I have had a real forex trading account with OANDA for three years. My experience with this forex broker is summarized in the detailed review below. But before that, here is the bottom line:

Pros

  • regulated forex broker, large excess capital, good reputation
  • no commission, low spread on EUR/USD and some other currency pairs
  • infrequent slippage
  • offers exotic currencies including CNY, gold, silver
  • trades from 1 unit of the base currency

Cons

  • forex charts with severely limited choice of technical indicators and time-frames
  • frequent and significant widening of the spread
  • very low leverage
  • no hedging
  • expensive automated trading
  • occasional spikes
  • occasional problems with the forex trading platform

Recommended for

  • Carry trading
  • EUR/USD trading
  • manual grid trading

Not recommended for

  • technical trading
  • scalping
  • news trading
  • automated forex trading

Offered currencies

OANDA offers 38 currency pairs. That is much less than you can get for example from Easy Forex (182 pairs), but around the average in the industry. OANDA’s attractive specialty is the Chinese Yuan (CNY), which is technically not yet convertible. Unfortunately, OANDA has set the Yuan’s interest rate to 0.5% despite the official interest rate of 6.93%. This strange policy effectively makes any long positions in CNY/USD too costly to hold. OANDA also offers gold and silver, but there is no oil trading.

Leverage far too low

The maximum leverage is surprisingly small, only 50:1. Although this leverage is sufficient for most cautious traders, it may be too low for scalping and day-trading. 50:1 is the smallest maximum leverage among all major forex brokers. Most of them offer a much higher leverage, sometimes up to 500:1 (LiteForex). I really hope OANDA will follow its competitors in this regard.

Before you start to castigate me for propagating high leverage, here is my story: One of my strategies opens and closes trades once a day. Given the high volatility of the foreign exchange market, I am happy to use the leverage of 10:1. But my other strategy opens trades lasting less than one hour. I have calculated the optimal leverage for this scalping strategy as 100:1. My case demonstrates that OANDA’s low leverage unnecessarily discourages use of some legitimate trading strategies.

Low spread with a little catch

In contrast, the spread on EUR/USD is among the tightest in the industry – 0.9 pip under the normal trading conditions. Although the spread on other currency pairs is less impressive, it is still below the average in the industry. For example, GBP/JPY has a spread of 4.5 pips and USD/HKD of 5 pips.

OANDA’s high spread on exotic currencies and precious metals make these unattractive for short-term positions. On the other hand, almost all forex brokers charge a high spread on exotics because of the low liquidity of these currencies. OANDA’s spread is still reasonable, especially while compared to that offered by other market makers.

OANDA’s spreads are variable, meaning that they can be higher if the liquidity of the market drops. What it means in reality is that the spread does widen considerably during news announcements, during weekends, and even at night. The recent spreads are plotted at here. ONADA’s own graph shows that economic news can easily drive the spread on AUD/USD from 1.8 to 30 pips. Even the otherwise low spread on EUR/USD often increases to 10 pips. The problem is that OANDA defines news announcements quite liberally, so the spread can widen even several times a day.

This practice puts OANDA in a rather shaky position between the two basic types of forex brokers: ECN brokers and market makers. Most market makers maintain fixed spreads all the time. For example, FXOpen‘s spread on GBP/JPY is 6 pips (compared to OANDA’s 4.5), but the broker guarantees it even during news announcements. ECN brokers (such as Fastbrokers) have a high spread in times of low liquidity, but then may decrease it to as little as 0.1 pip. Under the normal trading conditions, OANDA beats most market makers, but its spread is still higher than the spread offered by most ECN brokers. In less liquid periods, OANDA’s spread is generally higher than that offered by its competitors.

Minimum deposit, funding, and withdrawal

The minimum deposit is $100 and you can hold a forex trading account in seven major currencies. For funding and withdrawal, OANDA supports three basic methods: bank wire, check, and PayPal. For some reason, it does not accept credit cards. I have never had any problems with the withdrawal of my profits. The check usually arrives in one week.

Minimum trade size

There are no fixed lots. No mini-lots. No micro-lots. You can trade as little as 1 unit of the base currency if you want. Therefore, you can play a lot with your positioning, creating synthetic crosses or sophisticated grids. Unfortunately, this potential is somewhat constrained by absence of free automated forex trading (see below).

A rather safe broker

OANDA is regulated by NFA and CFTC. Moreover, its large excess regulatory capital should provide some cushion in case of troubles. On the other hand, neither size, nor regulation can make money truly safe. Remember Refco?

Despite this grim warning, I consider OANDA a rather solid and trustworthy forex broker. I have never experienced any slippage with them, although this may have something to do with my infrequent trades (once a day). Please let me know if you have had different experience. There have been some minor problems, though: In last three years, several of my trades have been triggered and then canceled by erroneous “spikes” in the data. This kind of “accident” is really annoying and should have been prevented. Nonetheless, OANDA has refunded all my losses caused by their spikes, so I my generally positive perceptions still holds.

OANDA’s forex trading platform sucks

FXTrade, OANDA’s trading platform, is perhaps the biggest weakness of this forex broker. The platform is web-based and uses Java. Not exactly a mastrpiece of programming, FXTrade eats a lot of your computer’s resources. But what is even more important, the trading platform is not as stable as it should be. FXTrade sometimes just shuts down, restarts or freezes. Sometimes, it does not start at all. That is not fun when you are up to place the most important order of your life and the window of opportunity is closing before your eyes:-)

The choice of technical indicators is very limited and you cannot add or create new indicators. So, forget about the fancy stuff like Bollinger bands around your RSI. Also forget about linear regression and other quite widespread technical indicators that are not included in FXTrade. If you want to use anything more sophisticated than moving averages and MACD, you will need to look somewhere else. I would recommend forex brokers with MetaTrader 4, which is a powerful forex trading platform designed specifically for technical analysis. OANDA supports most of the usual time frames. But for some unknown reason, the weekly, monthly, and 1 second charts are conspicuously missing.

OANDA has not implemented hedging in its trading platform. In order to hedge, you have to use two separate accounts, which is somewhat retarded. Trailing stops are not supported either. OANDA offers automated trading through their API, available in Java, C++, and Visual Basic.net. But the fee is prohibitively high for most traders ($600 per month!). This puts OANDA in strike contrast with the brokers who offer API for free (Fastbrokers) or support expert advisors (EA) in MetaTrader 4 (FXCast, FXOpen, and many other forex brokers).

A different philosophy of rollover interest

A unique feature is that OANDA calculates interest continuously, by second. Other forex trading brokers usually settle the rollover interest once a day. On the one hand, OANDA’s approach is more attractive for carry trading because the compound interest is higher and you do not have to wait until 5pm to exit your position. I also think that the continuous interest is more fair. On the other hand, this feature makes it very costly to short currencies with a high interest rate. This is something you should think about.

Communication

I have never needed OANDA’s customer support, so I cannot really comment on this. They have no live chat, but you can ask for help on a very active discussion forum. Just do not expect that there will be any response from a customer service representative. OANDA’s website (and presumably all other communication) is in English.


Be Sociable, Share!