Do traders really care about execution method, or whether a broker is A or B book? Not one bit, says OANDA APAC CEO Rajesh Yohannan

Among FX industry executives, the amount of resources, both cognitive and financial, committed toward ensuring that the execution method is as transparent as possible, is enormous.

For several years, many of us have pondered a line which borders on political correctness in banishing the b-book model of execution to almost taboo status, and majoring on ensuring that, whether by promotional material, educational resources or corporate ethos, all customers are made fully aware that the agency model is the shining light and a bastion of good business practice.

The pondering was brought to a shuddering halt today at the FXIC Forex industry conference in Shanghai, China, by a senior executive of one of the world’s most conservative and technologically advanced firms – OANDA Corporation’s CEO for the Asia Pacific region, Rajesh Yohannan.

Mr. Yohannan, during a ‘fireside chat’ with Shift Forex Chief Operations Officer Matthew Miller, explained “I am certain that no actual retail traders are interested in whether a firm uses STP (straight-through processing) methods to execute orders. We concentrate on that, along with other parts of the execution process, far too much because we are on the inside.”

“Industry executives such as brokers and liquidity providers are concentrating on the way that a trade is executed, including how low the latency is, often spending huge resources on increasing execution speed, and how the liquidity is aggregated” he said.

“These factors are important to brokerages, but are of very little consequences to retail traders” said Mr. Yohannan.

What do traders want, and what is transparency to them?

Mr. Yohannan, quite correctly, stated that “Traders care about other aspects such as whether their funds are safe with the broker that they have chosen, and whether the trading environment works and executes their orders efficiently.”

“We are one of the most conservative companies in the business and err on the side of caution with regard to risk management, and customers are interested in aspects such as this because if a retail trader with a relatively small deposit is being given a high leverage account and no recourse, then it is likely that he will not trade, whereas he would be likely to be confident and trade for a long period of time with a broker which offered security of funds, a good user interface and customer experience.” – Rajesh Yohannan, CEO, Asia Pacific, OANDA Corporation

The particular discussion was part of a very detailed dialog between Mr. Miller and Mr. Yohannan, Mr. Miller having concurred that many firms coming to Shift Forex for consultation have raised this point.

Indeed, it is worth of note that many experienced retail traders are well aware that a b-book execution model in which the broker takes a proportion (or perhaps most) of the risk is actually no bad thing at all, as long as the pricing is correct and that there are no attempts to act against the trader’s best interests.

Mr. Yohannan concluded that for most retail traders, a correct price is very important, as is the stability of the broker in terms of capitalization along with the aforementioned matters with regard to custody of funds and trading environment, and that these matters will always take precedence in the mind of the retail trader over the internal structure of the firm’s methodology.

Photograph: Matthew Miller, COO of Shift Forex finds out what traders really want, with Rajesh Yohannan, CEO, APAC at OANDA Corporation. Copyright Andrew Saks-McLeod