OANDA was the first to offer fractional pip pricing, or pipettes, to its trading platform.

Traditionally, spreads are denoted in “pips”. For example, if the EUR/USD rate is quoted as 1.2150/2, then the spread is equal to 2 pips (calculated as 1.2152-1.2150). With the introduction of “pipettes”, an extra digit of precision is used to quote rates. For example, the EUR/USD rate might then be quoted as 1.21501/19, where the spread then is equal to 1.8 pips (or 18 pipettes).

OANDA introduced pipettes for a simple reason: to further reduce spreads.

With the extra digit of precision, it is possible to adjust rates to a finer level of granularity. Being able to adjust rates to a finer granularity gives OANDA greater flexibility in pricing, so it can maintain its already tight spreads and tighten them even further.

To increase the profitability of our clients’ trading strategies, OANDA strives to offer the narrowest spreads in the industry without compromising our high standards of risk management. We use state-of-the-art technology and automation to narrow spreads overall and to minimize spread increases during periods of market turbulence and when markets are illiquid.

Why this focus on spreads? Because it makes a huge difference to traders. Consider:

A professional trader uses an average leverage of two (e.g., US$1 million in capital and an average position of US$2 million), and has a return target of 25%. If he opens and closes five positions per day on average, then with a

• 2-pip spread: trader’s spread costs are 200% of return
• 3-pip spread: trader’s spread costs are 300% of return

The difference in spread costs can make the difference between being profitable and unprofitable:

		@ 2 basis points = profitable
Same trading strategy
		@ 3 basis points = no profit