stop position in oil, then 1.5 pips is similar to adding one or two “zero” fields on the roulette wheel in the casino. See my earlier “Trading compared to Roulette” post to illustrate the impact of transaction costs in trading.
Coincidentally, just yesterday (whilst I was admiring some 20th century art at the Tate Modern on my day off) I had thought about striking oil from my list of instruments due to the high transaction costs. So making this find today was awesome – thanks Mr. J – reducing the spread from 5 to 3.5 might just allow me to keep going with oil.
The Trade ->
Today I took one trade in Oil – it was a live trade for testing purposes, thus I was risking a tiny amount. This trade may help to illustrate some of the refinements I have made to my trading approach. I was using the 5M chart to execute the trade. I looked at the 1H chart for the trend. So far this week oil has taken quite a tumble falling close to $3 (i.e. 300 points!) in yesterday session. However today it consolidated most of the day before forming a rounding bottom on the 15M chart. Rounding bottoms are reversal patterns. Further the rounding bottom formed just above the long-time lows of around $73.50. Notice that there had also just been a bullish XO on the 5m EMA. So I am trying to look at these various factors in making a decision to trade. I went long at $73.80, with a stop of $73.45 and set a target of $74.15. The $74 handle was just in front of the target, which is not ideal. However my target was at a very recent supply level and it was on a prior s/r line. After I entered price went sideways for a bit before started to rally a little. I raised my stop to $73.66. Price hit my target fairly soon afterwards – less than thirty minutes in all. So on this trade I risked 35 pips to make 30 pips – that goes against the conventional wisdom of having winners bigger than your losers – but hey do what you like!