What if the retail FX brokerage industry was to experience a complete revolution? Now is the time
From Limassol To Stockholm, a perspective on the coming and long overdue revolution in retail FX. A new dawn is needed. Here is a full, candid and comprehensive insight into how this can be achieved
Well-established FX and CFD brokerages differ markedly from the smaller firms lacking their own trading infrastructure. This dichotomy goes far beyond size and scale. As the chasm increases, it’s pushing retail forex towards a total transformation.
In fact, in many ways, that transformation is now upon us. There’s a growing gulf between the financial heartlands of London, New York, and Sydney and places like Cyprus. What makes these locales so different? Corporate behavior and a massive difference in the background of the executives. In fact, this difference is so vast, it appears that “never the twain shall meet.” They are, in effect, completely different worlds.
A New Direction – Away from the furnaces of Limassol to the transparency and quality of Scandinavia
It is clear that the status quo in retail forex is not sustainable. All participants in this industry will need to change course. This new direction will affect those who provide services to brokers and those who trade with them.
Until recently, Sweden and forex remained tangentially connected at best. That’s beginning to change, due, in part, to the country’s outstanding commercial environment. Equally important is the nation’s highly educated population and reputation for zero corruption. Finally, Sweden’s technological prowess makes it an ideal locale for the future of electronic trading.
This week, FinanceFeeds conducted detailed research in Stockholm, Sweden. The city maintains a reputation of absolute transparency, social advancement, and egalitarianism. In many ways, Stockholm is the polar opposite of the furnaces of Limassol. For forex traders, a new addition to the scene is forging a better path towards a brighter future.
Spearheading a Revolution
Scandinavian Capital Markets is spearheading the Swedish forex revolution. Headquartered in downtown Stockholm, this “underdog” brokerage follows a typically Swedish approach to technology and customer experience.
Scandinavian Capital Markets ideology expands far beyond competing with existing FX brokerages. Rather, it was founded upon a genuine wish to revolutionize customer experience for the retail FX industry. During the course of last week, FinanceFeeds looked closely at the firm’s methodology in order to look at the company’s pioneering effort to lead customers to a more sophisticated and sustainable future.
In line with Swedish egalitarianism, we were joined by two highly reputable external professionals, those being Justin Hertzberg, CEO of Forest Park FX, one of North America’s only NFA membership holding introducing brokers, and a leading social data analyst, Nathaniel Hansen of The Socializers, along with Scandinavian Capital Markets founders and executive directors Arif Alexander Ahmad and Michael Buchbinder.
Mr Hertzberg began, by explaining, “About 12 months ago, our head of operations, Trent Hoerr and Scandinavian Capital Markets co-founder Michael Buchbinder struck up a dialog as a result of traditional networking within the industry. After learning more about Forest Park FX’s business, its approach to the FX and CFD market and views on best practices within the industry, Michael Buchbinder and Scandinavian Capital Markets’ other co-founder, Arif Alexander Ahmad, engaged Forest Park FX as consultants to help Scandinavian Capital Markets with various regulatory and relationship matters.”
“Ultimately, the relationship and rapport grew between Forest Park FX and SCM, to the point that SCM engaged Forest Park FX to provide hands-on assistance in building SCM into a best-in-class brokerage with regard to business ethics and in how it treats its clients, which consist of traders, IBs, money managers and affiliates.
“To that end, we are assisting Scandinavian Capital Markets with setting up the appropriate structures internally; including staffing, corporate culture, agreements and relationships with clients to position them where their interests are and remain aligned with their clients – where the experience and success of their clients will lead to the overall growth and success of SCM” he continued.
“Given the way we conduct our business, we are able to identify what best practices should be part of our the industry and, conversely, practices employed by other brokers that destroy business potential” said Mr Hertzberg.
The ideology behind Scandinavian Capital Markets is to combine elite customer care with its own proprietary trading platform, all built on a foundation of Swedish culture. There’s an emphasis on the importance of human relationships. Additionally, the technological and trade execution aspect is entirely proprietary, designed from the ground up. Above all else, the company also sees the importance of meeting its clients and having a human relationship which is an important diversion for the retail FX business.
Mr Ahmad then explained: “We started as an asset manager in Stockholm. We were developing strategies, some worked and some did not so well, we brought in Michael and he was a very good trader at the time, and had a good strategy, so we raised a small amount of funds, and then we then began discussing opening a brokerage as we had the infrastructure, had Swedish banks on board and we at the time had a CFH account and no longer do, however they were providing standard terms at $10 commission and 3 pip spread, therefore we considered that we were getting ordinary terms, yet we are an asset management firm and are supposed to have better terms so this led us toward opening a brokerage.”
The company’s initial period began by redefining the entire ethos of retail FX trading, as Michael Buchbinder and Arif Alexander Ahmad had experienced the pitfalls of the zero-sum, affiliate marketing based mass market that has risen up and taken advantage of very easy and low cost entry to the FX world via island locations and MetaTrader licensing.
They explained that this structure is what is doing tremendous damage to the retail electronic trading world, so considered building a firm which, even if it makes very little revenue, aims to change the direction of retail FX.
Mr Ahmad explained “On the relationship marketing side, we have initiated the “Valhalla Campaign”, whereby we meet in person with key influencers, successful traders and money managers, wounded introducing brokers (with big books of business) and media portal owners.”
“We invite these individuals to Stockholm to experience what is happening in Sweden during this tumultuous time in the forex industry. Our goals include securing more yards in volume, gaining awareness in contexts where money managers/IBs congregate, and making a conscientious shift away from the controversy that is related to places like Cyprus and Malta. Our aim is to land disenfranchised money managers and IBs from regions of the EU where a combination of strict regulations along with predatory Cyprus brokers that do not adhere to those regulations is stifling their forex business. We aim to help these individuals continue and grow their businesses in the more friendly regulation and corruption-free Swedish ecosystem” – Arif Alexander Ahmad, CEO, Scandinavian Capital Markets
Why Sweden makes sense
Mr Buchbinder explained how the firm chose Sweden as its base, given that Mr Ahmad is a Swedish national who has lived in Stockholm for most of his life.
“We looked at some of the neighboring Scandinavian countries, including Finland which is a highly organized economic power, however Sweden has the best reputation for business in Scandinavia” said Mr Buchbinder.
“It has the best reputation for safety, transparency, neutrality, and customer care and we had the set up for banking, including a full license. Our direction was less clear during the initial stages, as there was not a Swedish broker yet in existence at the time, therefore we saw this as a great opportunity for us to leverage everything that Sweden stands for” continued Mr Buchbinder.
“Going back to neutrality, Sweden never takes sides so the culture in Sweden is about openness and having no conflict with anyone, which is an absolute contrast to the conflict-driven and non-transparent regions where many small to medium sized brokers have created tremendous damage to our industry. We see our endeavor to be about doing the right thing and delivering. Swedish companies like Volvo, H&M, IKEA, and Spotify all encompass these key Swedish values” – Michael Buchbinder, co-founder and Executive Director, Scandinavian Capital Markets
Mr Ahmad then said “That is really the culture we want to foster within the company in terms of values we want to give to employees. It is also the foundation on which we built this company. I’ve been scammed by brokers and partners in the retail world. We have to spearhead the changes in the retail sector to create sustainability for not only our clients and partners, but by leading the way into Sweden, and building a portfolio management and professional company that vendors and liquidity partners can work with long term without the race to the bottom that is occurring in the islands where retail FX is currently popular.”
“Sweden is a very friendly society in which nobody is afraid of each other. Look at the behavior in offices in Cyprus, Israel and Malta. There is no longevity, lots of aggression, an inherent fear of management and a fear of colleagues. How can you foster a good client relationship with that?” asked Mr Ahmad, and how right he is.
Nathaniel Hansen, a veteran in the data and analytics sector of the FX industry, explained this further. “Expanding on transparency, we sent an email to traders with significant portfolios recently, asking them to come to Stockholm just to visit the company and view our ethos. Three out of five that we asked wanted to come to Sweden to see us. This is something that many working with a ‘scattered-mess’ call center type firm can’t achieve, largely because they say they are somewhere, when actually they are somewhere else, and many of them operate layered non-transparent entities.”
“We need to own taking care of clients and build the right kind of atmosphere and take it on shoulders to care about clients, staying with them till late and not passing it off to other team members. I think it is far more credible and sustainable to attract a smaller client base, but one that consists of higher net worth clients and an appreciative audience which engenders a much higher quality of client base, much less stress and more sustainability” said Mr Hansen.
Empowerment vs exploitation
Mr Hansen said “Cold calling unfortunately is time-and-time-again the macho-masculine approach to selling. It represents ‘Gimme the money’ and is in your face, which is what has caused pure hell in the retail FX sector. If you do business by building a reputation and bringing the clients in properly, that’s a higher quality method.”
“I would rather someone felt nurtured in-person and then really wanting to do business in a supportive relationship. This is far better than the classic retail FX model where clients/traders/and even IBs feel intimidated, give a small amount of money and then never comes back. That’s the current stand-off between a false-named call center hiding behind layered identities AND total transparency and customer care. The FX marketing of the future will be typified as great customer service” said Mr Hansen.
Mr Ahmad then elaborated “Old Swedish culture has a specific ethos that everyone is equal, and that you shouldn’t try to be someone else. It is a very egalitarian society, there is no problem being well off, but if you show off, that’s the opposite of Jantelagen and Lagom, which is about harmony, equality and equal distribution of wealth so that you can’t buy politicians, or buy off institutions in the media or influential figures, yet ensures that the middle classes are very comfortable and safe. People in Sweden are quite simply not afraid of anything. Everyone is taken care of in this country and people are calm and do not have any reason to rip people off.”
The importance of SCANDEX – empowering retail traders with a specialist platform
Our industry is about technology and advancement of trading systems, and in that respect, Scandinavian Capital Markets has developed its own trading infrastructure under the SCANDEX name in order to provide clients with a specific trading experience over which the company has control, as well as maintaining its customers as its own intellectual property which is vitally important, as many firms outsource everything to MetaQuotes which leads to a generic customer experience and easy manipulation by platform providers and other brokers.
Brokerages with their own trading infrastructure have been proven to succeed and maintain a loyal client base in their own domestic markets, a look at IG Group, CMC Markets, GMO Click, DMM, Invast, Saxo Bank and OANDA and the quality and longevity of their clients is enough to demonstrate the necessity.
However, Scandinavian Capital Markets has gone one further, and introduced a client experience program in addition to its own platform, as Swedish culture emphasizes the importance of human relationships. Therefore, whilst the technological and trade execution aspect is totally proprietary and has been designed from the ground up, the company also sees an importance in meeting its clients and having a human relationship.
The “Valhalla Experience” – a respite for the battle weary
The company has therefore introduced what it terms as “The Valhalla Experience” for its retail customers, IBs and portfolio managers.
In Norse mythology, Valhalla a word that is derived from from the Old Norse “Valhalla” which means “hall of the slain” is a majestic, enormous hall located in Asgard, ruled over by the god Odin. Chosen by Odin, half of those who die in combat travel to Valhalla upon death, led by valkyries, while the other half go to the goddess Freyja’s field Folkvangr. In Valhalla, the dead join the masses of those who have died in combat, known as Einherjar, and various legendary Germanic heroes and kings, as they prepare to aid Odin during the events of Ragnarok. Before the hall stands the golden tree Glasir, and the hall’s ceiling is thatched with golden shields.Various creatures live around Valhalla, such as the stag Eikþyrnir and the goat Heiðrún, both described as standing atop Valhalla and consuming the foliage of the tree Læraðr.
Odin describes Valhalla as shining and golden, and that it “rises peacefully” when seen from afar. From Valhalla, every day Odin chooses from those who have died in combat, hence the Scandinavian modern translation into business is to be able to offer massive security and respite from the poor customer treatment experienced in other regions, to bring the customers, whether commercial or direct retail, back to a safe standing.
Some of Sweden’s most famous and successful exports are closely linked with Scandinavian cultural and social ethos. Volvo is no exception
Mr Buchbinder explained “We do not approve of how many retail brokers view their clients. They view them as CPAs, as numbers, all of which come from lead churning. The Valhalla experience is all about the human side.”
Mr Ahmad said “We see our clients as partners, and we meet with them, in person, to see how we can serve them better by looking at what we can give them to help them achieve their goals. Valhalla was designed to help make traders win and for us to be partners with them ,them, all on one level. The OTC world in many cases currently does not foster that, and in the lack of alignment with traders and conflicts of interest with partners via all sorts of profit sharing schemes, a lot of trust has been lost globally.”
Mr Buchbinder further explained “I like reading Simon Sinek, especially his piece titled “The world is lacking great leaders”. We need to engender a new revolutionized environment where there are greater leaders and where the industry begins to take care of its team members via positive reinforcement. We hired a salesperson who came from shops in Israel and some of his experiences appear to be straight out of the lion’s den. He recounts what we hear many times from people who have worked in that environment, where there is a lot of yelling at clients and force, sales managers shouting and ruling by fear. Clientele are beat up by these brokers which have demonstrated no service, play wonky games with pricing, and they’re all going after the same leads which are not of value.”
Mr Ahmad said “We are constantly encouraging our employees. It is important to provide motivation and sensible pay rises rather than resort to the usual brutalization and micro-management of staff which leads to turnover, and turnover, which in turn leads to lack of quality. We are about one to one meetings in professional environments on a face to face basis.’
“Investing should also be about the client experience and the relationship that develops between client and broker, and as a result there should not be any call centers or facelessness” said Mr Ahmad.
“Why do you always go to the same hairdresser?” asked Mr Ahmad. “The reason in most cases is because you have a specific relationship and prefer that salon and the service received despite there being many more in the area. Yes, we are a technology orientated online business , but that’s at the execution end of the procedure, and the structure end, whereas the actual client services side should be personal.”
“Sweden affords a high-end experience to clients, just as loyal customers of other famous Swedish products experience. In our case, we invite our customers and partners to Stockholm and utilize the excellent cultural aspects such a spa, good restaurants and engaging with the good clients that want service and quality for sustainable business” he said.
“That’s why some of the retail FX sector has arrived at such a difficult position. There is no loyalty, many hide behind fake names, tell customers that they are in fake regions, and then place client assets in a totally different entity to what the customer has been led to believe. This has made the whole business grow completely cold, because there is no interaction and now there is no trust because everyone realizes that there are firms and whole regions that act like this. On the broker side, employees see an MT4 number and don’t think of it as a human who is investing his own money” – Michael Buchbinder, co-founder and Executive Director, Scandinavian Capital Markets
“For high volume traders, we will make the mark for them and be competitive, without compromising on the service provided or the experience had. People have forgotten about service, but they will forget about price if you give a good quality personal experience” he said.
Mr Ahmad said “The whole Valhalla experience is to bring people here, show them our business and for us to meet our clients, get to know them and treat them as a partner. A comparison of Swedish customer treatment can then be made to that in Cyprus and Israel” he said.
Swedish attention to detail and meritocratic approach to success differs tremendously from that of many host regions of retail FX. Jonna Jinton’s work was recently selected by IKEA to further underline this.
A close and personal approach
“All that revenue sharing and profit sharing combined with angry dialing is all a dead business. It never belonged in our industry which is a financial and custodian business powered and enabled by good technology, not a call center aiming at targets. Any firm that still employs that may as well close up shop” he said.
“We look at the common ethos behind Swedish success. Volvo sends customers for free to its factory to see exactly how its products are made, hosting them in five star hotels in Gothenburg, and then once the car is made and collected, holds the customers’ hands for the duration of ownership via the Volvo On-Call system which, at the touch of a button, puts you in touch with Volvo who then answer any question from how to get to a certain place to reserving a table at a nearby restaurant in a town you do not know. This is ultimate transparency combined with customer experience and is why Volvo owners keep their cars by far longer than owners of any other make, and then return to buy another Volvo. They are expensive cars, but people do not mind paying if they get total transparency, safety, quality and customer care” Arif Alexander Ahmad, founder and co-CEO, Scandinavian Capital Markets
Mr Hansen continued “In terms of other areas of corporate ethos, IKEA has used Jonna Jinton to describe how to treat customers and deliver on good quality. This should be enough to make the important switch away from the sweaty hell in Limassol where people brutalize each other. These people who have brought disrepute are not from our industry and do not belong in it. They are people who watched macho nonsense on television instead of going to school and think this is how you do business, and it makes them feel powerful, yet creates damage to customers and to business.”
Indeed so. In 1959, Swedish engineer Nils Bohlins invented the three point seat belt. He could have kept that patent to himself and chased down any automobile manufacturer who dared copy it. Instead, he waived his patent rights so that every manufacturer in the world could copy it free of charge, resulting in several million saved lives, and Mr Bohlins being more successful than he would have been had he attempted to fend off those emulating his safety-conscious and ground breaking invention.
Throwing down the gauntlet
Mr Hansen concluded “A lot of times, you see generically filmed stock advertisement material from retail brokers about clients being happy with certain models. We are about showing ourselves with people from the industry and the media, to show real people and real stories. The transition from the depths of Cyprus to the civility and sustainability of Sweden should be the industry’s next step, and I hope other good brokers make the move here for the greater good.”
Competition is not yet established, however Scandinavian Capital Markets welcomes competition and considers that to be the bastion of Swedish egalitarianism. “If we can begin the industry’s move to a better environment for better talent and better customer experience, with Swedish custodian banks, proprietary software and Scandinavian transparency in one of the best business environments and most socially stable nation on earth, then it will be a great achievement to see other brokers move their operations to Sweden too. That way, we all have a great future” said Mr Ahmad.
Featured image: Stockholm’s “Gamla Stan”, meaning “Old Town”. It is one of the largest and best preserved medieval city centers in the world.