Monday, 16 May 2016

FX Broker Review: LMAX

LMAX are a UK-based ECN broker that I have used and at the time of writing still do use. I first came across them via some promotional material and was blown away by how tight their spreads seemed to be. Up until now most of the retails brokers that I'd come across were Market-maker type of brokers but LMAX were an ECN operation with a very low cost of entry (see the post here for the important difference between Market-maker and ECN brokers). I did further research and decided that I liked them and opened an account. 

It turns out that LMAX are actually primarily (or at least originally) a platform developer and they have some super-fast technology for matching orders etc. so in a sense they are offering their own exchange. They also offer a brokerage service and their web-platform gives you access to their exchange with all the usual functionality that you'd expect. They offer all the major and minor FX pairs that you might expect with quotes from a number of different liquidity providers as well as some CFD offerings on the major indices and commodities etc. All well and good and I had no complaints about their service. After a while I switched over to their Mt4 offering which too all worked fine.

The LMAX web platform - click to enlarge
So how are LMAX compared to other brokers? Well, firstly they're an ECN broker which is important to me. Their pricing is pretty tight (though I've since come across tighter) which is what you expect and hope for from an ECN offering. During news releases the spread quickly reverts back to reasonable levels and there aren't any horrible "air pockets" of liquidity when you're trading. Commissions are reasonable and on the couple of occasions when I've had to ring them up they've been competent and dealt with my queries quickly and accurately.

So, is everything wonderful with LMAX? Well, sadly not. Firstly, their CFD offering are market maker driven and are therefore prone to the usual price manipulation. In fact the example of price manipulation in the Crude Oil CFD contract that I wrote about was on the LMAX platform (see original article here). Fair enough - the CFD's aren't on their ECN and one knows what to expect from a market-maker broker. 

Secondly, and this for me is the killer, LMAX overnight swap rates are outrageous - they're by far the worst ones that I've come across and for me they're a total deal-breaker when it comes to holding positions overnight. Now, I know that swap rates aren't the first thing that people think about when choosing a broker and that's precisely why brokers can be rather devious with these charges (see the article on swap rates here). I did query them with LMAX, kind of expecting that they'd reduce them for me since I'd actually pointed out how expensive they were - but they didn't seem to care.

So, in conclusion, they're a decent enough broker but only if you don't use their CFD's and you don't hold positions overnight.