oanda2.jpgOanda, one of the first companies offering online currency trading for consumers, has received a $100 million second round of investment from firms including Legg Mason, Cascade Investment and NEA.

The currency trading market has been considered somewhat closed to small investors, having long been the haven of banks and large funds. Trading currency, despite its innate risk, can offer several advantages, including better tax rates and superior margins, when compared to trading stocks.

New York City’s Oanda is particularly good for consumers because it claims very narrow spreads (the difference between the price the currency seller asks, and the bid price). Spreads are typically much wider for small retail investors than for institutional investors, who can trade much larger volumes of currency. Oanda’s link to a comparison of spreads between trading platforms is down, however, which is disappointing. (We’ll check back.) Update: It’s back up, and shows that the company’s spreads are almost always lower than the competition.

Competitors include FXCM and Alpari. These are the online currency equivalent to the discount brokerages attacking big traders like Merrill Lynch.

The investment round is intended to strengthen the company’s balance sheet, giving it enough heft to compete in larger markets and scale its operations. Oanda’s current peak trading volume is around $10 billion a day, out of a total market that trades in excess of $2 trillion each day.

The company was started in 1996 to offer reliable information on exchange rates. In 2001 it opened a trading platform based on proprietary technology.

Kittu Kolluri, a member of NEA, say his company invested because “Oanda has become the technology leader, as well as the price leader, and they achieved a lot of that virtually without any investment.” Kolluri, who headed up Neoteris until its sale for $265 million in 2003, will join Oanda’s board and take on an advisory role.

The amount that each investor contributed to the funding round was not disclosed. Oanda previously received $17 million from Index Ventures.