Interactive Brokers moves towards extra transparency via Transaction Cost Analysis

North American electronic trading giant Interactive Brokers has just published its regular communique, updating the public on developments within the company over the past couple of months. The latest such publication, dated December 8th, is quite rich in information about the broker’s innovations, among which is the launch of new Transaction Cost Analysis (TCA) reports.

In its essence, the TCA report is a tool that enables traders to check how each of their trades performed when compared to a certain market benchmark. A rule of thumb is that if the reading produced by the TCA is positive, the trade worked in trader’s favor and vice versa.

For example, a trader can check whether a trade or a group of trades have benefited from Price Improvement. That is, a trader can check how the actual transaction price achieved by the broker compared to the National Best Bid & Offer. The TCA report will produce a number, with a positive reading meaning the broker offers price improvement, while a negative meaning that the national best transaction price is better.

Other benchmarks include: Arrival Price, Midpoint Performance and Interval VWAP.

Transaction Cost Analysis applies to trades with any instrument type and is usually available ten minutes after a trade is executed.

TCA reports not only offer traders an insight into whether their choice of a broker was a good one or not. It also helps traders track execution performance and adjust execution strategies.

The launch of the new TCA reports comes along with a wider push by Forex brokers and trading technology companies into transparency. Indeed, FXCM’s new raw spread model is of note, not only as an effort to reduce costs for clients of the broker but also as a way to show traders how transaction costs are calculated and what spreads and commissions actually are. At the same time software developers like Spotware Systems have also stepped up their efforts towards providing traders with extra trading details. You may recall that about a year ago cTrader started offering complete tracking of a position from open til closure.

You can find out more about the Transaction Cost Analysis by following this link.

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