“Mind The Gap!” – The life and times of a man on the move Episode 33

The new revolution and quest for quality spreads further into Northern Europe, An FX professional’s Eureka moment, What is going on at OANDA?, FX industry and Airbnb, and I take a boat trip

In this weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment.

Monday: The FX revolution is starting

One of the fundamental tenets of the electronic trading business, and indeed perhaps any leading edge, technology orientated new-world enterprise is its continual evolution and commitment among those who can accredit themselves with having made genuine improvements to the means by which many people now approach and connect to the financial market.

Dutch flower market adjoins Dutch FX market

Evolution is, therefore key, however revolution is something that has struck fear and trepidation into the minds of many, largely due to the overt dependence on an almost totalitarian third party platform environment which requires total handover of intellectual property and very limited self-governance, that being MetaTrader.

It is very hard to move the future of the retail FX business forward in the method that it should be able to as a technology-led, avantgarde method of empowering individual investors and traders, when one company whose founding ethos was to emulate the gambling world by creating a closed system with which any affiliate lead buyer could view a potential investing public as “leads” or “CPA” by pitting them against conversion desks and dealing rooms dominates the small to medium end of the market from its home country of Cyprus.

In absolute opposition to the correct, democratized method of investing that successful publicly listed firms with their own platforms such as Hargreaves Lansdown have created via their own R&D, MetaTrader white label-ship holds back the progress of the industry and has created the revenue sharing bucket shop model which belongs in the dark basements of Ramat Gan and Tashkent.

Thus, a revolution should rise from the top tier, to lead the way forward, and last week’s report from Scandinavia has begun to have some positive effect.

A welcome return to the good lands for retail FX

Response was tremendous, indicating that many good quality participants in our industry are very much in favor of a total clean slate, led by new and independently developed systems from top tier nations – Sweden being the most socially advanced country on earth with one of the most highly educated populations – and on Monday, a well recognized portfolio manager with a long career at the top level of FX shared his opinion with me.

Having become mildly disillusioned with the status quo and searching for an alternative, he read my report from Sweden and on Monday told me “At last, we may begin to see the move toward an ethical margin brokerage system.”

“There have been a series of articles in generic press focusing on the appallingly named gamification, which links retail brokers to the on-line gaming industry, and what brokers strategies need to do to survive this dark winter of the last two years” he said.

I am sure I am not alone in this either, as I cannot abide any mention of the ‘gamification’ of a financial business or a software and infrastructure environment that operates financial markets. As I have said before, the last thing I want to see is any link between the two as they are totally unrelated. Everyone who knows me well would concur that in my 27 years in this industry, largely as an infrastructure architect, technologist and software engineer, I have never even played a computer game.

I have also never participated in any lotteries, or even bought a card from a fuel station or kiosk. That mentality is for the low-rent illiterates of the Carmel Market and the towers of shame in the eastern side of Tel Aviv, projected to the world via the lax and corrupt environments, run by the same examples of humanity, from Malta and Cyprus and belongs nowhere near our industry.

This particular portfolio manager, who resides in Melbourne, Australia, continued “As evidenced by the Australian consortium looking to head of the inevitable and how the industry must evolve, but offering better services is ‘what does that even mean’ again.”

“There is so little research on tools that offer the retail trader an advantage in trading, and again this is grey as retail traders are by and large assumed by the low-end entities whose origins are in vice activites, to be uneducated and addicted, like gamblers looking for entertainment disguised as making money, and therefore those wishing to steal from them console themselves and try to justify their actions by assuming that such people cannot be helped, therefore as an industry we need to rid ourselves of that mentality and those portraying it and concentrate on what services that are currently not offered can help a retail trader.”

Airbnb. Immaculate, democratized and always exceptional – controlled and monitored by you. We can learn from this

“I look at FXCM and their link to Trading Central, and ask myself if this helps retail traders, even a minority, what are the metrics? Are they a change in their percentage of retail traders losing money, or is it a tool to try to on-board more clients, or is it a grab in the dark to help retail traders or is it more marketing gibberish, or all of these?”

“All of the trading mentors that we have looked at, and that you have mentioned before, Andrew, along with the social trading platforms that you quite rightly single out as conflicts of interest that are nothing to do with financial technology, all work at the edge of percentages, but we all know the essential natural law, that being that the Pareto principle won’t allow too much change to the retail wallet” he said.

Admitting his exclamatory comments, he said “I have a hidden agenda here, which I won’t advertise yet, but I am working to change this equation at least for one partner broker, however finding a broker with an absolute alignment to their retail clients was near on impossible to find, and usually manifested itself in an interest, but no commitment, until your article last week about Swedish revolution that you are advocating.”

“In working for a FX margin broker as adviser to Risk, I see first hand the ethos and a business model built around churn and burn” he said. “There is a broker that has now let a large number of employees go as their main business model of milking Chinese retail has ended, therefore revenues are from existing client deposits which as we know, the client losses, the deposits go towards zero, earnings are peaked and declining and this is not on at all. I am assuming it is the same situation for many smaller retail brokers, as they run China desks especially in this region.”

Utrecht, Holland. Sophisticated traders, prop shops and a great environment

“So the chill winds of Scandinavia should be coming down to the Australian Eastern seaboard and thank all the Gods, as we need respite from the 40 degree heat!” he said in a rather double-entendre orientated summary. “So the conundrum remains that retail traders will never get a clear edge, that is only open to institutional traders in-house trading program, and many retail traders have been jaded by scrappy programs to feed their greed with no positive outcome, but what if institutional, not trading platforms, price feeds, technical trading nonsense, but sophisticated trading programs even not available to institutions were made available to retail clients, it would have to be restricted in access but I would think it would be a catalyst to the development of this NEW broker model and retail trader experience. Well done to the team in Sweden.” he concluded.

Indeed I agree – a totally new, retail-focused model needs to bring the retail sector up to its next level. Long live the revolution.

Tuesday. Airbnb has more synergy than affiliate marketers. Saxo Bank were right!

On Tuesday, I embarked on my journey to Holland. Why embarked? For someone who travels over 400,000 miles per year to engage with the superb and highly respected leaders of our industry, Holland is a short step. Well, this time I decided to drive there. Economy flight travel is cheap and fast, and when considered with a sensible mind, the most effective method of getting from point A to point B, but I fancied a road trip. Well, a road trip punctuated by a sea trip due to England’s island geographical characteristics.

During the trip, I stayed for one night in an Airbnb apartment, in central London, en route from South West England to Harwich, where the ferry would take my car and I to Holland.

Airbnb is a fantastic entity. It is review-orientated and totally social in its operation, but its social methodology is proprietary, hence there are no ForexPeaceArmy style forums for venting spleen for the Airbnb market. There are no bogus reviews on TripAdvisor by shills paid by affiliate marketers to try to bolster the profile of a rat-infested hovel in Jaywick Sands with a 1978 Ford Cortina and a similar, half dismantled 1978 Cortina next to it with grass growing through it by calling it “characterful seaside holiday home” when in fact the real definition would be far from that.

Airbnb is a totally democratic network in its own right. Its terms and conditions deplore monopolization, political corruptness and disreputable landlords looking to dupe potential tenants. Recently, Israeli newspapers that are not subject to the draconian media censorship which the paranoid Israeli government inflicts in order to gloss over the financial and political atrocities commited on its soil, several examples of which our industry has been affected by, noted that Airbnb is looking to terminate agreements with Israeli property listings because the whole market is being monopolized by a gang of thugs which own all the properties in Tel Aviv and are effectively creating a cartel, which goes against Airbnb’s policy.

They were indeed right

Airbnb allows reviews and everything is based on customer experience, for the landlord and the tenant. I have used it countless times all over the world and it has revolutionized my travels. I love it in every way.

We should learn from this model and find a way of applying it to retail FX

Three years ago, at a private meeting between Saxo Bank and several wealth managers in Hong Kong, Jennifer Hansen, Global Head of Institutional Business at Saxo Bank told me ““User experience is the product that is being sold these days and therefore financial services products must be sold in a way that suits our digital habits. Google, Apple, Facebook, Amazon, Alibaba all took this lead in the consumer market place, and therefore we can tell that experience in one industry seems to affect experience in other industries and this was a wake up call for the financial industry which took everyone by surprise. We have seen evidence of this type of movement in the robo advisory and payments sectors, and new entrants into those two areas took traditional banks by surprise with regard to how quickly they could garner clients.’

Quite right. From across the West to mainland China, today’s buy-side clients are astute wealth managers and want fully adaptable multi-product solutions. “Banks handled the arrival of new, more advanced and adaptable participants badly, and lots of ‘us vs them’ provocative headlines adorned the newspapers, asking whether traditional banking had become obsolete and whether modern, FinTech-led companies would take over.” she said.

As we are very active participants in FinTech, where are we going? If you think about it, FinTech as a concept centered on how to approach the market is really only around 5 years old. The electronification of markets has been going on for a longtime but the idea of FinTech as a way to build financial institutions is quite new” said Ms Hansen.

Yes, indeed it is, and therefore adaptable. Thus, retail FX should look toward Airbnb as a role model. This is a system which provides retail customers with a good service and moderates it in a democratic way hence the customers and the vendors are on the same side, full transparency is there for both sides, and there is financial recourse if something goes wrong. Hence, brokers would be responsible, clients would be responsible, generating a better quality of client than those who think its a zero sum game, and overall greater sustainability and less cost.

Wednesday: What on earth is going on at OANDA?

Oh dear, OANDA. Such great potential, such a great platform and such a good standing in one of the best markets, if not the best market in the world. So much to look positive about, yet the door is revolving once again.

This Wednesday, I received very good authority that the firm’s CEO, Vatsa Narasimha, is to move on after just two years in his post. Indeed, leaders move to new positions but OANDA Corporation’s disjointed corporate structure appears to be the only thing hampering it from being one of the very best firms in this industry worldwide.

A great way to travel. I’ll do this again

Mr Narasimha’s tenure began just after the high profile action taken against FXCM in the United States by the National Futures Association (NFA), banning the company and its CEO of the time from operating in the United States. FXCM had been a major force in the US for many years, and since the exit by many companies who quite simply did not have the mettle or organizational clarity to maintain the stringent rules and customer demands to remain in the best market on earth in 2011, had been one of just three companies offering services to retail clients, those being FXCM itself, OANDA and GAIN Capital.

Thus, as a CEO that nobody had ever heard of, who had been in his leadership position in one of the world’s most well known brokerages for just two weeks, the correct thing to do would be to remain silent and simply improve technology – OANDA has its own very good systems – and customer experience and just sit and watch the clients roll in as they only have two firms, in an environment in which traders are analytical and astute, have twice the average deposit sizes of any other market in the world, and remain loyal customers to good companies with proprietary infrastrucure.

Instead, Mr Narasimha’s initial prose was to jump on FXCM’s exit and revel in it by launching a deprecating PR. I disapproved of this at the time and approached the firm but they stood by it. What a faux-pas. If there is one thing American investors do not like, it is that type of school yard bullying.

This is not the first instance though. OANDA’s continual replacement and turnover of senior staff has seen its entire APAC leadership head for Australia’s AxiCorp, its Technology & R&D director Natasha Lala leave the firm, its Marketing Director Drew Izzo who oversaw the onboarding of TradeStation’s client base leave, and this year Courtney Gibson, a highly respected senior director of the firm for 15 years leave.

Utrecht another high quality place on the map of FX resurgence cities in the West… and it is accessible by car.

One of the most poignant examples of the nature of disjointed corporate governance is the fiasco that surrounded the company’s on/off relationship with social trading platforms. The company spent a fortune developing its own social trading system called fxUnity, then canned it after 6 months in operation, only to buy Currensee, an external social trading network for several million dollars, before shelving it very shortly afterwards. Heads rolled, more new starts began, and so revolves the door.

The company is one of the only firms with its own well respected currency converter, however its handling of the redevelopment of its currency converter resembles that of British Leyland in the 1970s. The firm is due to launch a new version, and has been attempting to launch it for over 6 months, however the old one is being ‘sunset’ ( a software term for making obsolete software unavailable) yet the new one is not ready for deployment.

I really hope the new CEO takes OANDA’s great points – and its great points truly are great points – and shores up the internal disorganization. With IG Group now in the US, and operating from Chicago, the home of the finely honed listed derivatives sector, it could not be a more critical time, and let’s face it, IG Group is the absolute polar opposite of disorganization – it, thanks to Peter Hetherington and his team’s incredible mettle, is a finely tuned machine indeed.

Thursday: Maritime internet and the swell of the Currensea

On my way to Holland, I took a night crossing from Harwich to Hook of Holland, which is highly recommended. It is a great way to rest and recharge. The cabins are comfortable and the 12 knots forward motion of the 2010 ROPAX car transporting ferry is highly relaxing. You can even work or trade – there is satellite internet provided by Dutch firm Telenor under the moniker “Telenor Maritime”, or alternatively Wifi although the satellite connection is faster.

Navigating through the bicycles and finding parking spaces in Utrecht is less frenetic than perhaps anticipated. A civilized country indeed.

My self-driving Volvo and the relaxation of the boat is a great travel environment and gave me ample time to consider the exciting prospect that Holland, a nation of only 17 million which generates one of the highest GDPs in the European Union and Europe’s mainland, and is home to several proprietary trading companies and wealth managers along with a pragmatic, educated and fiscally conservative consumer base could be a great place for good companies in this industry to look toward long term good partnerships.

This week, I will be reporting from a private conference hosting over 150 traders and portfolio managers from right here in Utrecht, Holland and in hand with last week’s look into the brokerage revolution in Scandinavia, a return to the West when looking for long term business would be a great move – as long as the broker can match up to high expectations, but high expectations mean good quality development and moving the business on, and we FX industry professionals are very good at that.

Friday: On yer bike and get trading!

Here in Utrecht, Holland, bicycles dominate the streets and my car’s active safety system continues to automatically control the car’s brakes and steering when the inevitable deluge of cyclists rally down the quintessentially Dutch, picturesque canal-lined, cobble stoned streets of Utrecht.

At the weekend, traders and portfolio managers from across Holland met to discuss important aspects of the industry. I was one of the FX industry professionals that was asked to attend, hence this morning’s report about it. I actually hold out much hope for a new market in one of the most sensible and strong economic climates in the world.

Watch this space, and cycle as carefully as you trade!

Wishing you all a super week ahead.

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