I had on my website that the Oanda API monthly fee should never be more than $200, even if you didn't do any trading for that month. "Ask me how" I said. So somebody asked me how, and I set about doing the exact math to be sure I didn't look like a complete idiot.
Well, it's not $200, it's $400. But it's still not $600, so I'm not a complete idiot, just a partial one :-) *whew, lucky*
Here's what I wrote to that guy:
Firstly, there is no getting around the upfront payment of $600. That buys you 2 months of use, the theory being that you are supposed to use those 2 months to finish off your code and test your software.
Then, after the first 2 months, there is the monthly payment of $600. This is what can be brought down to a maximum of around $400. My website said $200, and that was from a misunderstanding I had. Writing this email forced me to do the figures exactly, so I'm glad you asked.
Also let me say that this strategy is plucked from threads in the
Oanda forum, with a guy by the tag of "dgcfx" having been given the credit there.
Now, the monthly fee is discounted by $50 for every US$1 million worth of trades. So, if you buy and sell US$12 million of currency within the month, the API use is free for that month.
My understanding is that one complete trade, both an opening of a position and a closing, a buy and a sell, is considered twice for the volume calculation. Buy $100,000 of USD, then sell $100,000 of USD, and that adds up to $200,000 units of USD for the purposes of the API fee.
So let's take the worst case - that you didn't trade at all during that month. The fee would be the full $600.
Just before the month ends, you work out how much more currency you need to buy in order to build it up to $12 million worth. In the case that you didn't trade at all, obviously you need to buy and sell the full $12 million.
And this is how to get the monthly fee down to around $400 - you buy and sell and buy and sell currency until you reach $12 million worth. So instead of paying the $600 fee, you pay whatever the spread cost you in those trades.
If you have enough money (unlikely for little guys like me), you can buy and sell $12 million in one go. If not, you buy and sell $100,000 of USD 60 times. Or $200,000 worth of USD 30 times. Or whatever.
Let's do the calculations with EURUSD.
At the time of writing, EURUSD ask was 1.2810, with a spread of 1.5 pips.
We want the contract value to be US$6 million or more, so divide 6,000,000 by 1.2810 to see how much EURUSD we need to purchase. 4,683,841 EURUSD.
EURUSD is always US$10/pip for 1 contract (100,000 units), so it would be US$468.38 for 4,683,841 units.
And because the spread is 1.5 pips, the total spread cost using EURUSD would be $702.57. No good.
Now let's try EURDKK.
The thing about EURDKK is that EUR and DKK are highly correlated, so EURDKK hardly moves, so you have little risk of the price moving a great deal (or at all) in between the buying and the selling.
Further, the interest payment is minimal (measured in parts of a cent), even on such large amounts.
At time of writing, EURDKK ask was 7.4604, with a spread of 5 pips.
And USDDKK was 5.8206.
We want the contract value to be US$6 million or more, so multiply 6,000,000 by 5.8206 to see how much DKK we need to purchase. 34,923,600 DKK gets us USD$6m.
And divide 34,923,600 DKK by 7.4604 to see how many units of EURDKK that equates to. 4,681,196 EURDKK.
At these prices, with the spread at 5 pips, and with that much EURDKK, the total cost of the spread is USD$402.58.
I won't go into how I calculated the cost of the spread in this case, but rest assured I confirmed it by placing this trade in my Oanda game account. (Actually I used a third of the volume, and it cost me $134. $134 times 3 = $402).
The original post in the Oanda forums had it costing around $300, but there were posts later on that mentioned Oanda had made the EURDKK spread wider since then, thereby making this tactic more expensive than before.
Remember, $400 is the maximum amount to pay if you didn't do any trades at all for that month. If you use automated trading software, you should theoretically be able to do quite a lot of trading.
I hope that's answered your question. I'm really sorry about not being correct with $200.
