Estimated 1 minute read


Investors are being left in the dark as to the huge additional costs their asset managers are incurring to transact highly complicated derivatives.

OpenGamma research shows that transaction costs incurred when trading FX Options can be misrepresented to investors by as much as 400%. Transaction costs are the difference between the price of a trade an asset manager decides to buy or sell, and the actual price of the transaction, which could include fees such as commissions and taxes.   

When trading FX Options, asset managers have to factor in costs driven by unpredictable factors, including maturity of the asset, volatility and widening or tightening of spreads. The problem is that pricing information cannot be directly seen in the market for certain derivatives, making calculating these costs virtually impossible.

OpenGamma research shows that transaction costs incurred when trading FX Options can be misrepresented to investors by as much as 400%. Click To Tweet

Pressures to display greater transparency to investors have been heightened due to MiFID II – which forces asset managers to disclose in both percentage and monetary terms the costs involved in buying and selling securities. Our research also suggests though that the difficulty in calculating the implicit costs of transactions, particularly when trading illiquid derivatives, is due to prices not being directly observable. 

Our CEO Peter Rippon has commented on the findings: “Ultimately, it is the end-investor that will continue to suffer unless asset managers reform their approach to cost analysis. The underlying issue is that too many asset managers continue to follow the broad nature of the MiFID II rules, applying a ‘one-size fits all approach’ for non-standardised derivatives, which only leads to inaccurate results. Without prescriptive details within the regulation, it is very easy to overestimate. Until a fresh approach to analysis is widely adopted, investors will continue to be left blissfully unaware about how much of their money is being gobbled up by transaction costs”


Recent posts


Sign up to get our insights delivered straight to your inbox >

Privacy Settings
We use cookies to enhance your experience while using our website. If you are using our Services via a browser you can restrict, block or remove cookies through your web browser settings. We also use content and scripts from third parties that may use tracking technologies. You can selectively provide your consent below to allow such third party embeds. For complete information about the cookies we use, data we collect and how we process them, please check our Privacy Policy
Youtube
Consent to display content from Youtube
Vimeo
Consent to display content from Vimeo
Google Maps
Consent to display content from Google
Spotify
Consent to display content from Spotify
Sound Cloud
Consent to display content from Sound