English foreign exchange house Caxton FX has set up shop in Melbourne and plans to target the growing number of small and medium businesses looking for low cost forex services.Caxton has been operating in the UK, European and US east coast markets since 2002 and claims a 10,000-strong client list.Australian general manager Scott Collins, an Australian who has worked with Caxton in London for the past few years, said Caxton would be targeting the big banks' fat FX margins and fees.Collins said: "Spreads vary with the currency and the amount involved in the transaction but we have seen banks taking margins of one per cent and charging transfer fees on top of that."We are offering access to a dealer, no fees or commissions and spreads around 0.1 per cent for standard Aussie-US dollar transactions."Caxton will also market to private clients needing forex services. "We are not looking for travel money business. We have a minimum transfer of $10,000. But there are a lot of expatriates and others who are doing investment and property transactions across borders these days."The foreign exchange market, once the preserve of the big banks, has become an increasingly competitive market over the past few years. Last June Macquarie Bank acquired 51 per cent of OzForex, a company with 35,000 retail and SME customers that did $2 billion of trades in 2006. OzForex offers 24-hour dealing in 17 currencies through an internet platform.Reliable forex market share data is hard to come by but according to industry estimates the FX specialists OzForex, Travelex and Custom House have about 25 per cent of the SME forex business.The major trading banks have responded to these developments. In November Westpac launched Xylo, a low-cost online forex service aimed at the SME market. Xylo is an in-house development, designed to complement the bank's full-service forex business for corporate clients.Xylo general manager, Mike D'Silva, who is also head of distribution for financial markets and international in the bank's business financial services division, said: "There is a growing group in the SME market that is looking for fast, efficient forex transactions."Collins said that apart from its sharp pricing Caxton aimed to compete on a superior service proposition. "We are not offering trading online. Clients will be assigned to an account manager and they will deal directly with that person. We will monitor our clients' positions and contact them if we think we have something to offer them."Caxton offers travel services in the UK, where it sells a MasterCard travel cash card. It will look at expanding its service offering here in future.