In recent years, the names of Swiss international banks have often appeared in China and Asia’s foreign exchange markets, such as Dukascopy, Swissquote, etc.

These banks are very large and their businesses include traditional asset management, savings and credit. At the same time, they are also important players in the global foreign exchange market. Among them, Dukascopy Bank and Swissquote Bank have only begun to cultivate the retail market in recent years, but their development speed is very rapid. Since the European market is more conservative and saturated, the Asian market has become the focus of these Swiss foreign exchange brokers' business.

Dukascopy Bank has offices in Shanghai, Moscow, Hong Kong, Kuala Lumpur, Kiev and other Asia-Pacific and Eastern European regions. The bank also acquired the Japanese company Alpari K.K. in 2015 and began to launch foreign exchange operations in this market.

If you need to open an account, you can directly log in to Dukascopy's official website to apply. In the past, the way to open an account was to witness the account opening offline and open the account by courier identity certificate, which was more troublesome. Now friends with passports only need to witness the opening of an account via video, which greatly saves everyone’s precious time.

Let’s talk about the transaction costs that everyone is most concerned about.

Transaction costs include spreads and handling fees. Let’s talk about spreads first. Spreads are the difference between the buying price and selling price of a currency pair.

1. The smaller the spread, the smaller the deviation between real trading and backtesting.

This may sound strange, but there is quite a lot of knowledge involved.

Regardless of manual trading or quantitative trading, when backtesting historical data, 99.9% of the time the data used is a one-dimensional time series, and each time point corresponds to a price. This is a simplification of the real situation. The actual situation is that at any point in time, any trading product (stocks, foreign exchange, futures, options, etc.) has at least two quotes: the buying price and the selling price. When backtesting a trading strategy, one of the prices is usually used: the bid price, the ask price, or the mid-price (the average of the bid and ask prices).

The smaller the spread, the smaller the difference between the buying price, selling price and the middle price, so the accuracy of backtesting using any one of the prices will be relatively higher. Any trading strategy will set trading rules, and if there are rules, there will be thresholds. We use a large amount of historical data backtesting to determine the optimal parameters. The larger the spread of the foreign exchange platform, the greater the possibility of deviation from the backtest data, then the optimal parameters determined through historical data are likely not optimal. Therefore, spreads are an extremely important but easily overlooked factor in a trading strategy.

2. The smaller the time scale of the trading strategy, the greater the impact of spreads on transaction costs.

The time scale of the trading strategy refers to the period of the K-line. Some people use the daily K-line (D: Day) for stock trading. The time scales commonly used in foreign exchange transactions include: hourly K-line (H1: Hour 1); Speculators for arbitrage trading may choose the 5-minute K-line (M5: Minute 5). The smaller the time scale, the smaller the range of price fluctuations and the greater the impact of spreads. For example, the euro against the U.S. dollar (EUR/USD) has a daily fluctuation range of about 0.00448 (i.e. 44.8 points) and a fluctuation range of about 0.00042 (i.e. 4.2 points) every 5 minutes. If the spread of a certain foreign exchange platform is 2 points, for traders using M5, the spread accounts for 50% of the 5-minute fluctuation (2/4.2), while for traders using the daily line, the spread only accounts for the fluctuation 4.5% (2/44.8). If a trader perfectly buys at the lowest point of the 5-minute K-line and sells at the highest point, he makes a profit of 4.8 points, but the spread of the trading platform is 2 points, then the trader makes a net profit of 4.8-2=2.8 points, of which close to 50% of the proceeds are collected by the trading platform in the form of spreads.

If the same trading strategy is used and the spread of the trading platform is 0.2 points, then the trader's net profit is 4.8-0.2=4.6 points. Therefore, the impact of spreads on profits deserves attention.

The picture below is the real-time spread table of Dukascopy Bank. You can see that its spreads are very low and conscientious in the entire foreign exchange industry.

Let’s take a look at the handling fee (trading commission). Dukascopy’s handling fee is related to the deposit amount. See the figure below for details (handling fee per ten lots):

Total Generally speaking, Dukascopy's transaction costs should be at the lower-middle level in the industry.

Let’s talk about Dukascopy’s financial security, focusing on Dukascopy’s regulatory agency - FINMA.

The Swiss Financial Market Supervisory Authority (FINMA) is the Swiss regulatory agency responsible for supervising all financial companies in Switzerland, including banks, stock markets, insurance companies, brokers and other financial market participants.

FINMA was founded in 2007 and is headquartered in Bern, the capital of Switzerland. Before FINMA, Switzerland established a number of different regulatory authorities, and the government decided to centralize regulatory powers in one agency to unify domestic regulatory processes and standards. FINMA is independent from the Swiss Ministry of Finance or the government and is only accountable to the Swiss Parliament.

As such, its regulatory framework is entirely developed by Parliament, ensuring that all regulated companies adhere to the highest standards of conduct.

These regulatory laws are very important for rectifying Switzerland's financial market. Switzerland is a neutral country, and its economic turmoil will not have a great impact on the financial market. Moreover, the country is famous for its high level of protection of investor funds. Therefore, Switzerland has always been considered the safest country for customer funds.

Foreign exchange brokers regulated by FINMA are also highly trusted. In addition to very strict regulatory regulations, FINMA also regularly hires third-party service providers and auditors to conduct internal reviews of financial market participants. Therefore, the regulatory agency has the ability to independently supervise the activities of all companies and individuals and promptly combat illegal activities such as financial fraud.

Foreign exchange brokers under FINMA supervision

According to FINMA requirements, Swiss licensed foreign exchange brokers must register as banks. Almost all Swiss foreign exchange brokers are also liquidity providers and even cooperate with other liquidity providers around the world to provide the best liquidity for a wide range of financial instruments around the world.

In fact, many major foreign exchange brokers in other regulated markets also play the role of intermediaries, or become automated transaction processing platforms to provide a market-making trading environment. Most ECN and STP FX brokers in many countries often participate in a global network of brokers and banks to provide deep liquidity, while market makers match customer orders.

It turns out that the compliance of Swiss foreign exchange brokers is much higher than that of other countries, even higher than that of brokers regulated by the United States and the United Kingdom. Foreign exchange fraud under FINMA supervision is also much lower than in other countries.

The flip side of this high degree of regulation is that it is too costly for a Forex broker to obtain a Swiss regulatory license. Based on the deposit amount of foreign exchange broker customers, FINMA requires brokers to have a minimum capital of 1.5 million Swiss francs. The license review time is usually 6 months. In addition to the above several foreign exchange brokers, brokers regulated by FINMA also include a few such as Saxo Bank and IG Group's private bank IG Bank SA.

For customers, Swiss-regulated brokers are very reliable, but they require higher margins and lower leverage ratios. In addition, the ECN trading model may be more suitable for high-net-worth foreign exchange traders. It can be difficult for small traders to open an account and maintain trades with a Swiss-regulated Forex broker.

FINMA has a highly detailed review process for granting foreign exchange broker licenses, such as whether operating funds are sufficient. FINMA requires all foreign exchange brokers in Switzerland to still have the ability to maintain customer orders even during unexpected market fluctuations. In the past two years, the market has experienced several extreme events, such as the Swiss franc crisis. Many brokers have had no choice but to go bankrupt due to lack of funds. However, Swiss foreign exchange brokers have rarely been affected.

In addition, under FINMA supervision, if a broker goes bankrupt, investors have a maximum compensation of 100,000 Swiss francs.

Can FINMA regulated foreign exchange brokers provide services to the EU?

Switzerland is a neutral country. It does not join any alliance or camp, but it maintains bilateral agreements with many countries. Switzerland is not an official member of the European Union, but it can conduct free trade with EU member states through the European Economic Area (EEA) agreement. Therefore, Swiss foreign exchange brokers can fully provide services to EU member states. Of course, EU FX brokers can also operate in the Swiss market, provided they comply with Swiss FX regulatory requirements.

Therefore, platforms like Swiss Dukascopy, which have bank qualifications and low transaction costs, and can trade in ECN mode with a minimum deposit of only 1,000 US dollars, are already rare in the foreign exchange industry. It exists, let’s all do it and cherish it.