Forex - MoneyShow.com

visit us at www.e-forex.net 

January 2010

welcome to 

e-FOREX 

WINTER 2010 

This is the tenth winter edition of e-Forex. Over the last 

decade there have been numerous exciting developments 

arising from the deployment of new electronic trading 

technologies. During this period we've been privileged to report 

on how the application of many of these technologies has shaped 

the evolution of electronic FX. The rapid development of e-FX 

has also been mirrored by equally significant regulatory and 

infrastructure initiatives which promise to have far reaching 

effects on the way the FX market will operate in the future. 

Everyone has different views about what were the key watershed 

moments in e-FX over the last few years. For us, important 

milestones include the arrival of the multi-bank FX portals with 

their innovative business models which ultimately worked for 

some but not for others. Then there was the electronification of 

FX options, which opened up new opportunities for traders and 

investors and offered a hybrid broking market in currency 

derivatives. The launch of EBS Prime represented a key point in 

the evolution of the FX Prime Brokerage landscape and the 

appearance a few years ago of more active traders in FX, 

particularly hedge funds, was another major driver of change. 

Their sophisticated trade execution requirements heralded the 

arrival of algorithmic FX trading which was facilitated by efforts 

to further adapt the FIX Protocol to the needs of FX. 

Regulatory initiatives have also been gathering pace over the last 

few years with efforts to clean up the rapidly growing Retail FX 

trading space being top of the list. The recent crisis within the 

financial markets has led to calls for more transparency and 

improved risk management which has revived the debate about a 

central clearing model in FX. More recently, we have seen the 

preparation of sweeping reforms to the OTC derivatives markets 

which might well lead to significant changes in the way FX 

derivatives are traded. 

Whatever challenges lie in store for the FX market over the 

coming decade, it's important to look back and remember what 

a crucial role electronic trading has played in helping to keep the 

capital markets functioning smoothly. This was particularly 

evident in times of severe market turbulence and global 

instability as witnessed during the events surrounding 9/11 and 

more recently during the sub-prime crisis of Autumn 2008. As 

we enter the second decade of the 21st century, we believe the 

future of e-FX is assured. 

As usual we hope you enjoy this edition of the magazine. 

Charles Jago 

Editor 

Susan Rennie 

Susie@Aspmedialtd.com 

Managing Editor 

Charles Jago 

Charles@Aspmedialtd.com 

Editor (FX & Derivatives) 

Charles Harris 

Charles@Cjag.demon.co.uk 

Advertising Manager 

Helen Rochford 

Helen@Aspmedialtd.com 

Production Manager 

Michael Best 

Michael@Aspmedialtd.com 

Subscriptions Manager 

Louis Riley 

Louis@Aspmedialtd.com 

Features Manager 

Anthony Brannan 

Anthony@Aspmedialtd.com 

Commercial Manager 

Felix Shipkevich 

Contributing writer 

Regulatory Roundup 

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Manfred Wiebogen 

Liquidity or taxation 

Jim Nuzum 

Shari'ah compliant 

currency trading 

Nicholas Pratt 

DMA - an increasingly 

attractive toolset 

A 

ACI page 14 

Advanced Currency 

Markets page 21 

Advanced Markets page 97 

Aegisoft page 81 

Afme page 99 

Aite Group page 22 

B 

Bloomberg FX page 69 

Bloomberg 

Tradebook page 79 

BNP Paribas page 7 

Boston Technologies page 107 

Broco Group page 128 

Bulbrokers page 142 

C 

CFH Markets page 118 

Cfx Intermediazioni page 127 

Charles Schwab page 25 

CIBC page 31 

Citi page 83 

ClientKnowledge page 30 

CME Group page 47 

Cognotec page 105 

Currenex page 92 

Currensee page 125 

D 

360 Degrees page 116 

DeltaStock page 141 

Deutsche Bank page 9 

DGCX page 45 

Dr. Yuval Levy 

Changing the future 

landscape of FX 

Roger Aitken 

Historical FX pricing data 

Heather McLean 

Social Networking 

Digitec page 44 

Divisa Capital page 100 

Dow Jones page 4 

Dukascopy Outside 

Back Cover 

E 

EBS page 37 

Equinix page 4 

eSignal page 33 

Eurobase page 63 

F 

FastBrokers page 161 

Fienex Group page 154 

FIX Protocol Ltd page 58 

FlexTrade Inside 

Back Cover 

Fortex Inc page 111 

FSA page 14 

FXall page 71 

FX Bridge page 61 

FXCM page 11 

FXDD page 13 

FX V-room page 122 

G 

GCC Markets page 34 

H 

Hibernia Atlantic page 51 

I 

ICAP page 37 

ICE page 43 

2 | january 2010 e-FOREX 

Sang Lee 

Growth in Retail FX 

Mark Biezup 

Real-time FX Margining 

Larry Levy 

Retail FX in Central & 

Eastern Europe 

Companies and organisations in this issue: 

IMF page 14 

InMage page 112 

Integral 

Development page 95 

Interactive Brokers page 8 

Interbank FX page 153 

ISDA page 58 

ISE page 46 

ISITC page 58 

J 

JPMorgan page 85 

K 

Knight Capital 

Group page 55 

M 

MIG Bank page 19 

Misys Summit page 59 

MoneyTec page 122 

Murex page 64 

N 

NASDAQ OMX page 48 

NFA page 48 

Nordea page 5 

Numerix page 12 

O 

Oanda page 4 

P 

PFSoft page 26 

Phillip Futures page 149 

Frances Maguire 

Single bank FX platforms 

Michelle Neal 

The e-Forex Interview 

Ian Naismith 

TraderTalk 

Progress Apama page 87 

R 

Reval page 65 

Rockshore Partners page 96 

Royal Bank 

of Scotland page 88 

S 

Safecharge page 121 

Sarasota page 158 

Saxo Bank page 130 

SmartTrade page 39 

SSC Technologies page 109 

Standard Chartered Inside 

Bank Front Cover 

SunGard page 74 

SuperDerivatives page 16 

SWIFT page 58 

T 

360T Trading 

Networks page 40 

Thomson Reuters page 66 

TMS Brokers page 133 

TraderTools page 57 

Traiana page 10 

TwoFour page 60 

W 

WallStreetSystems page 59 

West LB page 12 

WBR page 163 

January 2010 

contents 

FOREWORD 

14. Liquidity and stability or taxation and 

change the whole system? 

The global financial crisis has revived the 

discussion on a financial transaction tax as a 

means of raising revenue, discouraging 

international currency speculation and helping 

to shrink ‘a swollen financial sector’. Manfred 

Wiebogen illustrates what the consequences 

of this tax would be, for the FX market. 

LEADER 

16. The push for standardisation - can we 

risk changing the future landscape of FX? 

Regulators are currently preparing sweeping 

reforms to the OTC derivatives markets on 

both sides of the Atlantic and FX 

derivatives are in danger of being caught up 

in these clearing reforms. Dr Yuval Levy 

argues why the regulatory authorities should 

act with caution and in consultation with 

knowledgeable market participants before 

acting in a way that may ultimately be 

costly to all. 

INDUSTRY REPORT 

22. Retail FX Market: Growth, Consolidation, 

and Evolution 

Sang Lee examines why the retail FX market 

is booming with strong adoption across all 

major financial centers. 

FEATURES 

28. Single bank FX platforms - will they 

keep powering ahead? 

Despite new research showing a slight shift 

towards multi-dealer platforms, the demand 

for single bank portals, and relationshipbased 

pricing, is still high. Frances Maguire 

examines how the continued investment by 

banks in their platforms is ensuring they 

continue to grow. 

34. FX e-commerce in Shari'ah 

compliant currency trading - the new 

embracing the old 

Jim Nuzum explores why there is growing 

demand for Shari'ah compliant FX trading 

solutions and how the latest FX ecommerce 

technologies can help address the 

needs of Islamic traders and investors. 

42. Continuing innovation in exchangebased 


The world’s futures exchanges continue to 

make in-roads into FX, the biggest OTC 

market in the world. Frances Maguire explores 

how currency trading innovation continues to 

gather pace within the exchanges.

52. Navigating the communications 

minefield: High performance connectivity for 

High Frequency FX trading 

Joe Hilt outlines some of the key issues 

facing FX trading firms who are planning 

how best to link their trading 

infrastructures to trading venues and what 

lessons they can take from latency, 

networking and trading connectivity 

developments in other markets. 

58. Tracking new developments in currency 

derivatives processing 

Increasing numbers of banks, asset managers, 

pension funds, hedge funds, and corporates 

are looking to ramp up their use of currency 

derivatives, both for hedging purposes and as 

a component of their investment 

management strategies. Frances Maguire 

outlines how great strides have been made in 

automating the processing and workflow 

associated with Over The Counter derivatives 

but why much still remains to be done. 

66. Sourcing and Integration of historical 

pricing data for FX applications 

Roger Aitken looks at the drivers fuelling 

increased demand for accessing historical 

FX pricing data and what issues FX trading 

firms need to consider with regard to 

sourcing and storing the data. 

VIEWPOINT 

74. Regulatory measures and real-time FX 

margining 

Mark Biezup outlines why recent and 

projected regulatory changes along with a 

focus on risk management will have 

significant implications for FX brokers. 

ALGORITHMIC FX TRADING 

76 The next wave of FX Algorithms:- taking 

order execution strategies to another level 

What will be the next wave of FX 

algorithms? Nicholas Pratt charts the 

development efforts of the leading 

algorithmic trading providers to examine 

how execution strategies in FX can be taken 

to another level. 

e-FOREX INTERVIEW 

88. e-Forex talks with Michelle Neal, Global 

Head of electronic markets at The Royal Bank 

of Scotland about the consolidation of the 

banks' electronic platforms and the 

continuing development of its best of breed 

FX e-commerce solutions and e-trading tools. 

FOCUS 

92. DMA - an increasingly attractive toolset 

for the FX buy-side 

The concept of ‘Direct Market Access’ 

(DMA) is a simple one and is yet another 

example of an invention that started out in 

the equities market and is now being 

adopted in the FX market. Nicholas Pratt 

examines the evolution of DMA and what 

it means for FX traders. 

RETAIL e-FX PROVIDER 

102. Achieving more effective Risk 

Management in Retail FX platform 

operations 

Faced with a need for more effective risk 

management of their retail FX customer 

positions, banks and brokerage firms in the 

FX space are being challenged by 

ballooning small ticket items, varying 

customer credit limits, risk mitigation issues 

as well strains on their back office 

processing capabilities. Roger Aitken talks 

to leading industry players to explore the 

key issues involved. 

112. Taking steps to prepare for Disaster 

Recovery 

Eric Burgener highlights the key elements 

for creating an effective DR plan, and 

illustrates how a leading provider of Retail 

foreign exchange trading services 

implemented an updated DR plan to meet 

their requirements. 

RETAIL e-FX CLIENT 

122. Social networking helping to get Retail 

FX traders together 

Social networking has now come of age and 

Heather McLean explores how this 

maturing technology is seeing increasing 

interest from the Retail FX trading 

community. 

130. Regional Retail FX perspectives on 

Central & Eastern Europe 

Larry Levy interviews two leading FX 

providers within Central & Eastern Europe 

to learn more about the growth prospects 

for Retail FX in this region. 

146. Service, innovation and security: taking 

key steps to improve the Retail FX trading 

experience. 

Heather McLean explores what efforts 

leading brokers are making to improve the 

FX trading experience for the armies of 

retail traders spilling out of the woodwork 

across the globe. 

TRADERTALK 

158. With Ian Naismith, co-Principal at 

Sarasota and co-Manager of The Currency 

Strategies Fund (Ticker: FOREX) 

Pushing for standardisation - 

can we risk changing the future 

landscape of FX? 

New developments in currency 

derivatives processing 

DMA - an increasingly attractive 

toolset for the FX buy-side 

Preparing for Disaster Recovery 

january 2010 e-FOREX | 3

NEWS 

Dow Jones agreement with Oanda 

Richard Hanks 


Dow Jones & Company 

has signed an agreement 

to provide Oanda 

customers with Dow Jones’s 

streaming currency news and 

information in six languages 

including English, Arabic, 

Chinese, German, Japanese and 

Russian. 

“Dow Jones is committed to 

bringing users the targeted locallanguage 

news that moves 

FXall offers platform 

through Equinix 

data centers 

Equinix, Inc has announced 

that FXall will offer 

connectivity to its foreign 

exchange platform within the 

Equinix NY4 International 

Business Exchange (IBX ® ) data 

center. The service will be 

available to the community of 

Equinix Financial eXchange 

financial trading companies 

currently operating within the 

New Jersey campus, including 

buyside and sellside firms which 

trade multiple asset classes. In 

addition, the deployment to 

Equinix will enable FXall to 

directly reach the rich aggregation 

of networks and other strategic 

partners operating within 

Equinix’s Financial eXchange to 

service FXall customers with 

optimized performance. 

Phil Weisberg, CEO of FXall 

said; “Our partnership with 

Equinix presents another way for 

active traders to gain an edge in 

Phil Weisberg 

the market and we look forward 

to expanding the connectivity 

options available to further grow 

this client segment through 

Equinix's extensive network of 

users." 

currencies in a format that can be 

quickly digested by individual 

traders trying to stay ahead of the 

market,” said Richard Hanks, 

senior vice president and chief 

commercial officer, Dow Jones 

Enterprise Media Group. “The 

in-depth pre- and post-economic 

indicator analysis and forecasts 

available via Dow Jones 

commentary and forex columns 

offers traders an unmatched 

advantage.” 

CIBC 

develops 

liquidity 

aggregation 

engine 

CIBC World Markets Inc. is 

optimizing access to global 

FX liquidity by leveraging a 

low latency electronic trading 

infrastructure and concurrently 

processing complex events. Clients 

benefit from the resulting 

aggregated access to liquidity, as 

well as proprietary quantitative 

algorithms, including full depth of 

book modeling, to achieve 

accurate, competitive, consistent 

and timely pricing. These features 

highlight the importance of pricing 

liquidity correctly, especially when 

the market is thin or gaps. Other 

benefits include tight integration of 

the liquidity aggregation engine 

with algorithmic hedging, smart 

order routing and execution 

models that can be leveraged to 

minimize the number of hedge 

trades and hence minimize slippage 

and execution costs.

NEWS 

Digitec launches 

new release of D-3 

Hamburg-based technology vendor Digitec has 

launched a new release of the D-3 Pricing 

System. The rate engine for FX spot and 

forwards is used by a growing number of major banks 

to provide their e-commerce systems with real time 

updates for FX rates. “Our clients are helping us with 

their comments and invaluable advice to add 

innovative features to D-3 with every new version” 

said Andreas Kiesselbach, sales manager at Digitec. 

“We are consolidating our market position as 

worldwide market leader for FX pricing solutions. 

After a year where many banks have been pushing 

ahead new projects very hesitantly, we now can 

observe a growing interest in our sophisticated FX 

solutions”. 

Fast Trading Beta 

Testing registration 

now open 

Fast Trading Services LLC – dba 

FastBrokers.com, a California based online 

Futures and Forex broker, is now accepting 

applications for beta testing of its proprietary trading 

screen Pathfinder Trade (PFT). PFT is the result of 

several years in research and development and it will 

include charting, order management and features 

highly customizable trading algorithms executing 

across multiple FX liquidity pools (Currenex, 

Integral) as well as major electronic Futures 


Deltastock deploys 

true ECN/STP 

Deltastock AD has launched a true ECN/STP 

module (L2) integrated into the company’s 

in-house developed Delta Trading platform - 

v. 5.0.1 Beta. Clients are now able not only to trade at 

spreads as low as 0.1 pips on FX majors, but also to 

choose a Liquidity Provider for the execution of their 

orders through STP (agency execution). 

Company officials pointed out that Deltastock’s 

ECN/STP solution is the first of its kind because 

traders view the names of the Liquidity Providers 

along with their price feed. Moreover each order can 

be tracked with which 

Liquidity Provider it has 

been executed. 

Deltastock’s Liquidity 

providers are Banks, 

Market Makers and Brokerages such as, among others, 

Deutsche Bank, FXCM, Interactive Brokers. 

Commissions apply for ECN/STP trading. 

Exchanges. Pathfinder aims to satisfy the needs of the 

most sophisticated retail and institutional derivatives 

traders. To apply for beta testing please visit: 

www.fastbrokers.com/pathfinder

NEWS 

Bloomberg Tradebook 

launches Tradebook Order API 

Bloomberg Tradebook has 

launched Tradebook Order 

API, giving users 

extraordinary flexibility in 

sending orders directly from a 

desktop model to stock, option, 

futures and FX smart order 

routers. The new Tradebook 

Order API enables users to build 

proprietary spreadsheet models 

and integrate them into 

Tradebook's trading capabilities in 

more than 60 global markets. 

According to Brian Coffaro, 

manager of derivatives 

Interactive Brokers has recently 

introduced a new free iPhone 

application that allows users to 

view global quotes across multiple 

asset classes including forex, 

stocks, options, futures, and 

bonds. This application is 

available to customers as well as 

non-customers. Customers have 

the added feature of real-time 

trading and account monitoring 

capabilities just as they can from a 

regular computer. Increasing 

participation in currency markets 


development at Bloomberg 

Tradebook, Tradebook Order API 

is a tool that enables users to 

write code in the most commonly 

used languages from Java, Visual 

Basic and Excel and then take 

advantage of Tradebook's order 

execution capabilities. Tradebook 

API is seamlessly integrated with 

all the Tradebook blotters, market 

depth trading screens, 

Tradebook's electronic sales trader 

buddy (BUD ), Tradebook 

analytics and other functionality 

on the Bloomberg terminal. 

Interactive Brokers launches 

new iPhone application 

means more users want to keep in 

touch with the value of the dollar, 

euro and Japanese yen, which is 

why IB has now made real-time 

forex quotes available by using the 

App. The iTWS Application is 

available for free download at the 

App Store. Users can also receive 

real-time price alerts not just on 

currency pairs and stocks but also 

on any electronically traded 

futures or options contract 

around the globe. 

Interbank FX 

to launch UK 

Company 

Todd Crosland 

Interbank FX has announced 

plans to open a sister 

company, Interbank FX UK 

Ltd., in Central London, aimed to 

accommodate and better serve the 

retail FX customer in the UK and 

Europe. 

“We find it paramount to provide 

the best possible trading 

experience for our customers,” 

said Todd Crosland, Chairman 

and President of Interbank FX 

LLC. “Opening a London sister 

company would cater to our 

European and International 

customer base and provide our 

customers with the ability to trade 

additional asset classes, including; 

Spot Metals, oil, Indexes and 

CFD’s. Registration with the FSA 

provides brokers with the ability 

to hold customer funds in 

segregated margin accounts.”

NEWS 

Integral offers 

complete, hosted solution, 

for algo FX trading firms 

Harpal Sandhu 

Integral has announced an end-to-end hosted 

solution designed specifically to address the needs 

of algorithmic trading firms in foreign exchange. 

Delivered On Demand, Integral’s solution provides 

everything a systematic trading firm requires to run its 

algorithms: From the machines, to the network, to 

applications, access to liquidity and APIs. Co-located 

in data centers with FX Grid ® , the service virtually 

eliminates latency. Clients have the option of using 

their own proprietary hardware of lease managed blade 

servers from Integral. Both options allow customers to 

reside in managed enclosures run by Integral. Said 

Harpal Sandhu, CEO, Integral Development 

Corporation. “Some very smart algorithmic traders 

spend countless unnecessary man-years building and 

deploying IT infrastructure on which to run their 

trading strategies. Since Integral has the means and 

resources to get algo traders up and running in no 

time, we decided to package this service and make it 

available for a nominal fee.” 

Traiana extends Harmony 

FX Options capabilities 

Traiana has extended its Harmony FX options 

solution beyond prime brokerage to direct 

trading relationships. The enhanced Harmony 

solution for options automates the operational lifecycle 

of options contracts from booking through settlement 

through a central processing hub - ensuring complete 

system-to-system communication while reducing 

operational risk and costs associated with processing 

FX options trades. Advances in the processing of cash 

FX have raised client expectations for related products 

- including FX options. 


Deltastock launches 

MT4 

Deltastock AD has released Deltastock Meta 

Trader 4. MT4 is integrated with the 

company’s proprietary Delta Trading platform 

to allow MT4 clients to run Expert Advisors and trade 

with Deltastock. The company’s MT4 is the front-end 

client application for submission of orders to Delta 

Trading via the MQL script Meta-Delta, which uses the 

Deltastock API. Meta-Delta script synchronizes the 

positions in MT4 and Delta Trading platforms, which 

share the same price feed. Clients can trade Forex, 

Precious Metals and Stock Index CFDs in Deltastock 

MT4. Deltastock’s fixed dealing spreads remain fixed 

under all market conditions in Deltastock MT4. Beside 

trading through MT4, the company’s clients benefit 

from the full functionality of the Delta Trading platform 

without having to open a separate account. 

A new bank is born - 

MIG BANK 

After two years of intense preparation and 

investment, Neuchâtel –based Forex Brokerage, 

MIG, was recently granted a Swiss banking 

license last December by the Swiss Financial Market 

Supervisory Authority (FINMA), earning the distinction 

as the ‘first Forex Brokerage to become a Swiss Bank’, 

offering a unique package of best trading conditions, 

highly personalized service, and the security and 

integrity of a Swiss bank. CEO of MIG BANK, 

Hisham Mansour, adds: “Obtaining the banking license 

has been a major phase in our planned development, 

allowing us to diversify our activities providing 

brokerage services in precious metals and other added 

value services.”

NEWS 

WestLB goes Live with Eurobase’s Siena Gateway 

WestLB has gone live 

with Eurobase’s market 

leading price 

distribution solution, Siena 

Gateway. The product replaces an 

existing vendor system at the 

Bank and is, initially, providing 

connectivity and FX trading 

capability to the 360T platform. 

‘’We are delighted with the 

deployment of the Siena Gateway 

and its use for such a key area of 

our e-trading business and look 

forward to concluding further 

phases including upgrade of our 

Single Bank Platform Siena 

eTrader’’ said Chris Johnson, 

Head of eTrading at WestLB. 

“We are delighted to have 

delivered Siena Gateway to 


manage such a crucial area of the 

Banks eFX business. We are 

seeing a marked increase in the 

number of banks now looking to 

become automated price-makers 

Numerix introduces suite of 

trader applications 

Numerix has introduced its 

suite of Numerix trader 

workbook applications – 

Numerix FX Trader, Numerix 

Rates Trader and Numerix Credit 

Trader. FX Trader and Rates Trader 

join the newly enhanced Numerix 

Credit Trader application which 

was launched earlier this year, with 

all three comprising the suite of 

Numerix workbook applications. 

Numerix FX Trader: 

• facilitates rigorous pre- and 

post trade FX analysis 

• provides risk reporting and 

monitoring capabilities that 

include Rho Phi and Delta 

Gamma worksheets for 

monitoring FX spot-price risk 

• analytical modeling capabilities 

and volatility smoothing 

features for: Black-Scholes, 

Dupire, Heston, SABR and 

Vanna Volga models. 

PFSoft offer MyExchange technology 

PFSoft has released a new 

version of ProTrader, adding 

new functionality for 

trading between traders within 

the trading platform. The basis 

for this is an orders matching 

engine with splitting execution. 

With MyExchange technology the 

broker is able to create his own 

Exchange or ECN in order to 

have more transparent pricing and 

risk management. From now any 

broker can use local orders 

execution without any risk." said 

Denis Borisovsky, CEO of PFSoft 

Company. "It saves commissions 

paid to external liquidity 

providers and at the same time 

provides traders with better 

spreads, aggregated from external 

and local orders". 

or wishing to replace legacy e-FX 

trading products and are 

convinced our Siena e-Solution 

provides the optimal mix of 

performance, scalability and rich 

functionality to service their 

requirements’’ comments David 

Mallinder, Business Development 

Director at Eurobase. 

BT expands 

beyond MT4 

Boston Technologies (BT) is 

expanding its portfolio of 

products to include not 

only STP solutions for the MT4 

community, including names like 

CitiFX Pro, FXCM, dbFX and 

MF Global, but a portfolio of 

solutions enabling BT to supply 

FX brokerages with nearly every 

service they could possibly need, 

large or small. 

"We are delighted to be taking 

this step to widen our market 

focus. We are not de-focusing 

from MT4, we just think we can 

do a better job faster and cheaper 

in more areas than most brokers 

can themselves, simply by 

automating, defining robust, 

reliable processes, using 

economies of scale and sharing 

best practices," says George 

Popescu, CEO of the Boston 

Technologies.

FOREWORD 


Manfred Wiebogen, 

President ACI 

The Financial Markets 

Association 

The global financial crisis has revived the 

discussion on a financial transaction tax as a 

means of discouraging international currency 

speculation, help shrink ‘a swollen financial 

sector’ and perhaps simply to raise funds as 

an international (or national) source of 

revenue. 

Liquidity and 

stability or taxation 

and change the 

whole system? 

For more than one year different (mainly) European 

politicians have called for options on how the financial 

sector could make a contribution to pay for 

government interventions during the crisis, how to raise 

future tax income and even to use such funding in fighting 

poverty in developing countries. The discussion itself became 

more colourful when back in August Lord Turner, head of 

Britain’s Financial Services Authority (FSA) supported such an 

idea and Gordon Brown, the British Prime Minister recently 

shared his views and presented some proposals at the Group 

of 20 meeting in November. 

At this stage the discussion around the so-called Tobin tax are 

supported by some groups (e.g. the IMF by Dominique Strauss- 

Kahn) but was also for instance refused by the US Treasury 

Secretary Timothy Geithner and Yves Mersch, European Central 

Bank Governing Member, who called the initiative a ‘scurrilous 

idea’ (according to a Dow Jones news wire). 

What to tax? 

Today’s call for a financial transaction tax includes a wide range 

of products: foreign exchange markets, transactions in 

bonds, stocks, commodities and all kind of 

derivatives. But the talks are just beginning. 

The original idea of the Tobin tax was on 

currency speculation, one per 

transaction. In 1971 James Tobin 

proposed such a tax on currency 

trading to reduce or avoid speculation 

in the wake of the collapse of the 

Bretton Woods system. His proposal 

was for a tiny percentage tax 

(suggestions range from .1% to 

.5% in these days) – on 

speculative transactions only. For 

this idea (which was never 

implemented) and his work on 

financial markets, Tobin won 

the Nobel Prize in 1981.

One of the main arguments for such a tax is the 

debacle of the past two years in the financial markets. 

But stop – aren’t the backers of Tobin mixing all the 

financial markets? Is the reason for this new initiative 

really fighting future crisis or just simply a mechanism 

for raising money? Many arguments are aimed towards 

the enormous volume traded in the daily FX markets. 

Let me emphasize, foreign exchange didn't cause the 

current financial crisis nor is it guilty in any aspect for 

this crisis! As President of 

the ACI The Financial 

Markets Association, 

I’m calling for more 

rational and 

responsibility in all 

discussions about 

financial markets 

and taxation. What 

the markets now 

need is trust! But 

let’s face the truth: 

and that’s definitely 

our problem - Trust 

was lost on 9/15 in 

2008, when Politics 

let Lehman collapse. - 

A new tax will not 

bring back trust. 

OTC IR 

1.350 bn 

25% 

US Treasuries 

675 bn 

13% 

US Equities 

105 bn 

2% 

Fall of mankind 

To understand the numbers involved I shall 

breakdown some official figures from the past: 

Considering a 0.1% transaction tax at daily Global FX 

traded volume of USD 3.2 trillion the daily tax 

income could equal USD 3.2 billion a day! – (or just 

half the amount by a reduced rate to 0.05% or so). 

This of course is just a simplified demonstration of the 

discussed topic. As this chart and matrix illustrates, 

over the counter interest rates (OTC IR) and the 

Foreign Exchange business are totalling around 84% 

of the overall above figures. Again, both product 

groups absolutely have nothing in common with the 

current financial crisis but should they be forced to 

pay for it? FX is a class on its own and the OTC IR, 

mainly the short term products, helped solve the crisis 

by providing the markets and the banks balances with 

short term liquidity. If they are to be targeted by 

politics, there is something wrong. 

Politicians have to be very cautious in not discouraging 

the markets from short term funding (financing). A 

taxation here will again damage the short end of 

liquidity, causing a run on 

EMEA Equities 

70 bn 

1% 

Average Daily Turnover / in USD billions 

Source: BIS 2007 Survey 

FX 

3.200 bn 

59% 

long term funding and 

dry up short term 

liquidity/trading 

again. But do 

investors (long term 

lenders) want to be 

only in long term 

placements making 

them unable to take 

out their money in 

difficult times as 

short term-lenders 

did during the past 

year? Again, the 

markets need trust 

and liquidity. Repo 

business in the short 

term market has already 

eroded a part of the overall liquidity but markets do 

not need additional uncertainties. 

Hedgers and speculators are important to provide and 

to keep liquidity running. We have to accept the 

fragility but also the necessity of over-trading. A 

constructive discussion of such a transaction tax 

immediately will call for rational appeal. If the voices 

from the industry are not heard the whole financial 

system will be forced to change. 

ACI The Financial Markets Association 

(www.aciforex.org) would be more than happy to 

obtain your point of view. Should you have any 

comments or proposals you can contact 

managingdirector@aciforex.org 


LEADER 

The push for 

standardisation 

can we risk changing the future landscape of FX? 

By Dr. Yuval Levy, Chief Technology Officer, SuperDerivatives 

The recent disasters in the global banking 

system and the ensuing fallout in the 

derivatives markets fundamentally changed 

the way market participants use FX 

derivatives. The crippling widespread 

disappearance of liquidity and leverage as well 

as the over-regulation that many doom sayers 

predicted has not materialised; instead, market 

participants are refocusing on the core uses of 

derivatives that built the industry. 

Concurrently, there are greatly increased 

efforts at addressing systematic problems with 

efficiency and operational risk. In addition, 

regulators are preparing sweeping reforms to 

the OTC derivatives markets on both sides of 

the Atlantic and FX derivatives are in danger of 

being caught up in these reforms. 


Over the past decade, structured products, in 

which FX (and other asset class) derivatives 

have been used to create ever more complex 

and often highly tailored risk profiles in bonds and 

other investment vehicles, have become the driving 

force of revenue for many derivatives dealers. Overthe-counter 

derivatives remain the most effective and 

useful vehicles for hedging a critical commercial risk. 

While the use of simple derivatives in liability side 

hedging, asset side hedging, and hedge fund 

speculation remained important core drivers of the 

industry, it became increasingly difficult to see these 

flow activities through the forest of structured 

products hands ‘high-fiving’ each other over the latest 

highly leveraged and highly complex structured bond 

issuance. As a natural result of this evolution, 

competition, for many derivatives dealers, became 

focused on creating the newest, most innovative 

structures a few weeks before every other dealer could 

price them and enjoying a short but very profitable 

monopoly. Naturally, derivatives technology became 

focused on valuation and risk managing structured 

products. 

All of this changed, quite rapidly, in the wake of the 

collapse of Bear and Lehman and the widespread 

banking system problems having arisen out of the 

massive over leveraging of the retail and home-buying 

public. The derivatives dealing community is, as a 

result, having to rethink its business and retool for a 

very different reality. 

The regulatory environment 

There are many solid reasons for the existence of a 

bespoke FX OTC market and the ability for a 

counterparty to match exactly their underlying risk. It 

is important that we have an environment where the 

risk factors for doing business across the financial

markets are understood as clearly as possible. The 

markets have witnessed over 25 years of derivatives 

and OTC growth which has delivered enormous 

economic benefits. 

But these benefits have also carried substantial risk. 

Many risks associated with derivatives can be 

mitigated through employing robust, scalable, and 

transparent technological solutions that help to 

accurately reflect market prices. This can be supported 

by better, more robust and resilient industry 

frameworks and infrastructures. 

As such, there is a useful and healthy role for regulators 

to review and monitor the activities of those they 

regulate. However it is important that the regulatory 

authorities act with caution and in consultation with 

knowledgeable market participants before acting in a 

way that may ultimately be costly to all. 

Regulating swaps, as the US authorities are proposing, 

is absolutely the right thing to do as these are 

standardised instruments. However, extending this 

model to all OTC derivatives and overburdening the 

regulation of complex options simply won’t work. 

That would reduce the ability to create specific 

hedging instruments which are useful to help 

companies manage their risk. 

The value of derivatives lies in the fact that they allow 

market participants to take security on underlying 

assets rather than having to invest cash upfront. 

The debate and focus should be about how 

investment and risk management decisions are taken 

by individual institutions, not OTC derivatives 

instruments themselves. It is important that we have 

an environment where the risk factors for doing 

business across the financial markets are understood as 

clearly as is reasonable. 

The derivatives industry in Europe is certainly in 

need of a better, more robust and resilient 

industry framework and infrastructure. 

Overwrought regulation could hamper 

investment and commerce just 

when markets need them most of 

all. Regulations that increase 

trust and ,ultimately, 

liquidity can only be good 

for the market. 

>>> 

The derivatives industry has strong foundations which 

will enable it to successfully address current issues. We 

champion accuracy in pricing – this is what the 

market needs. Technology is part of the answer but 

this cannot be done overnight. 

Exchange traded derivatives 

Moving derivatives onto an exchange would result in 

market participants having to post large amounts of 

cash with the exchange to secure their hedging. Some 

instruments are ideally suited to exchange trading, 

notably the simpler options structures which can be 

commoditised onto an e-trading system, much as has 

happened with spot FX and other simpler 

instruments. 

But more 

advanced and 

customisable 

FX instruments 

are simply not 

suited to 

exchanges, chiefly 

because they are 

just that - nonstandard 

- and they 

require an OTC 

market. Companies 


LEADER >>> 

“It is very important to be clear that a 

speculative and unmanaged boom in asset 

prices as well as leverage and faulty credit 

decisions on the part of customers and 

providers, not the financial instruments 

themselves, have been at the root of recent 

market turbulence.” 

often use OTC derivatives to customise hedges to 

their specific exposures when standardised, exchangetraded 

products do not reflect their actual risk. The 

effect of forcing such companies to go through an 

exchange or clearing house would limit their ability to 

manage the risk they incur in operating their business. 

Currency derivatives have a number of variables and 

correlations based on underlying assets and the OTC 

market is not bound by fixed strikes or expiry dates in 

the way that exchange traded derivatives are, which is 

a real restriction for a counterparty. The OTC 

derivatives market must remain in a flexible form 

with the ability to enable institutions to 

establish structures that fit their 

needs to hedge and manage 

their risks. 

We must not throw the 

baby out with the 

bathwater. FX 

derivatives are useful 

insurance policies, 

which allow firms to 

manage the 

fundamental risk in 

currency and commodities 

fluctuations, interest rates 

moves, supporting trade, 

investment and economic output. 

They have a useful, real world 

application. 

It is very important to be clear that a speculative and 

unmanaged boom in asset prices as well as leverage 

and faulty credit decisions on the part of customers 

and providers, not the financial instruments 

themselves, have been at the root of recent market 

turbulence. The issue is to ensure that the underlying 

assets which underpin derivatives are sound. 

The OTC derivatives market has performed very 

effectively in helping companies and investors to 

manage their risks in a time of higher than usual rates 

of default, and the credit events that have occurred 


thus far are being settled in an orderly fashion. 

Moving all instruments to an exchange could make 

hedging and hedge accounting unworkable, therefore 

leaving institutions unhedged, just when markets are 

more volatile and real companies more susceptible to 

commodity, interest rate and currency movements. 

Institutions and investors in the future will still need 

to be prepared for unusual market circumstances with 

the proper tools before the event happens, during it 

and after it. There is also a key role for independent, 

effective pricing across the whole derivatives universe 

to set the 'benchmark' price for valuations for 

derivatives. 

We are already seeing growth in the use of FX, 

interest rates and commodity derivatives because they 

retain a crucial role supporting real, physical markets, 

in terms of hedging currency risk, managing resources 

and enabling cross border trade. 

This is backed up by the latest figures from the Bank 

for International Settlements (BIS). The notional 

amount of over-the-counter derivatives 

trades outstanding bounced back to 

reach USD 605 trillion by the 

end of June 2009, up 10% 

on the previous survey 

released in May. 

Push to create a 

central counterparty 

The push to create a 

central counterparty 

could prove to be a 

valuable step to regain 

confidence in the global 

financial markets and in 

these instruments that have a 

real-world application to help 

manage risk and hedge effectively 

against, for example, fluctuations in currencies, 

energy costs and interest rates. 

There will inevitably be resistance to change but the 

outcome could well be a resurgent market across both 

vanilla and structured financial products, with clearer, 

less opaque processes and reporting encouraging more 

counterparties to use these instruments. Publishing 

post-trade prices also makes sense and will serve a 

practical purpose in terms of analytics and analysis.A 

central counterparty, together with prompt reconciled 

confirmations and warehouse in our view could help 

to firewall against failures and ensure accurate 

reporting of system-wide activity to regulators.

LEADER 

Brave New World 

So what is really happening in the world of OTC 

derivatives? The trends in the industry are quite 

readily apparent: 

• A huge scaling back in the structured products 

business as gun shy investors lick their wounds 

and park their money in perceived safer havens 

• The last 18 months taught us that even simple 

derivatives can become difficult to price where 

markets are illiquid. 

• A huge increase in the difficulty of pricing even 

the simplest derivatives as never before 

considered systemic liquidity factors drive the 

short end of yield curves 

• An intense focus on “B-School” principles: 

operational risk, operational leverage, credit 

exposure, funding exposure, etc. 

• A move by an increasing number of dealers to 

utilise non-traditional derivatives distribution 

channels such as regional lending networks 

• A refocusing of the business around core 

hedging related activities 

• Competition through better client service, 

rather than through rapid innovation of 

complex structures 

• A major shift in technology spending from the 

development of sophisticated multi factor 

pricing and risk management models to the 

building of integrated front office solutions 

which address the new reality 

The OTC derivatives business has changed 

dramatically over the past 18 months; those firms 

who have adapted or are adapting rapidly and 

effectively to these changes are, while perhaps not 

thriving, surviving and seeing a potentially bright 

future. Those who have not adapted successfully are 

struggling. Critical to adapting to this new reality is 

technology and systems tailored to that reality. 

The new technology of competition 

Virtually every derivatives dealer we speak with across 

the world is, to a greater or lesser extent, trying to adapt 

or augment their technological capabilities to facilitate 

competition and efficiency within the rapidly changing 

landscape of the derivatives market. The simple reality 

is that an overwhelming percentage of the money spent 

on system development over the past decade has gone 

towards increasing the trading desk’s ability to price and 

warehouse increasingly complex risk. 

Traditionally, dealer IT and Quant departments are 

extremely good at delivering complex models and risk 

management technology to the trading desk; they 


have been less successful at delivering the tools 

necessary for the front office to compete effectively 

and operate efficiently in the vanilla derivatives space. 

This is partly due to lack of experience and partly due 

to an almost obsessive focus on model development. 

As the derivatives industry and the nature of dealer 

competition become centred on client service, 

technology that supports this service, both indirectly 

and directly, is becoming the focus of both the IT 

departments and the front offices of dealers across the 

globe. 

Our discussions around technology needs with almost 

every dealer we speak to revolve around the same 

themes: 

• The ability to deliver accurate option pricing 

and high quality supporting documentation and 

research to clients faster than the competition 

can manage. 

• The ability to efficiently provide peripheral 

services to clients, such as ad hoc risk analysis. 

• Tools that support a more efficient work-flow 

between sales and trading. 

• The reduction of operational risk through 

integration of front and back office systems. 

• The ability to pro-actively sell to clients based 

on their exposures and needs rather than purely 

based on the desk’s trading axes through better 

tracking of the clients’ activities. 

• Foolproof, easy to use pricing and analysis tools 

to enable distribution channels with less 

derivatives expertise to effectively sell. 

• “Economies of scale” in the derivatives 

distribution process through better sharing and 

archiving of information. 

There is almost universal recognition among derivatives 

dealers of the need for scalable, integrated front office 

and distribution software to address these issues. Dealers 

are currently facing the age old dilemma of technology 

procurement: build or buy. Fortunately, a few vendors 

have emerged over the last few years that are focusing on 

building these technologies. Those dealers who have 

embraced the changing landscape of derivatives 

competition by addressing the need for new technologies 

are seeing opportunities in the FX derivatives market 

that have not existed in years; this edge, coupled with the 

decreased dominance of the franchise players, has created 

enormous growth potential for the small to midsize 

derivatives dealer. This has created more business growth 

potential for a broader spectrum of derivative experts. As 

long as risk is managed, accurate valuations are adhered 

to and client service is exemplary this market will 

continue to be robust.

e-FX INDUSTRY REPORT 

The Retail FX Market 

Growth, Consolidation and Evolution 

Sang Lee is Managing partner 

of the Aite Group 

With the passing of the 

Commodity Futures 

Modernization Act (CFMA) in 

December 2000, the 

Commodities and Futures 

Trade Commission (CFTC) 

became officially 

responsible for regulating 

the retail FX market, thereby 

legitimizing the existence of 

the burgeoning retail 

market. Today, the retail FX 

market is booming with 

strong adoption across all 

major financial centers. 


While the retail FX 

market is focused on 

providing products 

and services that target retail 

clients, the definition of what a 

retail client entails is not so 

straight forward. In fact, most 

retail FX firms would also include 

small hedge funds and CTAs 

among their clients. The typical 

profile of a true retail client could 

vary widely from those high-networth 

individuals with more than 

US$1 million in average account 

size to small-time retail clients with 

a mere US$250 in account size. 

Due in part to broader acceptance 

by retail customers, the retail FX 

market has experienced 

phenomenal growth in the past 

few years. After a slow start in the 

mid- to late-1990s, retail 

customers have finally become 

more familiar with currency as a 

legitimate asset class, and not just 

as an inevitable by-product of a 

cross border transaction. 

Of course, retail investor acceptance 

is just one reason behind the 

market’s staggering growth. Some of 

the other key factors behind include 

the following: 

• Acceptance as a legitimate asset 

class. FX has indeed become 

widely accepted as a legitimate 

asset class. The active trading 

market is not the only venue 

through which retail investors 

can participate in this growing 

marketplace. Similar to other 

asset classes, those with shortterm 

speculative incentives can 

engage in active trading using 

many of the available global FX 

retail firms. However, there are 

signs that a growing number of 

options are becoming available 

for those investors with a more 

long-term perspective on FX as 

an asset class. 

• Global nature of a market that 

is open 24 hours per day. FX is 

a truly global market that is 

open 24 hours per day. This 

simple fact provides added 

convenience for those retail 

customers that may only have 

time during the evening hours 

to conduct most of their 

trading. Since the FX market is 

open at all hours, the down side 

of trading in after-hours such as 

drastically diminished liquidity, 

can be avoided.

• Highly liquid and accessible 

market. Despite the fact that 

the FX market is largely 

unregulated and over-thecounter 

(OTC) in nature (at 

least in the cash FX market), it 

is incredibly liquid. Even in low, 

volatile market conditions, there 

is always someone on the other 

side that is constantly providing 

trading opportunities. 

• Ease of access to market. Even 

less than a decade ago, gaining 

access to the FX market was 

difficult, as a handful of global 

banks dominated every aspect of 

the market. However, the 

emergence of the Internet as the 

key connectivity infrastructure 

for retail trading combined with 

the development of sophisticated 

and reliable retail FX trading 

technologies have contributed 

greatly in nurturing the overall 

growth of the retail FX market. 

• Regulatory acceptance. In most 

countries, local securities 

regulators have jurisdiction over 

various types of retail FX 

Figure 1: Projected Market Share of Automated Trading in Retail FX 

trading. In the U.S. market, the 

passing of the Commodities 

Futures Modernization Act of 

2000 (CFMA) provided 

legitimacy and support for “offexchange” 

trading of FX 

products for retail customers. 

In addition, the higher net 

adjusted capital requirements 

have eliminated weaker service 

providers and reinforced the 

competitive positions of those 

legitimate FX retail brokers. 

• Active market education. A lack 

of understanding was one of the 

major impediments in the retail 

FX market. Thanks to the 

accessibility supported by the 

Internet and the aggressive 

educational campaigns by leading 

retail FX firms, customer 

education has become widely 

spread and has lead to the 

development of a more 

sophisticated retail FX client base. 

• Migration of customers from 

other markets looking for 

higher returns. Similar to the 

institutional FX market, a 

>>> 

significant percentage of active 

retail customers have migrated 

from other asset classes, looking 

for higher profit margins. Not 

surprisingly, the most common 

migration path has been from 

the equities and futures markets. 

• Availability of technology. Even 

with regulatory and market 

structure changes that are 

favorable to the development of 

the retail FX market, without 

the availability of reliable and 

cost-effective trading platforms, 

the current pace of growth in 

the retail FX market could not 

be sustainable. 

• Gradual customer on-boarding. 

Most (if not all) of the major 

retail FX firms provide a demo 

account funded with thousands 

of dollars of virtual money. These 

demo accounts provides live 

prices and all of the margin and 

collateral features to simulate a 

live trading environment. This is 

an extremely important step in 

account acquisition, especially 

when courting novice FX traders. 


e-FX INDUSTRY REPORT 

Key market trends 

The growing legitimization of the 

retail FX market through various 

regulatory changes and availability 

of technology have certainly aided 

in the overall growth of the retail 

FX market. Over the last couple of 

years, a few key market trends 

have emerged to help define the 

further evolution of the market: 

• Adoption of automated trading 

systems. Similar to what has 

happened in the institutional 

market, sophisticated retail FX 

traders have turned to 

automated trading strategies to 

take the emotion out of their 

daily trading activities. 

Depending on what the trader 

wants to achieve and their 

tolerable risk levels, specific 

trading strategies can be 

automated to drive trading 

volume. The popularity of 

automated trading systems in 


the retail market has reached a 

point where even on eBay, one 

can find variety of automated 

trading systems ready for 

purchase. Aite Group estimates 

that automated trading systems 

account for approximately 35% 

of the overall retail FX market. 

• Market consolidation. Driven by 

stiffer competition and higher 

adjusted net capital requirements, 

the retail FX market has gone 

through massive consolidation 

over the last 12 months. With 

the net capital requirement 

moving from US$10 million in 

September 2008 to US$20 

million by May 2009, smaller 

retail FX FCMs have either 

exited the market or have been 

consumed by the larger players. 

As of Q3 2009, the US retail FX 

industry had about 15 retail 

brokers, a drastic decline from 

over 30 at the end of 2007. 

• Growth in emerging markets. 

Going beyond the major 

financial centers for currency of 

United States, UK, Japan, Hong 

Kong, and Singapore, many 

retail FX firms are discovering 

new revenue opportunities in 

emerging markets, including 

China, Southeast Asia, Latin 

American and the Middle East. 

For certain retail FX brokers, 

while the total number of 

clients from traditional FX 

market centers still account for 

a significant portion of their 

client base, an increasing 

percentage of revenue is actually 

coming from clients based in 

emerging markets. 

Market Sizing 

In 2001, the estimated average 

daily trade volume in the retail FX 

market stood at US$10 billion, 

representing 0.8% of the overall 

FX market. By the end of 2006, 

Figure 2: Average Daily Trade Volume in FX (In US$ Billions) 

Source: Bank for International Settlements, Bank of England Foreign Exchange Joint Standing Committee (JSC), New York Foreign Exchange Committee, 

Singapore Foreign Exchange Market Committee, Canadian Foreign Exchange Committee, Tokyo Foreign Exchange Joint Standing Committee, Aite Group estimates

the average daily trade volume 

reached over US$60 billion, 

representing over 2% of the entire 

market and signaling plenty of 

room for future growth. 

At the end of 2009, the retail FX 

market is expected to reach 

US$125 billion in average daily 

trade volume, representing over 

3% of the global FX market. This 

is an impressive growth 

considering that the overall global 

FX market has declined in size 

from US$4.3 trillion in average 

daily trade volume in 2008 to 

US$3.7 trillion in average daily 

trade volume by Q3 2009. 

Conclusion 

The potential growth of the retail 

FX market appears limitless at this 

point, as potential key 

competition is still missing from 

The Retail FX Market: Growth, Consolidation and Evolution 

Figure 3: Market Share of Retail FX 

Source: Bank for International Settlements, Bank of England Foreign Exchange Joint Standing Committee (JSC), New York Foreign Exchange Committee, 

Singapore Foreign Exchange Market Committee, Canadian Foreign Exchange Committee, Tokyo Foreign Exchange Joint Standing Committee, Aite Group estimates 

the competitive landscape. One 

such group is the major dealing 

banks that have, to date, 

functioned simply as liquidity 

providers to the leading retail FX 

players. As evidenced by the direct 

entrance of Deutsche Bank and 

Citi into the retail market, Aite 

Group expects other dealing banks 

with significant retail businesses to 

seek new revenue sources from the 

retail FX market. 

One glaring absence from the 

retail FX market has been the 

traditional online brokers in the 

United States, such as Charles 

Schwab, E*Trade, and others. In 

the past, the lack of regulatory 

guidance and reputational risk 

may have played a role in 

dissuading these firms from 

providing FX trading as part of 

their active trading platform. 

However, as they continue to 

focus on enhancing functionality 

within their active trader 

platforms, most of the traditional 

online brokerage firms will have 

no choice but to seriously consider 

the addition of FX into their 

overall asset class coverage or risk 

losing out on capturing this most 

liquid market to specialized retail 

FX brokers and large global banks. 

Whether through the use of active 

trading firms profiled in this 

report or increasingly through 

other FX-related products, such as 

FX deposit products, FX funds, or 

FX ETFs, a growing number of 

retail clients are turning to FX as 

an asset class to diversify their 

portfolios and to achieve the 

higher returns that are unlikely to 

be gained from more traditional 

asset classes. 


FEATURES 

Frances Maguire 

Despite new research showing a slight shift 

towards multi-dealer platforms, the demand for 

single bank portals, and relationship-based 

pricing, is still high, especially in times of crisis. 

Frances Maguire examines how the continued 

investment by banks in their platforms is 

ensuring they continue to grow. 


Single bank 

FX platforms 

will they keep 

powering ahead? 

The importance of liquidity was severely 

highlighted during the recent financial crisis 

and the need for solid credit lines, liquidity 

and relationship based pricing in times of uncertainty, 

for both those customers using multi-bank platforms, 

for best execution, and single bank platforms, became 

apparent. 

Andrew Cohen, global head of e-Commerce 

marketing, at BNP Paribas says that during the crisis 

there was a noticeable flight to quality, with clients 

wanting to trade with highly rated resilient banks. 

This resulted in a large increase in customers trading 

over the traditional channel (phone) - the trades were 

large in nature and required execution excellence.

He says: “I think it has shown the world that the FX 

business is still relationship driven. Despite the 

increasing volumes of business being done 

electronically, clients still want a sales person at the end 

of the phone, therefore showing that voice single bank 

and multi bank platforms compliment each other.” “In 

times of extreme crisis people always pick up the 

phone. The chat systems are also used extensively and 

are integrated into some platforms to keep that oneon-one 

relationship going.” 

Best execution 

The definition of best execution in foreign exchange 

trading goes beyond the notion of best price. Many 

buy-side firms define best execution in FX trading by 

looking at the total cost to execute, allocate, and 

settle an FX trade, including the potential for 

operational risk inherent in moving cash 

between accounts and counterparties. 

Cohen believes the two models will 

continue to exist side-by-side, simply 

because of the compliance 

requirement for certain fund 

managers to get three quotes 

for every deal. However, 

banks are continuing to invest 

in the single bank platforms and 

Cohen says they continue to show growth. 

“Relationship-based pricing enables banks to tailor 

their services more specifically to individual client 

needs and offer value-added post-trade services, such 

as aggregation and straight-through-processing to the 

client’s front office booking systems as well as back 

office systems to enable automated allocations and 

providing online reporting tools,” he says. 

The recent crisis has put all the over-the-counter 

market instruments firmly in the spotlight. Cohen 

believes there has been greater focus on leverage in the 

retail space. In the US and Japan the tighter leverage 

regulations may have an impact on retail volumes 

further down the line, but Cohen says the single bank 

FX platforms are here to stay, due to the sheer 

volumes being traded on them, the resources that 

banks are putting into them and the fact that some 

clients prefer to trade on them. 

Going forward, Cohen says the banks will become 

more innovative to keep clients on their single bank 

platforms and this will take many different guises, 

from adding liquidity, better pricing models, more 

sophisticated execution models and algorithms, to 

adding more products, such as more exotic options. 

>>> 

Andrew Cohen 

“Relationship-based pricing enables banks to tailor their 

services more specifically to individual client needs and offer 

value-added post-trade services...” 

Focus on relationships 

For Takis Spiropoulos, managing director and head of 

the e-Solutions group at CIBC World Markets, this 

innovation will be very much web-based, and the 

increased services that this enables banks to deliver 

will be a key component in building single bank 

portals in the future. Spiropoulos says there has been 

a recent focus on client relationships across all asset 

classes, and the banks with strong balance sheets and 

high credit ratings were able to focus more on their 

relationships and saw an increase in market share. 

He says: “The events of the last year were a real 

testament to the importance of the relationships with 

clients. We saw a reduction in the number of bank 

counterparties, defaults and credit constraints, and as 

a result clients became more dependent upon fewer 

banks for liquidity provision and funding. For a 

number of primary dealers this presented 

opportunities to strengthen relationships with existing 

clients while opening the door to new clients in need 

of products that were challenging to hedge.” 

Spiropoulos believes that both FX ECNs and single 

bank portals will continue to grow, but at different 

rates, that are currency pair-dependant. The single 

bank portals maximise the internalisation of what is 

predominantly client flow for the more liquid G10 

currency pairs, but the banks rely upon ECNs to 


FEATURES 

minimise hedging and execution costs. The emerging 

agency e-commerce approach also relies on accessing 

ECN liquidity, using Direct Market Access, and 

leveraging execution algorithms. He says: 

“Additionally, banks are starting to trade with each 

other directly, on an interest only basis. This way 

banks can offload some of the risks between ecommerce 

desks without leaving a large execution 

footprint in the ECN market.” The higher the 

consumption of liquidity, the higher the volatility so 

as liquidity differs significantly between different time 

zones and currency pairs it is natural for banks with 

expert market knowledge in specific currency pairs, in 

our case USD/CAD, to express this advantage in the 

single bank platform through competitive pricing and 

value-added offerings to attract client flow.” 

Gateway to tailored solutions 

Spiropoulos says that single bank platforms are ideally 

suited to servicing the bank’s own retail discount 

brokerage and wealth management businesses, 

especially when the platform is enriched with suitable 

content and integrated with efficient processing 

management – key to successful custodian and 

payment orientated solutions. “Multi-bank platform 

represent the lowest common denominator, which for 

highly commoditised products, such as FX, essentially 

means price and straight through processing, whereas 

single bank platforms can further enhance the client 

relationship by targeting functionality to different 

client segments, thus providing banks with the 

opportunity to differentiate their service to the client.” 

In the corporate sector, working closely with the 

treasury department to help them streamline their 

operations and exposure management, and satisfy 

their ever-increasing accounting requirements, can be 

catered for by the single bank platform. 

Single bank platforms leverage the aggregated 

liquidity and proprietary market making algorithms 

to produce competitive and consistent pricing. 

“The initial perception was that e-commerce platforms 

were about price and execution. It is now understood 

that single bank platforms also add value to the client 

by providing pre-trade and post-trade functionality. 

We see the single bank portal as an investment in 

client relationships. It is a gateway to tailored solutions 

to meet client needs,” Spiropoulos says. 

Going forward, Spiropoulos believes that as 

technology and web browsers evolve, web based 

solutions are becoming viable alternative to installed 

applications and are more suitable for cross-asset single 

bank portal development. For example, auto-hedging 


>>> 

the FX risk inherent in cross-border trading of equity 

and fixed income instruments will be much easier. He 

says: “Leading single bank platforms will increasingly 

become client-focused, rather than product-focused, 

and leveraging emerging web-based technologies to 

enhance the user experience and bring the user closer 

to the trading venue. For example, client designed 

pages on a single bank platform, advanced searching 

capability and stored searches, decision support using 

analytics and calculators with linked charting 

capability, integrated news, research and chat facilities. 

All these features are much easier to integrate on webbased 

technology rather than installed application.” 

Growth patterns 

Every year, since 1993, consultancy ClientKnowledge 

interviews 2000 wholesale customer counterparties in 

the foreign exchange market to survey the different 

channels FX business is being traded, and the research 

reports a slight shift towards the multi-bank platforms. 

Justyn Trenner, Principal of ClientKnowledge, says 

that all currencies, including the most liquid, were 

impacted by the financial crisis across all platforms 

and electronic venues. As a result business, 

particularly large orders, shifted back to the phone 

and although there is flow is starting to go back to the 

electronic trading systems, this is not the case for 

much of the large order business. He says: “There is 

also an interesting nuance that banks are sometimes 

restricting their trading with other banks as 

counterparties in order to ensure that they can 

Takis Spiropoulos 

“We see the single bank portal as an investment in 

client relationships. It is a gateway to tailored 

solutions to meet client needs,”

FEATURES 

Justyn Trenner 

“Bilateral connections still matter. They are a very large 

part of a bank’s business and the dealer portal within 

that will tend to be more profitable...” 

allocate their trading lines with that bank for the 

occasions where that bank is supplying a broker or 

hedge fund with whom they want to trade – that they 

reserving lines for prime brokerage relationships.” 

ClientKnowedge found no growth in ‘black box’ 

trading between 2008 and 2009. Algorithmic trading, 

however, has grown as a process for the sell-side to 

internalise client risk, but the buy-side has not grown, 

not least because some of these models became 

unstuck in the last year. Where algorithms are used to 

split up trades and find best execution in the market, 

there has been growth, according to ClientKnowledge, 

but the use of execution algorithms for large orders 

still remains at around just 5-15 per cent of how large 

orders are traded, depending upon the region. 

Says Trenner: “The net effect is that customers have 

moved a little of their trading away from the electronic 

systems and this has offset the natural growth in the 

adoption of e-trading so that the growth pattern for etrading 

as a proportion of total activity has flat-lined, 

across all client types, in the past year.” The impact of 

this lack of growth of e-trading has been that there 

has been a slight shift towards multi-provider 

platforms, and a slight reduction in bilateral trading 

platforms. “Within the bilateral trading sector we are 

seeing an increased take-up of APIs (Application 

Programming Interfaces) compared to using the 

bank’s single dealer platforms. We think that single 

dealer platforms, depending on the region and client 

type, still account for 30 per cent of e-trading.” 


Importance of bilateral connections 

Last year, the ClientKnowledge survey measured the 

single dealer platforms as close to a 60/40 split 

between multi and single dealer platforms. Says 

Trenner: “Bilateral connections still matter. They are a 

very large part of a bank’s business and the dealer 

portal within that will tend to be more profitable 

because it is less competitively priced, but it is 

important that banks understand and support multiprovider 

platforms and API connectivity.” 

However, Trenner stresses that the figures show that 

even though the larger part of FX business streams is 

going through the multi-provider platforms, it does 

not mean that buy-side firms are dealing with a higher 

number of banks electronically than they were year 

ago. The number of trading partners has not changed, 

it is just that firms prefer to see their banking partners 

in either multi-dealer venues or in an aggregated 

format of their own, which requires an API, so they 

can readily compare pricing. The marginal change 

there has been in the number of banks used, Trenner 

puts down to the recent squeeze on credit availability, 

rather than the desire to compare more banks’ prices. 

Trenner believes the main driver for buy-side firms in 

choosing where they trade is convenience of market 

access and the use of aggregation technology, provided 

by firms like FlexTrade and Apama, is growing. 

However in the immediate future, he believes both 

the multi-dealer and single bank platforms will 

continue to grow, side by side, for different customer 

types and requirements. 

However, the fact still remains that the main focus for 

the banks behind both the single and multi-bank 

platforms is the single bank portal and it is there that 

greater investment is being made. In 2001, many 

thought the arrival of the multi-bank portal would 

mean the death of single bank portals but the reality 

is that there will always be a number of companies 

that continue to use a single bank credit provider as 

they simply do not have the kind of FX volumes that 

warrant the multi-bank portal subscriptions. 

At the end of the day, challenges to the sustainability 

of the multi-bank platforms will come from the 

supply side not the demand side, and how liquidity 

providers can maintain FX revenue by trading 

through a multi-bank portal. And once the focus on 

price transparency shifts to credit lines, or to the cost 

efficiency of straight through processing, it looks as 

though the banks’ portals will continue to give the 

multi-bank platforms a run for their money.

FEATURES 

Jim Nuzum 

Jim Nuzum CEO of GCC Markets (www.gccmarkets.com), 

explores why there is growing 

demand for Shari'ah compliant FX trading 

solutions and how the latest FX e-commerce 

technologies can help address the needs of 

Islamic traders and investors. 


FX e-commerce 

in Shari'ah 

compliant 


the new embracing the old 

Depending on which scholar’s view you are 

referring to, the Islamic Golden Age ran for 

about 400 years, from the early 9th century, 

well into the 13th century. During this time Islam 

contributed to and either, directly or indirectly, 

influenced economic doctrine on every continent. 

Today, with total assets somewhere around the $750 

billion level, Islamic finance is a relatively small but 

vital element of the conventional finance sector 

globally; vital not just for its obvious geopolitical 

significance, but vital numerically too. At around 1.6 

billion, almost 1 in 4 people in the world today 

practice Islam and on current growth rates this will 

increase to 1 in 3 by 2025. Comparatively, (ignoring 

the recent events in Dubai) and not by accident or 

oversight, Islamic finance hardly missed a beat 

throughout the credit crisis and continues to maintain 

double digit growth rates, upwards of 15% pa. 

Demographic diversity – globally visible, more 

globally integrated 

The notion that all Arabs are Muslim and all Muslims 

are Arab is also false. Findings in a recent report by 

Princeton University confirms that 60 percent of all 

Muslims live in Asia and only 20 percent live in the 

Middle East and North Africa. Importantly, a significant 

concentration of Muslims exist in the new economic 

powerhouses of India (161 million) and to a lesser 

extent, China (22 million) and Russia (16 million) as 

well as in-vogue, technology and resource rich countries 

of Malaysia and Indonesia (another 240 million). 

However you look at it, these are compelling 

numbers. Together with major infrastructure 

development already underway or in the pipeline 

throughout the GCC alone, they will underpin the 

continued emergence of Islamic capital markets in a 

manner that will dwarf the oil boom of the 90’s. Little

wonder, you’d agree that global banks 

have established specialist Islamic 

“windows” or dedicated subsidiaries to 

address the immediate opportunity and 

resource up for the inevitable medium 

term potential. 

How Shari'ah compliant FX operates 

To see the precise and, well 

complementary role for eCommerce in 

Shari’ah compliant trading, it helps to 

understand some basic principles of 

Islamic finance and application of those 

principles to the FX market*. 

The Shari’ah (‘the way of life’) is a 

complete set of principles and rules 

governing the day to day life of Muslims 

including trade and investment. It is 

codified in the Quran and the Sunna (the 

recorded sayings and actions or “traditions” 

of the Prophet) and elaborated on by Islamic scholars 

through interpretation and analogy. 

Islam has a problem with the concept of making 

money simply by virtue of having money, a practice 

which it considers exploitative. Other specific 

prohibitions are generally unambiguous and include 

but are not limited to tangibles such as alcohol and 

tobacco and intangibles including 1) 

gambling/speculation, 2) uncertainty (gharar) and of 

course 3) interest (riba) as well as 4) non-asset backed 

transactions. So in summary, a compliant FX trade: 

1. Must not be in support of a prohibited item 

(alcohol, pork products, etc.) 

2. Must have a legitimate, underlying cross 

border trade or investment transaction, 

hedging and risk management acceptable 

3. Cannot simply be a speculative or short 

position in a currency 

4. Must not involve interest or interest rate 

differentials. 

In conventional foreign exchange, anything other 

than a spot deal obviously falls foul of 1 or several of 

these. The market has evolved to address the issue of 

outrights and swaps with a number of structures, all 

of which are generally based on one or two commonly 

accepted philosophical approaches: 

Trader A Trader B 

Bank 

1 3 

Commodity A Commodity B 

Commodity A 

USD Principal + Profit 

EUR Principal + Profit 

Cash Flows Commodity Flows 

2 

4 

Commodity B 

Cust. 

>>> 

Diagram 1: Sharia’h compliant FX forward based on simple Commodity Murabaha structure 

*These are relatively simple examples of compliant structures; detailed analysis of structural options is beyond the scope of this article. 

**OIC Fiqh Academy (Organisation of the Islamic Conference) - a most respected Saudi Arabian based body established for advanced study of 

Islam has become an outspoken critic of several high profile, scholar endorsed structures common in the market, among them Tawarruq. 

a. Wa’ad (single or double) essentially a 

unilateral promise or promises (see Diagram 2) 

b. Murabaha – commodity purchase and resale 

(see Diagram 1) 

As with most structured Islamic products, 

benchmarks and the basis of pricing somewhat 

controversially** originate in the non-compliant 

world – in the case of forward FX, swaps and 

underlying interest rate differentials are the “culprits”. 

Murabaha based structures are the basic building 

blocks of Islamic finance with variations deployed to 

accommodate a range of funding, asset and liability 

management and FX activities. In the Murabaha 

based FX example in Diagram 1, compliance is 

attained by mapping the cash flows that would 

ordinarily exist via the swap(s), to the purchase and 

sale of a commodities (say non-precious metals on the 

LME or a pre-agreed basket of compliant assets), 

which has the same/similar cash flow implications for 

the customer. 

This approach requires the customer and the bank to 

enter into two separate Murabaha transactions to 

replicate the FX forward cash flows. The customer 

buys the metal value spot and sells it to the bank for 

the purchase price plus an agreed profit (the swap 

component in a conventional forward deal), payable 

on a deferred basis, aligned to the end value 

date/delivery of the FX deal. On the other side of the 


FEATURES 

forward, the bank buys another commodity and sells 

it to the customer, again for the purchase price plus 

an agreed profit, settlement on a deferred basis. The 

customer then sells the commodity back into the 

market to recover its initial investment and CCY 

requirement. 

The Wa’ad based approach achieves a similar outcome 

for the customer in cash flow terms but utilises a 

number of unilateral promissory notes as depicted 

below. 

T0 

T88 

T90 

Counterparty 

A 

Counterparty 

A 

Counterparty 

A 

Counterparty 

A 

Counterparty 

A 

With a double Wa’ad approach, both counterparties 

promise to deliver a given CCY to each other at a set 

price (amount) if the other party exercises the option, 

but without entering into a contract that would 

include the uncertainty forbidden by Shari’ah. 

While these are the most common structures in the 

market, imperfections exist with both approaches. 

They are not universally accepted by all Islamic 

scholars in all jurisdictions (very few are). To the 

extent that the compliant Murabaha structure 

involves 4 parties and another asset class, there is an 

economic cost attached to execution over and above a 

typical bid/offer spread in an FX outright or swap, 

which is passed through to the customer. With the 

Wa’ad based structures, issues exist in many 

jurisdictions around questionable or untested 

enforceability of promissory notes. Still, for now 

they’re getting the job done. 


Buys EUR 

Sells USD 

Wa’ad agreement to buy 

USD against EUR at a 

predetermined rate on T88 

Offer to buy USD 

against EUR at a 

predetermined rate 

Counterparty B accepts 

offer from Counterparty A 

Buys USD 

Sells EUR 

Buys USD 

Sells EUR 

Counterparty 

B 

Counterparty 

B 

Counterparty 

B 

Counterparty 

B 

Counterparty 

B 

Diagram 2: Sharia’h compliant FX forward based 

on simple (single) Wa’ad structure 

>>> 

Fragmentation remains a problem for now 

So, we have a large, growing, globally visible 

addressable market; it’s multi-jurisdictional, 

increasingly sophisticated and benefitting more than 

ever from a significant influx of intellectual and 

human capital. Sure, it has its structural peculiarities 

but it still represents a beacon in the post credit crisis 

financial markets landscape. 

So why does it continue to underperform and fail to 

realise its fullest potential? Informed conjecture on 

this would probably consider 3 areas 

– standards, standards and standards 

– or lack of them. 

For the sell side, both global banks 

and to a slightly lesser extent, 

regionalised Islamic banks, 

standardisation and convergence is a 

two edged sword; commoditisation 

normally accompanies introduction 

of standards and, as we all know, 

margin compression rapidly occurs 

on the heels of (product) increased 

commoditisation. In 

acknowledgement of this 

inevitability and for the benefit of 

the industry as a whole, only the 

more enlightened institutions are 

genuinely pushing for agreement on 

and adoption of standards and 

documentation. After all, why 

should Islamic investors and traders 

pay onerous premiums for so called 

proprietary structures that deliver 

little, if any economic benefit? And 

why should Islamic investors tolerate sell side 

“convenience” of lower standards of transparency, 

disclosure and reporting? 

Spot Contract 

Wa’ad Contract 

Wa’ad Contract 

Spot Contract 

Settlement of 

Spot Contract 

Scholars’ tendency toward divergent views has led to 

widespread calls for intervention by standards bodies 

and state regulators. Some progress has been made in 

this regard with ISDA, IIFM (International Islamic 

Financial Market in Bahrain) and AAOIFI 

(Accounting and Auditing Organisation for Islamic 

Financial Institutions) but much work still needs to 

be done and probably as an industry wide initiative to 

accelerate needed outcomes. 

FX platform compliance with Islamic principles 

In terms of structure and process, in order to 

successfully address the Islamic sector, single and 

multibank (FX eCommerce) platforms need to 

substantially mirror the off-line world as described 

REF: International Swaps and Derivatives Association (ISDA) and the International Islamic Financial 

Market (IIFM), Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI)

FEATURES 

above. Although addressing a relatively small subset of 

their customer base, to varying degrees of automation, 

the single bank platforms offered by global banks all 

do this. Structures offered are for the most part 

customer driven, encompassing combinations of 

single Wa’ad, double Wa’ad and commodity 

Murabaha. 

In the event of Murabaha based transactions, in-line 

electronic integration with an approved commodities 

broker(s) would automate the process of discovery, 

execution and 

confirmation enabling the 

sell-side to leverage 

immediate operational 

efficiencies, dramatically 

reducing CPT (average 

Cost Per Trade). 

To enjoy widespread buyside 

support, compliance 

models should be signed 

off by a dedicated 

Shari’ah compliance 

board, which would 

consider and issue fatwas 

(religious opinion 

typically issued by an 

eminent Islamic scholar 

or compliance board 

comprised of such 

scholars) on a bystructure 

basis. 

Addressing the needs of 

Islamic traders and 

investors 

• Streamline buy-side 

workflow: 

Asked to name the single 

biggest benefit of eFX 

platforms, many Islamic 

investors and traders (the 

tiny minority who use them) fail to mention ease of 

price discovery, convenience or even better liquidity, 

instead praising the advent of progress toward 

streamlined workflow. Given the nature of Islamic 

finance, the end-to-end processing of an outright or 

swap is a resource-intensive business. Together with 

an acceleration of standards and regulatory 

convergence, this has become an enduring barrier to 

widespread buy-side adoption of compliant FX and a 

stubborn impediment to the sell-side scaling the 

business to anything like meaningful volumes. 


• Advance standards and regulatory convergence: 

A multi-bank eCommerce platform as an industry 

solution for the global Islamic investment and trading 

community is the ideal vehicle to level the playing 

field with standards based compliance models and 

documentation. 

• Spectacularly reduce ticket processing costs: 

With such cumbersome trade lifecycle events, 

processes and workflow, the sell side arguably has the 

greatest incentive; fully costed, the CPT for banks 

currently providing 

compliant FX in the Gulf 

ranges from $150 to an 

eyebrow raising $300+. 

Progressively higher levels 

of integration and STP, all 

of which originate from 

electronic execution, will 

substantially eliminate the 

processing bottlenecks 

currently placing an 

“artificial” handbrake on 

volumes. 

The more generic benefits 

of eCommerce 

deployment such as 

reduced market and 

operational risk of course 

also apply. With bilateral 

credit the moving feast 

that it is these days, so too 

the relevancy of reduced 

credit risk/credit 

enhancement, with 

integrated messaging 

handling prime broker 

functions. 

Conclusion 

The unique characteristics 

of Islamic finance are rooted in centuries old values. 

Operational challenges posed by these characteristics 

lend themselves perhaps even more than conventional 

FX, to electronic automation. 

Up to the minute, twenty first century technology, 

sensitively coupled with Islamic jurisprudence will 

accelerate the emergence of the Shari’ah compliant 

trading sector and deliver a confluence of undeniable 

benefit to all market participants.

PLATFORM REVIEW 

The TEX ® Multidealer 

Trading System 

By Alfred Schorno 

With global currency markets more 

volatile than ever, buy-side clients in 

the foreign exchange markets are 

looking for partners they can trust to 

provide reliable, cost-effective and 

secure electronic trading services. 

e-Forex talks to Alfred Schorno at 360 

Treasury Systems AG (360T) about 

how the company's multi-bank 

platform is meeting this demand. 

Alfred, 360T was formed in 2000 and 

maintains a state-of-the-art multi-bank 

platform for Foreign Exchange, Money 

Market products and FX/Interest Rate 

Derivatives. Who are your main clients 

today? 

Banks acting as market taker, corporate 

treasuries and institutional clients like real 

money and hedge funds as well as 

broker/dealer are trading on our multibank 

portal. 


The TEX ® Multidealer Trading System is 360T´s 

global multi-bank portal. How many international 

and regional liquidity providers are now connected 

to the platform? 

Globally more than 70 market makers are offering 

pricing across the different OTC products tradeable. 

What range of integration options is available to 

customers with TEX ® ? 

Being rated as one of the top provider of integration 

solutions we offer and maintain online deal export 

interfaces to most treasury or portfolio management 

systems. Online order routing via an upload API is 

also available. 

What do clients particularly like about TEX ® and 

what are the key benefits the platform offers them? 

Being the only real multi-product portal, customers 

TEX ® Multidealer Trading System

Workflow I-TEX ® Intra-Group Trading System 

highly value the fact that TEX ® enables trading in a wide 

range of FX and money market products including FX 

options, FX limit orders, money market funds, as well 

as precious metals and also interest rate derivatives. 

Then, beside the fact that 360T offers unlimited access 

to the full bank basket of buy-side customers, it is also 

much appreciated that we are the only multi-bank 

platform not owned by banks. Also our strong service 

orientation is especially valued by our customers. 

What trade execution options are available on TEX ® ? 

Customers can choose between Request for Stream 

(RFS), Streaming executable rates (SEP) and limit 

orders with a wide range of order types. 

360T also provides an Intra-Group Trading system 

called I-TEX ® . What key features and trading 

functionality does I-TEX ® support? 

I-TEX ® offers well focussed range of features to the 

different user groups: 

For market taker banks our white label trading / 

single bank trading solution can support all products 

types as available on our multi-bank portal TEX ® . On 

customer wish the offering can of course be limited in 

terms of products. Furthermore we just launched our 

enhanced FX margin trading and position 

management tool to cater 

FX spot trading for margin 

trading customers. 

Corporates can link the 

world wide subsidiaries 

and centralize FX and 

intra-group financing 

transactions in one or 

more central treasury hubs. 

Asset managers use us to 

centralize market or limit 

orders in a central 

execution desk and 

aggregate or group 

transactions easily before 

execution to the market. 

Our integrated auto dealers 

support all I-TEX ® -trading 

hubs with a wide range of 

features including spread 

management, internal and external counterparty limit 

control as well as price management via back-to-back 

market liquidity. 

How have you extended the traditional features 

available on I-TEX ® ? 

The latest and most important enhancements are: 

• Enhanced features for FX margin trading 

• Additional routing rules for the auto dealer with 

minimum spread management, trader spreads 

• Extended possibilities to set up external bank 

baskets 

• Market link (back-to-back functionality) 

supporting also limit orders 

What plans does 360T have for extending the range 

of products and services available on your multibank 

platform? 

Our first priority is to maintain and support the 

existing already quite wide range of services and 

products but we are always open to discuss customer 

requests. Lately enquiries to enhance FX option 

trading to volatility quotes, not limited to live prices 

as today, and also trading features for base metals have 

summed up. We are carefully evaluating this and 

other options. 


FEATURES 

Continuing innovation 

in exchange-based 


By Frances Maguire. 

The world’s futures exchanges continue to make 

in-roads into the biggest OTC market in the 

world and with recent regulatory discussions on 

the need for greater use of centrally cleared 

products, currency trading innovation continues 

to gather pace within the exchanges. 

During the uncertain times of the banking 

crisis the exchanges saw renewed interest in 

central clearing and now that the regulators 

are deliberating over which instruments should be 

centrally cleared, it looks as though the exchanges will 

continue to benefit from the trend, both mandatory 

and voluntary, to mitigate counterparty risk through 

centrally cleared instruments. As a result, the futures 

exchanges have continued to innovate in launching 

products and reducing fees to attract this new 

business. 


CME Group 

Recently, CME Group gained regulatory 

authorisation to launch a new service to clear FX 

instruments traded over the counter through CME 

Clearport. A pilot will begin at the end of the year, in 

readiness for a customer for launch in 2010. The 

service will enable bilaterally traded spot, swaps and 

forwards on eight currency pairs to be cleared using a 

centralised counterparty model, with flexible notional 

values and settlement dates available, and tenors out 

to five years. Post-launch, additional currency pairs, 

options and NDF currencies will be available through 

CME ClearPort. 

In March, CME launched E-micro FX contracts, in 

six currency pairs. At one tenth the size of CME’s FX 

contracts, the micro contracts are quoted in interbank 

terms and are the first FX products the exchange has 

launched, specifically designed for retail and selfdirected 

traders. 

Derek Sammann, managing director of financial 

products, at CME Group says that the interest is 

coming from a range of investors, many of which are 

not new to listed products, but new to FX. “We 

wanted to position a product that was the right size 

for customers in terms of risk tolerance. Our noninstitutional 

customers indicated a need for smaller 

contracts to more easily access the FX market, and we 

have carried out an extensive educational programme 

with the brokerages to support this.” 

Sammann says that the CME Group’s growth in 

volumes, in the last two years, continues to 

outperform the over-the-counter market. However, 

the two markets are correlated and cash market 

growth has a positive impact on the exchange traded 

volumes and Sammann says the liquidity pools 

complement each other.

Technology upgrades 

CME Group invests heavily in enhancing its 

infrastructure and speed of its matching engine. A 

number of technology upgrades during the past year 

has seen the matching speed on the exchange’s 

electronic trading platform, Globex, change from 12 

milliseconds for FX down to around 2.5 milliseconds. 

Says Sammann: “We think this is a significant 

increase in speed and efficiency and for our market 

participants, where speed is important and latency 

concerns abound, we continue to invest in our 

infrastructure across all asset classes.” 

In addition to this is the increasing rollout of CME 

Group’s co-location facility to provide a service to 

enable high-velocity trading customers to co-locate 

their application server alongside the Globex 

matching engine. 

According to Sammann, another benefit to our 

customers that trade cash and futures is that CME has 

reduced the EFP (exchange-for-physicals) fee, for 

firms to take an OTC position and migrate that onto 

an exchange-listed futures position, to give customers 

a 43 per cent saving. He says: “This makes it easier 

and more cost effective for firms that want to take 

advantage of our central counterparty clearing service 

and apply that to their cash positions, and as a result 

Derek Sammann 

“Our non-institutional customers indicated a need for smaller 

contracts to more easily access the FX market..” 

>>> 

EFP volumes have increased by 25% in the last 

quarter. Customers, particularly in the last 12 

months, have started to see the significant benefit of a 

clearing element in their FX transactions.” 

The recent crisis has prompted a flight to quality, with 

concerns for risk reduction and the deleveraging of both 

banks and buy-side trading books, and the increased 

redemptions of hedge funds means that customers are 

looking to go back to basics in risk management. 

Sammann says: “This has been reflected not only in a 

reduction of emerging markets business but also the 

options volume has pulled back a little more 

dramatically than the spot and the futures business. 

This speaks of a simpler view of risk, and customers 

are moving away from complexity and are drawn to 

liquidity. By offering liquidity, transparency, and 

credit risk mitigation, we provide our customers with 

the solutions they need to manage their risk.” 

He adds that best performing currencies through the 

crisis were the high yielding currency pairs of the 

British pound, Canadian dollar and Australian dollar. 

ICE 

Ray McKenzie, vice president of US Futures Product 

Sales at the InterContinental Exchange (ICE) says the 

exchange has recently launched block trade 

capabilities for its FX futures contracts, and a Trade at 

Settlement (TAS) facility for the ICE US dollar index. 

The TAS capability allows a trader to enter an order 

to buy or sell an eligible futures contract month 


FEATURES 

Ray McKenzie 

“.. we are constantly looking for ways to improve execution 

speeds and other functionality in our matching engine.” 

during the course of the trading day at a price that will 

be equal to the settlement price for that contract 

month, or at a price that is up to two minimum price 

fluctuations above or below the settlement price. TAS 

trades are confirmed when TAS bids and offers match. 

In addition, ICE has waived all fees for electronic ICE 

FX futures products, and added the ICE dollar Index 

to its 30-member exchange program. Real time dollar 

index and FX quotes are now available, free of charge, 

on the exchange’s website. 

He says: “ICE currently has the fastest futures 

platform in the industry and we are constantly 

looking for ways to improve execution speeds and 

other functionality in our matching engine.” 

>>> 

He adds that there has been a surge of interest in the 

ICE US Dollar Index futures contract, and there has 

been increased activity in cross currency products in 

the EFP market, especially South African Rand, 

Hungarian Forint, and Czech Koruna. 

This growth in interest in exchange-traded products 

has come as a direct result of the recent financial

FEATURES >>> 

crisis. “The value proposition for clearing OTC FX 

products on exchanges has strengthened, as buy side 

customers are looking to reduce counter party credit 

risk for all products,” he says. 

ISE 

Kris Monaco, director of new product development at 

the International Securities Exchange (ISE) says that 

the exchange now lists options on nine currency pairs, 

four of which have a dual convention so that trades 

can use the USD-based or USD-counter convention 

for four currencies: Euro, British pound, Australian 

dollar, and New Zealand dollar. ISE is also preparing 

to launch options on the Brazilian real (USDBRL), 

and pending regulatory approval, the exchange will 

offer dual conventions on all currency pairs listed. 

Says Monaco: “Innovation requires experimentation. 

It is impossible to create new products and services in 

a vacuum, so we elicit feedback from a broad group of 

market participants and we test our ideas, keeping in 

mind that we need to be flexible. We recently 

launched a beta version of a new website called 

FXoptions.com. With the new site, we hope to create 

the best resource available for everything related to FX 

options. The site will have trading ideas, virtual 

trading contests, our new online TV program, trend 

opinions and technical analysis, breaking news, 

economic data, market commentary, options market 

data, and much more. This is obviously a new area 

for any exchange, but we feel that the best way to 

promote a product is to educate, and this will be our 

university.” 

The exchange is also experimenting with product 

enhancements, and is currently seeking regulatory 

approval for an early market opening. Currently, the 

options markets in the US open at 9:30AM ET and 

ISE wants to begin trading at 7:30AM ET to capture 

the critical cross-over trading session between London 

and New York. 

Additionally the exchange is also seeking regulatory 

approval for a “penny strike.” The penny strike 

would allow ISE to list a single $0.01 strike for each 

expiration month. Monaco says: “In essence, a deep 

in the money call would provide investors and traders 

with more direct exposure to the spot price, and 

would allow for tied-to-spot trading strategies. For 

example, a trader could buy the penny strike call and 

sell a slightly out of the money call against it.” 


Kris Monaco 

“Innovation requires experimentation. It is impossible to 

create new products and services in a vacuum...” 

Monaco believes the key attractions of the ISE market 

are liquidity, customer service, technology, execution 

speed, and reliability. Using the expertise of ISE and 

the Deutsche Börse Group, a new trading platform is 

being developed and will be rolled out at ISE in late 

2010. The new trading system may ultimately 

support all the markets within Deutsche Börse Group. 

“Together with Eurex, we are also establishing a 

transatlantic clearing link between The Options 

Clearing Corp (OCC) and Eurex Clearing. When the 

link is implemented, pending regulatory approval, 

Eurex members will be able to access ISE’s listings 

while using their current Eurex membership and 

clearing accounts. The link will facilitate trading in 

US listings, including FX options,” says Monaco. 

Impact of regulatory initiatives 

While the financial crisis has certainly resulted in 

increased scrutiny of OTC products, Monaco says 

that without regulatory intervention, it is hard to 

predict future migration of OTC products onto 

exchange platforms. “Nevertheless, it is easy to 

envisage firms putting risk controls in place that 

would favour exchange-listed products with 

centralised clearing,” he adds. 

Monaco also says that regulatory changes in the retail 

FX market appear to be having an impact. The

FEATURES 


National Futures Association has recently 

announced new rules, such as the adjusted 

net capital requirement, the FIFO rule, 

and leverage limitations, which could 

make things more difficult for FX-only 

brokers. Monaco says: “A natural reaction 

for certain firms is to broaden their 

products and services. I believe we will see 

more retail-focused FX firms become 

securities broker-dealers, offering their 

customers a full range of exchange-listed 

products.” 

“All exchange-listed products that provide 

exposure to currencies, whether by way of 

individual pairs, baskets, and unleveraged 

or leveraged strategies, help reinforce the 

concept that exchanges can provide costeffective 

alternatives to OTC trading. I 

expect those types of products to grow in 

popularity, and I expect a broader range 

of market participants use them. 

Regarding listed product innovation, I 

think we have just barely scratched the 

surface.” 

NFX 

NASDAQ OMX Futures Exchange’s 

(NFX) now offers world currency 

futures products in the Australian 

dollar, British pound, Canadian dollar, 

Euro dollar, Japanese yen, Swiss franc 

and earlier this year the exchange 

launched futures on the Colombian 

peso. Also this year, Nasdaq OMX 

PHLX’s launched four new world 

currency options in the Mexico peso, 

New Zealand dollar, South African 

rand, and Swedish krona, bringing the 

total of currency options at the PHLX 

to ten. 

NFX offers trading of IDEX USD 

interest rate swap futures, world 

currency futures and sector index 

futures, and in November 2009 NFX 

launched IDEX USD forward start 

interest rate swap futures. Customers 

can exchange semi-annual fixed-rate 

payments in exchange for quarterly

floating-rate payments on the 3-month US Dollar 

London Interbank Offered Rate. 

Ben Craig, president of NFX, says that market 

participants have expressed interest in trading 

currency futures of countries like Brazil, Russia, India 

and China and that NFX is looking into these 

opportunities. 

Nasdaq OMX Co-Location Services offers customers 

the opportunity to place their own trading systems 

within Nasdaq’s data centers, enabling access to all five 

of Nasdaq’s US markets, including NFX and PHLX. 

We are increasing our supply on an incremental basis 

to match demand and to ensure that all firms continue 

to have equal access to the service.” 

Craig believes that both investors and traders view the 

potential regulatory changes in Congress and a move 

from OTC to a regulated exchange as gaining 

momentum in the near term. “For FX traders who 

chose exchange-traded currency futures, the increased 

value proposition is the removal of counterparty risk, 

due to CFTC [Commodity Futures Trading 

Commission] customer segregated funds treatment.” 

DGCX 

The Dubai Gold & Commodities Exchange (DGCX) 

is the most recent to offer exchange-traded FX 

products and currently the only exchange in the 

region to offer a range of currency futures contracts. 

The exchange offers four currency pairs against the 

US dollar: euro, sterling, Indian rupee and Japanese 

yen. 

DGCX currency futures have shown strong volume 

growth and interest from market participants, year to 

date. Currency futures have seen volume growth of 88 

per cent this year compared with 2008. YTD volume, 

as of the end of October 2009, is 440,000 contracts, 

valued at US $29.4 billion. 

In June 2007, DGCX launched the world’s first 

Indian rupee/dollar futures contract, aimed at 

enabling individuals and companies to hedge their 

Indian rupee risk on a transparent trading platform. 

At that time, the only market available to hedge rupee 

risk was the non-deliverable forward (NDF) interbank 

market, which is unregulated, not transparent 

and not accessible to all participants. 

Continuing innovation in exchange-based currency trading >>> 

Ben Craig 

“For FX traders who chose exchange-traded 

currency futures, the increased value proposition is the 

removal of counterparty risk...” 

The volatility of the Indian rupee also demonstrated 

the need for an efficient risk management (hedging) 

tool for the currency. DGCX rupee futures recorded a 

month-on-month growth of 52 per cent in October 

2009 and 533 per cent growth in year to date 

volumes. DGCX is only exchange outside of India to 

offer a rupee/dollar futures contract, making it 

available for trading to international participants. 

Eric Hasham, CEO of DGCX says: “DGCX was the 

world’s first exchange to offer Indian rupee/dollar 

futures contracts. Our Indian rupee contract was 

enhanced a year ago making it cash settled, enabling a 

wider number of participants to take advantage of its 

benefits. 

Settlement is based on the US dollar reference rate 

published by the Reserve Bank of India on the last 

day of trading. This facilitates the settlement process 

for both local and international market participants, 

as well as providing transparency and alignment with 

the domestic rate.” 

“Future initiatives and our product development 

strategy are based on customer-driven demand and 


FEATURES 

feedback. There is significant potential 

to grow our contracts further and 

launch new products at the right time 

by accessing regional liquidity pools in 

Middle East and Asia.” 

Hasham says the key benefits for 

market participants of trading currency 

futures on DGCX is that all 

transactions take place and are settled 

within the advantageous tax regime and 

regulatory environment of the United 

Arab Emirates. 

Settlement is also guaranteed via the 

Dubai Commodities Clearing 

Corporation, reducing the counterparty 

risk inherent when trades are transacted 

bi-laterally over-the-counter. In 

addition, he says, trading on-exchange ensures best 

price discovery as market makers provide aggregated 

liquidity pools rather than offering one price as per 

the currency spot markets. 

The DGCX trading platform incorporates a 

sophisticated and automated risk management system. 

Hasham says: “We continually review and upgrade 

our technology infrastructure to integrate advanced 

features, in order to meet the growing needs of 

members and market participants. Recently, we 


offered an onsite co-location service to support our 

market markers and liquidity providers.” 

Hasham believes that high levels of volatility in 

exchange rates coupled with the need to manage 

counterparty risk have strengthened the value 

proposition of FX futures trading and encouraged 

participants to transact on a regulated exchange such 

as DGCX, as an essential means for hedging price 

risk. DGCX currency futures also offer many 

arbitrage trading opportunities with other 

international markets. 

He says: “As forex is seen as an 

attractive alternative asset class 

and with an estimated daily 

turnover of $2.5 trillion, it is 

seeing interest from all 

participants, institutions and 

retail investors. This trend is also 

underlined in the Middle East by 

significant growth in the volume 

of DGCX currency contracts in 

2009.” 

So long as the futures exchanges 

continue to innovate and create 

FX products, it seems very likely 

that they will benefit from the 

current regulatory pressure and 

the recent flight to quality 

amongst the banks.

FEATURES 

Navigating the 

communications minefield: 

High performance connectivity for High Frequency FX trading 

Joe Hilt 


The Capital Markets landscape consists of a complete 

multi-asset, multi-partnered and multi-regional 

infrastructure in order to be profitable in today’s market 

conditions. Trading execution venues, their participants 

and technology vendors must now all be at the front of 

technology advancements. However, the need to be in 

as many markets and to communicate to as many 

clients and partners as possible has made connectivity 

to market access a “mine field” of obstacles. In the 

second in our series on high frequency FX trading, Joe 

Hilt, VP of Sales, North America, Hibernia Atlantic, 

outlines some of the key issues facing FX trading firms 

who are planning how best to link their trading 

infrastructures to trading venues and what lessons they 

can take from latency, networking and trading 

connectivity developments in other markets.

In the previous decade, the capital 

markets trading infrastructure 

looked very different. Trading 

floors existed on exchanges, where the 

buy and selling of stocks, bonds, options 

and futures were negotiated for best prices. 

Having a high performance communication 

system meant having extremely fast and 

legible note takers along with a few loud 

voices. 

In today’s global marketplace, floor trading has 

become obsolete due to the demanding volume from 

the electronic trading era. High-speed, automated and 

algorithmic trading have set the next generation 

standard in finding best prices and executing better 

strategies across dozens of market centres. The 

various market centres of Exchanges, ECNs, Dark 

Pools, Crossing Networks and the 10,000+ 

institutions that trade them, must continue to be fast 

and always faster in the processing of trillions of 

requests to buy and sell stocks, options, futures and 

currency contracts. 

Due to major economic turbulence and anomalies, the 

global capital markets community has begun to come 

closer together. Trading in the FX market for example, 

has increasingly become a leading asset class strategy for 

many firms who traditionally only traded stocks or 

>>> 

options. As a result, rapid expansion of new Electronic 

Communications Networks (ECNs) and high frequency 

trading across all asset classes have pushed the demand 

to Ultra-Low Latency connectivity solutions. 

Connecting to equities markets have begun to drive the 

Ultra-Low latency race. However, in the next generation 

multi-asset class world, trading firms now have to also 

connect to securities, securities options, futures and FX 

nationally and internationally, processing data, sending 

orders and communicating with thousands of clients. 

Proximity vs. Latency 

According to the Bank for International Settlements, 

average daily turnover in global foreign exchange 

markets is estimated at $3.98 trillion. The US stock 

market place of about $50 trillion in assets consists of 

fifty Exchanges, ECNs, Crossing Networks, Dark 

Pools and other Bidding platforms. There are over 

5,000 active trading firms of these markets with a race 

to be the fastest and most efficient in completing a 

trade. Firms are constantly faced with the same basic 

principals: being close to the market and getting in 

and out as fast as possible! 

Proximity has been used for the Market Enters to be 

closer to the participant similar to how the floors were 

being operated a decade ago. Proximity is measured 

between the trading venue and the trader and is 

highly dependent on the physical network talking to 

the market systems, i.e.: Market Data or Order 

Execution. Latency is the round-trip measurement in 

speed on how fast a packet or a message runs over a 

network and through the various trading systems. 

Miles to Microseconds 

It started with the exchanges, when the New York 

Stock Exchange company SIAC opened up a 

colocation service to its members, vendors and their 

customers. Within the first year over 400 companies 

purchased colocated services right next to exchanges’ 

market data. As a result, trading servers created a 

within “proximity” Ultra-Low latency standard. 

Today, Nasdaq OMX, the London Stock Exchange 

(LSE), the Chicago Mercantile Exchange (CME) and 

every leading market centre around the world offer a 

similar service allowing for sub-microseconds of 

network latency to their venues. 

Several companies today provide the leading market 

place colocation facility for exchanges and their firms to 

build their proximity trading infrastructures. In addition 

to private exchange-owned colocation centres. data 


FEATURES 

centre providers such as Equinix are leading suppliers 

who provide space, power and connectivity both in and 

out of their data centre facilities, as well as among 

tenants housed or colocated within their facilities. 

Recently, other companies specializing in capital 

markets centered proximity services have come to the 

market, such as Telx. Similar to Equinix, Telx offers 

financial companies and their networks access to a 

variety communications and exchange platforms 

located within their colocation centres. 

Equinix and Telx along with the exchanges and many 

other venues, tout their advantages of proximity as it 

relates to the lower latency they can provide from a 

wide variety of network providers. However, this is 

where navigating the mine field could make a 

tremendous difference for trading firms of all types. 

Going the distance 

Proximity to financial exchange platforms is of 

ultimate importance when measuring latency in 

capital markets. It’s the simple rule of physics that 

dictate distance equals latency, and in capital markets 

latency equals loss. Eliminating latency is core, so 

eliminating distance is the first step. If we took out a 

yard stick to measure network latency, no doubt the 

shortest path would win and in capital markets, that 

could equate to millions of dollars. 

For many years, the global telecommunications 

industry has been measuring its network latency and 

selling Service Level Assurances (SLAs) on the 

differences based on these numbers. Most networks 

measure latency capability based on bandwidth, 

which is simply the maximum rate of data that can 

flow through a specific media type. 

Lighting the Way 

Once a path has been determined and latency in 

distance agreed upon, the network must be “lit” with 

network services. So let’s talk capacity first. Pure 

bandwidth is the actual ‘size of the pipe.’ Companies 

can simply calculate how many data bytes and 

messages can cross a line. The calculations are based 

on the size of the market data and order message rates 

for example; Nasdaq, NYSE, BATS, Direct Edge and 

all the US Equities exchanges in the US are about 1 

million messages per second. 

If there was no distance from the source to the 

consumer server, than a 1 Gig pipe would be 1 

microsecond. The more information on the pipe, the 


>>> 

larger the pipe needs to be in order to be as fast. The 

further the distance, the larger the “lit” pipe to 

accommodate packet and message rates divided by 

distance to show the lowest possible latency. 

Gearing Up 

With microseconds driving all decisions for financial 

institutions, choosing which network equipment and 

which provider to deploy are often million dollar 

decisions. Often, it’s the technology situated in the 

various network Points of Presence (PoPs) that can 

reduce or increase network latency and more money can 

be spent at solving unrelated problems. Equipment, 

technology, switches, routers and ensuring redundancy 

and security among these key IT network components 

can be the differentiating factors behind a network’s 

viability in supporting proximity trading solutions. 

Living in a connected world 

Most financial networks require interconnectivity in a 

number of locations in order to leverage proximity 

trading with the Financial Exchanges. Many of the 

key locations are within major cities such as Chicago, 

New York, London, Paris and Frankfurt. For 

example, the Chi-X Europe Platform connects 

companies to multiple financial trading platforms. As 

of today, Chi-X has over 100 trading participants 

with access to over 1000 of the most liquid stocks, 

ETFs and ETCs across 14 European markets. 

Companies colocated within close proximity to the 

Chi-X have measured a mean latency of 0.4 

milliseconds to access other participant networks on 

the platform. This type of speed is hard to beat, as 

transactions are seemingly completed in real-time. 

Security through diversity 

With increased trends toward high frequency and 

algorithmic trading, proximity and interconnectivity 

to only one trading venue will not provide the 

financial gain required to stay ahead. Companies 

must connect to multiple financial trading exchanges 

in multiple markets – which mean finding a secure 

and diverse network provider that can quickly and 

efficiently construct and implement custom network 

solutions, bringing companies to the ‘safe’ zone in the 

mine field. 

For example, Hibernia Atlantic is the largest privately 

held, US-owned, diverse Transatlantic submarine 

provider. Hibernia is dedicated to what it calls 

‘Security though Diversity‘ on its network. Realizing 

that most networks enter North America and Europe

FEATURES 

through only a couple of landing stations (namely 

around London and New York waterways), the 

company sought to be sure that its cable would be 

better protected by having a unique network 

footprint, crossing the Atlantic in a more northern 

route than traditional carriers, leaving North America 

via Nova Scotia, Canada and entering Europe through 

Ireland. The company also has diverse routes that can 

bypass main traffic arteries, if necessary, such as its 

terrestrial metro networks in and around New York 

City and London. 

Hibernia’s cable system is engineered to provide 

diversity and security (by offering alternative routes 

from other providers) as well as fast connections, with 

the lowest latency routing, such as 10.0 milliseconds 

round trip from Chicago to Toronto and 66.1 

milliseconds round trip from NY/NJ to Slough, UK. 

Integration and Deployment 

Ok so how does everyone play nicely together so my 

network can be integrated securely and efficiently, with 

fast, easy deployment? The good news is that there is 

a small group of effective providers currently in the 

marketplace who are committed to global financial 

trading networks. As such, these pioneers are actively 

working together to ensure best-of-breed services for 

the key financial houses. Most are already connected 

in the top exchange and data centre locations in the 

most prominent financial cities in the world. 

If you are searching for a network partner that 

considers your proximity, latency, bandwidth, quality 

and diversity needs, you may not need to cross that 

minefield all alone. Many of these providers have 

already invented this wheel for you—you just need to 


climb into the driver’s seat. By asking the right 

questions, you can be assured that their services are 

right for your network considerations. 

All the right questions 

So what are the key factors to consider when 

analysing your communication network performance? 

Here’s a list of questions to ask internally and as you 

shop around: 

1. How important is speed (or notably, lowest 

latency) in relation to the type of trades that 

we will need to process? 

2. Where are our key network points, such as our 

financial exchanges where the trades will be 

processed? 

3. Are these trading points accessible? 

4. Which networks provide interconnectivity into 

these transaction points? 

5. How are these networks designed to 

interconnect with these transaction points? 

6. How quick can the network provider provision 

service and provide us with the speed to 

market? 

7. Can the provider guarantee fast turn up and 

lowest latency? 

8. What technology and/or equipment are 

utilized on these networks to assist in reducing 

my latency? 

All of these questions are vital to a financial trading 

company’s ability to transact trades quickly, efficiently 

and securely.

FEATURES 

Tracking new developments in 

currency derivatives processing 

Increasing numbers of banks, asset managers, 

pension funds, hedge funds, and corporates are 

looking to ramp up their use of currency 

derivatives, both for hedging purposes as well as 

a component of their fund and investment 

management strategies. Although great strides 

have been made in automating much of the 

processing and workflow associated with Over 

The Counter derivatives, much still remains to be 

done, particularly with regard to cost savings 

and risk management. 

Much has been achieved in attaining straight 

through processing for vanilla FX products 

and options, and now with volumes increasing 

the focus is one cost efficiency, and cost per trade, and 


By Frances Maguire 

the smooth operations of processing so that exceptions 

are managed efficiently. The recent crisis has not only 

made banks focus on the operation risk of failed trades, 

but also reputational risk, where failed trades can impact 

credit and counterparty risk management. 

Messaging 

The world’s leading financial market messaging 

standards organisations have been collaborating since 

2008 to create a financial messaging Investment 

Roadmap. This collaboration – by Financial Products 

Markup Language/International Swaps and 

Derivatives Association, (FpML/ISDA), FIX Protocol 

Ltd (FPL), the International Securities Association for 

Institutional Trade Communication (ISITC) and 

Swift – lays the groundwork to establish one 

common financial messaging standard, ISO 20022, 

while maintaining the existing independent protocols.

Earlier this year, ISDA announced the launch of a 

new Financial Products Markup Language (FpML) 

working group, which will focus on reporting of OTC 

derivative positions and regulatory reporting. 

Building on existing work carried out for portfolio 

reconciliation and pricing and risk management, the 

group’s initial focus will be to extend the current 

FpML standard in order to define data elements for 

the reporting of OTC derivative positions, both to 

regulators and among market participants. 

According to Niall Kennedy, director of product 

management at Wall Street Systems, the increased 

focus on FX as an asset class is bringing more and 

more participants, and therefore more volume, to the 

market. 

Focus on costs 

Due to the investment required to enter the FX 

market, where spreads are so tight and there are many 

players in the market, there is an increased focus on 

cost, and cost per trade. Kennedy says that new 

entrants cannot survive without greater automation. 

He says: “Reduction in cost per trade is therefore very 

important as there is increased liquidity in the market. 

Automation is helping to drive down operational risk. 

Handling large volumes of exceptions not only 

increases firms’ costs but can negatively impact 

reputation in the market – this can be a key 

differentiator.” 

Accurate and timely market data current and 

historical is essential for risk management purposes 

and Kennedy says that even before a single transaction 

is booked firms need to have static data, such as 

customer settlement instructions and confirmation 

preferences, in place to achieve STP. To this end, there 

have been advances within the industry in terms of a 

greater number of data sources, an increased number 

of solutions enabling price discovery for over the 

counter instruments, as well as a great improvement 

in standard messaging used between counterparties to 

enable firms to achieve higher STP rates for vanilla 

derivatives. 

According to Kennedy, Industry Standard Protocols, 

such as FIX and FpML, for intra-vendor 

communication is helping to improve the STP for 

exotic products. He says progress has been made in 

the tags and descriptions of over the counter 

instruments between counterparties, but the issue 

now is how the transactions are communicated across 

networks and agreeing formats for the confirmations. 

Niall Kennedy 

“Handling large volumes of exceptions not only 

increases firms’ costs but can negatively impact 

reputation in the market” 

>>> 

“Standards are now starting to be developed around 

FIX and FpML for FX and FX derivatives. The 

equities market has managed to overcome these 

problems over the years, and a central clearing 

counterparty, where there would be one standard to 

adhere to, would benefit the over the counter market.” 

Growing demand for FX Options 

But Emmanuel Nusimovici, senior solution manager, 

Misys Summit says that FX options is a mature 

market and can be used by investors in other asset 

classes to cover FX risk or corporate treasuries to 

cover the FX exposure of their balance sheet. “We are 

seeing growing demand for FX options, as well as 

treasury or plain equity trading systems. This is part 

of the back to basics trend in the market. 

Additionally, there is expansion in emerging markets 

operations and this too is feeding this growth firstly in 

FX and then FX options.” 

He adds that the STP weakness in FX options has 

actually been on the pre-trade side and in 

confirmations, rather than the trade settlements and 

life-cycle, due to the fact it is a voice market, which 

creates operational hazards and ambiguities. This 

ambiguity, pre-confirmation, is the biggest choke 

point facing the FX options industry today. 

Nusimovici says: “Attempts at moving FX options to 


FEATURES 

Emmanuel Nusimovici 

“Attempts at moving FX options to electronic trading have not 

been successful yet because most trades in the interbank 

market are volatility trades and difficult to automate as they 

are not traded as a single ticket…”. 

electronic trading have not been successful yet because 

most trades in the interbank market are volatility 

trades and difficult to automate as they are not traded 

as a single ticket, but as hedged strategy, unlike any 

other asset class.” 

Greater standardisation is enabling volatility to be 

managed electronically, but it is still a very small part 

of the market, he says. Although the instruments 

themselves are standardised, the method of bilaterally 

trading them, and the communication between banks, 

is not, which still gives rise to operational risk. 

According to Nusimovici, STP rates are much higher 

post-trade, even though they are often manually 

exercised, particularity with FX options. Using a 

system like Summit, these options can be sorted by 

strike so that the system alerts traders to whether they 

are in-the-money or out-of-the-money. “The 

technology is enabling banks to manage higher 

volumes. The volumes traded in FX options today 

would not be possible without the systems we have 

today,” he says. Despite the fact volumes are smaller, 

the more complex exotic structures need to be 

monitored and the Misys solution enables users to 

monitor transactions, and model any kind of pay-off 

using pricing algorithms. 


>>> 

Convergence of FIX and FpML 

One development that would impact the processing 

of FX options and currency derivatives is the possible 

convergence of the FIX protocol and FpML. In terms 

of standardisation of the trading systems, there are 

greater moves towards trading systems for hedged 

options strategies, as opposed to straight options. For 

sell-side customers, a high STP rate is essential to 

survival. For buy-side customers, it is about 

transparency and security. They have to be able to 

prove the conditions of investment and need the 

systems to track this. 

Les Gosling, head of EMEA at TwoFour, says the 

TwoFour System is a workflow product which offers 

better integration of solutions used for transaction 

management. It provides warnings and notifications, 

and alerts to any bottlenecks in the trade’s lifecycle, all 

the way through to the back office and settlement, to 

remove risk and ultimately drive down the cost per 

transaction. 

For Gosling the key issues, or ‘choke points’, for 

customers reside in confirmation, novation and 

settlement processing in the back office, and the focus 

as an application provider is to smooth this process by 

Les Gosling 

“Firms are looking to cope with known growth, and the 

scalability to cope with unpredicted future growth, and 

equate that back to cost per trade calculations...”

FEATURES >>> 

providing as much forewarning as possible of 

potential bottlenecks. “Another way we have been 

addressing these choke points in the STP model is by 

using standard protocols, such as FIX and FpML, as 

much as possible, both in the interaction with third 

parties and trading locations and within the 

application, to process the flow of transactions.” 

Gosling says that the endgame is to be able to process 

increased volumes with no increase in processing cost, 

or in an ideal world, to reduce these costs. Therefore the 

focus is on removing cost from the lifecycle of over the 

counter instruments and typically a lot of the cost still 

resides in the middle and back office. “Firms are looking 

to cope with known growth, and the scalability to cope 

with unpredicted future growth, and equate that back 

to cost per trade calculations so there is a clear case to 

management for return on investment,” he says. 

Improvements to STP 

Paul Hodgson, product manager, Front Arena SunGard, 

says that big improvements have been made in the use 

of the single confirmation of trades between customer 

and bank for the more vanilla derivatives enabling 

traders to negotiate more exotic trades individually. 

However, he adds, the most significant improvements in 

relation to STP efficiency has been in the front-end 

systems, as these ensure consistency of data from the 

point of negation by getting data entry from the 

customer/counterparty. Hodgson says this is the single 

most effective tool in the reduction of 'fails' and the 

improvement in STP rates. 

“Many technological advances have helped here. 

However they have not completely alleviated the 

situation, there are still many components of the pricing 

process which involve data that is protected or restricted 

in its distribution to the broader market. Particularly in 

relation to OTC derivatives where the more complex 

models may need data derived from very sophisticated 

analyses in what many consider proprietary systems that 

are their ‘market edge’,” he says. 

Hodgson believes that ‘choke-points' will always exist 

in any trading environment but as long as the number 

of variables used in the trade increase gradually, and 

systems provide an STP framework whilst also allowing 

new instruments to be rapidly exposed to the end 

investor, it will ease the processes from its initiation. 

However, he says that as increased volumes drive 

down spreads, and make it more viable for more 

dynamic hedging of derivative trades for traders and 


Paul Hodgson 

“The pressure to reduce costs is only sustainable if 

organisations can rely on processing solutions that deliver in 

a consistent and scalable way implementing STP and 

exception-based processing concepts.” 

investors alike, the systems supporting the activity 

have to improve STP to reduce the cost per ticket to 

ensure that increased overall transaction fees do not 

consume savings in the market spreads. 

Processing solutions 

Hodgson says: “The pressure to reduce costs is only 

sustainable if organisations can rely on processing 

solutions that deliver in a consistent and scalable way 

implementing STP and exception-based processing 

concepts.” 

Paul Moffat, operations product manager, Front Arena 

SunGard adds that the key to this is to ensure that the 

modelling of vanilla, and new, more structured products, 

follows a paradigm that allows for powerful extensibility, 

without ‘breaking’ existing processes or products. 

He says: “In the processing area, technology is key to 

ensuring that the complex models mentioned above 

can be ‘broken down’ into their processing components 

– settlement, confirmation, and accounting – for both 

the original transaction, and the ongoing lifecycle 

events that will occur. Systems that deliver processes 

that can handle these events in a generic way will 

deliver significant cost savings and risk reductions.”

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FEATURES 

Paul Moffat 

“Regardless of the complexity of the exotic structure, 

settlement relates to the cash flows generated. Our 

solutions recognise this simplicity that resides within the 

complexity of the overall structure, and addresses the 

settlement issue by simply focusing on cash flows.” 

Tools such as SunGard Intelli-suite of products can 

aid in the reconciliation of positions, and fails and 

break management processes that allow users to focus 

on the trades that are problematic. Systems that 

provide exception based processing significantly 

reduce risk, and enhance processing flexibility. 

Complex and exotic structures represent some 

challenges, all the way from instrument and trade 

creation, through risk management and further 

processing. Moffat believes the key to addressing these 

challenges is to deliver software and processes that are 

able to recognise both the uniqueness of the overall 

products, whilst also finding the commonality of the 

underlying structures that allows complexity to be 

broken down to allow standard processing. 

He says: “Settlement is an excellent example of this 

approach. Regardless of the complexity of the exotic 

structure, settlement relates to the cash flows 

generated. Our solutions recognise this simplicity that 

resides within the complexity of the overall structure, 

and addresses the settlement issue by simply focusing 

on cash flows.” 

A maturing market 

Maroun Eddé, CEO of Murex, says that markets are 


going back to vanilla and simple structured products, 

and are maturing fast. New levels of competition 

across financial institutions mean that banks want to 

improve end-to-end efficiency of transaction 

processing including, in one complete value chain, 

quoting, execution, live risk management, processing 

and various connections with market-place services. 

This end-to-end efficiency needs to apply to vanilla 

and structured products similarly. 

The Murex structuring tool enables clients to 

“productize” new structures on the fly. You simply 

combine multi leg or multi product structures into a 

single product that you can then publish to a predetermined 

group of users. Once published, a structure 

becomes “native” and can be processed with the same 

levels of automation as vanilla products. MX.3’s 

processing model also supports organisational 

complexity, as it automatically mirrors and processes 

any type of sales/traders back-to-back, inter-entity, or 

micro-hedge combinations.” 

Maroun Edde 

“Financial institutions need to demonstrate that 

they have an extremely reliable infrastructure able 

to process massive volumes...”

“We invested quite a bit with our clients to improve 

automated processes for risk allocation, sales margin 

recognition and allocation, and on the fly risk 

calculation and margin calling. The purpose is to allow 

our clients to increase their market penetration and 

aggressively pursue new clients in an environment with 

substantially reduced TCO and operational risk.” 

Eddé adds: “As a fundamental consequence, financial 

institutions need also to demonstrate that they have a 

fully reliable infrastructure able to process massive 

volumes. Their infrastructure needs to be robust to 

sustain extreme conditions, fast, to provide analysis in 

real time and flexible, to implement at low cost evolving 

methodologies as standards are shifting in this domain.” 

In 2009, Murex leveraged the key features of its 

technology to address trends identified over the past 

year for banks and asset managers, which had to learn 

to work in a more efficient way in a market which is 

maturing fast and reinvent a different business model 

adapted to new circumstances (less complex 

structures, higher capital requirements, lower appetite 

for heavy leveraging, etc). 

Edde says: “MX.3’s trade modelling allows you to 

process any product, whatever its financial complexity, 

by considering it as a single processing object. MX.3’s 

processing model also supports organisational 

complexity, as it automatically mirrors and processes 

any type of sales/ traders back-to-back, inter-entity, or 

micro-hedge combinations.” 

“We also invested quite a bit with our client to 

improve automated processes for risk allocation, 

margin recognition and allocation, and on the fly risk 

calculation and margin calling. The purpose is to 

allow our clients to increase their market penetration 

and aggressively pursue clients in an environment with 

substantially reduced TCO and operational risk.” 

SaaS 

Jiro Okochi, CEO and co-founder of derivative risk 

management and hedge accounting solutions provider, 

Reval, believes the tools and technologies have been 

ahead of the marketplace and end-users are beginning 

to finally take better advantage of what already exists. 

“For example, Software-as-a-Service (SaaS) has been 

available from the FX trading platforms like FXall and 

360T and risk vendors like Reval have had thin-client 

internet tools for post-trade FX management for 

almost a decade,” he says. “This has enabled remote 

business units and subsidiaries to enter their exposures 

Tracking new developments in currency derivatives processing 

Jiro Okochi 

“SaaS offerings allow vendors to work more closely together 

as well as the ability to use more user-friendly web services.” 

for a consolidated view by central treasury for hedging. 

Reval also offers scrubbed and integrated market data 

that allows for independent pre-trade pricing.” 

He says that the biggest choke points arise from 

manual processes that are still relied upon, instead of 

leveraging the existing technology. “There are still 

companies that utilise FX trading platforms for price 

discovery but end up still executing over-the-counter 

with the dealers,” he adds. 

According to Okochi, companies need to use and trust 

the newer technologies, like web services, that allow 

for more efficient maintenance of interfaces. “As there 

is no one-stop service between FX execution, 

matching, risk and accounting, there is no choice but 

to rely on interfaces, and unfortunately end-users have 

had bad experiences with interfaces due to different 

technologies that lie on the client side. SaaS offerings 

allow vendors to work more closely together as well as 

the ability to use more user-friendly web services.” 

Okochi says that, in theory, while higher volumes 

should drive down processing costs, the current 

economic environment is not conducive towards 

allowing new entrants into the marketplace that can 

increase competition. In addition, potential OTC 

derivative reforms will probably drive costs higher for 

end-users, either through margining or clearing or 

other fees, and the jury is still out on what the 

regulators will decide for FX derivatives. 


FEATURES 

Sourcing and integration 

of historical pricing data 

for FX applications 

Roger Aitken 

The demand for historical FX pricing data shows 

little sign of abating, with advances in technology 

and algorithmic trading in recent years driving 

matters. Roger Aitken canvasses industry opinion 

on how this trend is affecting the sourcing and 

integration of such data for FX applications. 

With trading in the world’s main foreign 

exchange markets estimated by a recent 

Bank for International Settlements Triennial 

survey (December 2007), to be over US$3.2 trillion 

(c.€4.5trn) daily, equivalent to 30 times larger than the 

NYSE and NASDAQ combined, demand for historical 

pricing data would seem assured. This is especially true 

given that a tad over US$1trn is accounted by spot FX 

transactions alone - largely driven by big institutions 

but also fuelled by a rapidly growing online retail FX 

trading market. Developing a mechanical FX trading 

system requires back testing. And, backtesting for 


systematic and algorithmic traders requires plenty of 

high quality FX historical price data from which to 

build models and evaluate new trading strategies before 

they are unleashed into a live environment. As such, 

historical price data that includes tick data, raw and 

cleansed data, are therefore absolutely critical elements 

for many FX trading end users. Generally speaking, 

having local copies of data can lead to faster and 

improved back testing. Such data can be used to test 

MetaTrader 3.0 and MetaTrader 4.0 Expert Advisors, 

as well as other proprietary and bespoke platforms for 

mechanical FX trading systems. 

Increasing demand 

Antoine Kohler, Managing Director, ICAP 

Information Services in London, commenting on the 

drivers fuelling increased demand for accessing 

historical FX pricing data, says: “Market participants 

are becoming increasingly sophisticated. There’s an 

element of algo sophistication – in terms of low 

latency and accessing pools of liquidity as fast as 

possible. That all fuels the demand.” 

Whereas participation in the FX markets used to be 

limited to banks and other major institutions, the 

Internet has extended the range of traders right the 

way down to retail investors. Retail FX, or the socalled 

‘off-exchange market’ segment, is now estimated 

to be 2% of the total FX market with daily trading 

volumes of US$60bn-US$80bn (€85bn-€112bn). 

A number of FX historical data providers are available 

to the institutional and online FX retail trading 

communities. Thomson Reuters, ICAP and 

Bloomberg between them have a large share of the 

market: Reuters Trading for Foreign Exchange 

(RTFX), offers a single point of access to global FX 

liquidity and is available on Reuters 3000 Xtra and 

Reuters Dealing 3000. RTFX, which provides access 

to multiple market makers with a single login, is 

based on Reuters Electronic Trading technology, used 

by over 100 leading FX banks.

Following its acquisition by ICAP, the EBS platform 

was combined with its IDB broker parent’s electronic 

broking business to create a single global multiproduct 

platform. Thousands of users trade FX over 

Bloomberg FX , which is supported by liquidity 

from 160 major and regional banks. FXall is also an 

important player in the FX data space and has more 

than 800 of the world's largest financial institutions 

trading billions on its platform and a network of 70 

liquidity providers. 

Historical data space 

A number of providers offer historical FX CSVformatted 

data including tick data, which in some 

cases can even be downloaded free of charge. ICAP, 

the world’s premier inter-dealer broker, which lays 

claim to one of the “richest” historical databases due 

to the liquidity that EBS has managed to capture in 

the FX market over the years, is evolving its service in 

the historical data space. For example, back in 

November 2008 the firm announced that ICAP’s 

historical tick data would be available for the first 

time through Thomson Reuters (with the latter 

reselling ICAP EBS historical data). 

The expanded distribution agreement between the 

two firms was in response to market demand as 

algorithmic and program trading continued to grow. 

Thomson Reuters’ customers have for the past year or 

so been able to access ICAP’s historical tick data in 

packages that include FX, FX options, as well as 

fixed-income and interest rate derivatives. The 

agreement spanned ICAP’s EBS electronic platform 

for spot FX. And, ICAP became the first broker to 

Antoine Kohler 

“Compared to the historical data that we were releasing 

just a few years ago, today it’s much deeper and richer. 

This is specifically because we’re able to store and tag 

[instruments identifiers] to a far more granular level” 

>>> 

add its extensive tick data to Thomson Reuters Tick 

History (TRTH), a comprehensive, global historical 

tick database covering all data distributed over the 

Thomson Reuters real-time networks since 1996. 

TRTH is a key element within the Thomson Reuters 

Quant and Event-Driven Trading product suite, 

which offers comprehensive regulatory compliance 

content and backtesting investment tools. 

Emmanuel Doe, Global Business Manager, Tick 

Solutions at Thomson Reuters, says: “There’s a 


FEATURES 

substantial amount of money to be made in the FX 

market and that is what is fundamentally driving the 

demand for these services at the end of the day.” 

“Increasingly market players are interested in FX since 

it is market place where there is uncaptured alpha, 

depending on the currency pair and what type of 

strategy traders are looking at. As such, it continues to 

present a lot of untapped opportunities,” notes New 

York-based Doe. 

From an historical data perspective, traders came to 

Thomson Reuters for data to initiate back testing, as 

the firm has had a fairly dominant position in the FX 

market. He adds: “Tick data is absolutely essential for 

back testing and going live [with an algorithmic 

strategy], simply because of the high frequency nature 

of FX trading.” 

Kohler says in relation to recent ICAP enhancements 

to the quality and breadth of data being offered: 

“We’re undertaking this on an ongoing basis and 

continually investing in the area. Compared to the 

historical data that we were releasing just a few years 

ago, today it’s much deeper and richer. This is 

specifically because we’re able to store and tag 

[instruments identifiers] to a far more granular level.” 

ICAP also lay claim to offering probably the “most 

granular” real-time data output through their ‘Live’ 

feed. A year ago, ‘Live’ was providing four updates per 

second, but since before summer 2009, the frequency 

Emmanuel Doe 

“Tick data is absolutely essential for back testing and 

going live [with an algorithmic strategy], simply because 

of the high frequency nature of FX trading” 


>>> 

was increased to 10 updates per second. (The move 

reflects developments in the market data feeds for the 

EBS FX platform). 

Usage 

Historical tick data is used primarily for program 

and/or automated trading, portfolio management and 

valuations. It also plays a vital role in supporting the 

compliance, accounting and audit functions of 

financial institutions. 

Philip Brittan, global business manager for FX at 

Bloomberg, confirms that the need for algorithmic FX 

trading strategies, FX Quant research, regulatory 

compliance/ trade validation requirements are all “valid 

reasons” driving more usage of historical FX data. 

“High-frequency algorithmic trading is the only driver 

that truly requires tick-by-tick data, so that 

undoubtedly accounts for the largest volume of FX 

data being consumed these days,” he says. 

Jim Foster, Global Head of Product Strategy, FXall says 

in addition to algo traders wanting historical tick data 

to build and back-test models, it can also be required 

for benchmarking purposes.“Occasionally highfrequency 

algo traders want our historical market data 

to benchmark the system speed to monitor how fast we 

receive and distribute movements in the market in 

comparison to other data they are monitoring,” he says. 

Furthermore, institutional investors can need the ability 

to benchmark pricing for control and compliance 

purposes. Foster indicates that more and more clients 

are asking for “sophisticated reporting” to understand 

exactly where the market was at the time of execution 

to ensure they were benchmarked properly. 

For institutional asset managers who have a need to 

analyse execution quality, FXall timestamps trades to the 

millisecond when they receive the requirement - at the 

time it is placed into the market - on each quote 

provided by the selected banks. 

“On execution,” he explains. “We allow a firm to 

analyse the execution rate versus both external 

benchmarks, and FXall prices. And, the availability of 

historical data includes similarly rigorous timestamps on 

each quote.” 

Sourcing and storage issues 

In terms of the issues that FX trading firms need to 

consider with regard to sourcing and storing of 

historical FX data, ICAP’s Kohler notes that in terms 

of infrastructure, hardware and architecture, many

FEATURES >>> 

Jim Foster 

“Occasionally high-frequency algo traders want our historical 

market data to benchmark the system speed to monitor how 

fast we receive and distribute movements in the market in 

comparison to other data they are monitoring” 

participants that are handling significant volumes of 

such data are “quite savvy” in being able to 

manipulate databases. “You couldn’t exactly give this 

to a total neophyte [a beginner] as they would not 

know what to do with it. Algo traders and those who 

have super sophisticated strategies typically know 

what to do with this type of data. And, these are the 

drivers for the offering.” 

Minor Huffman, CTO at FXall, explains that are a 

number of items that need to be considered in this 

regard, including: (1) Data quality, (2) Data coverage, 

(3) Analytical tools; and, (4) Hierarchical or other 

customised data models. 

Data quality comes in to play in respect of the number 

of contributing banks or other rate sources, tradable 

versus indicative data, as well as error correction 

techniques used to cleanse erroneous or off-market data 

from the set. Data coverage revolves around currency 

pairs, spot prices and forward tenors, bid/offer rates 

versus mid rates, time intervals and historical coverage. 

Huffman says with regard to analytical tools required 

for modelling will create specific requirements for 

data availability (e.g. operating system, data format). 

“Many clients will want access in order to verify and 

back test algorithms, which may drive the choice of 

technology used to maintain the data sets. Traditional 

relational database models don’t handle time-series 

data efficiently,” he adds. 


In terms of hierarchical or other customised data 

models, the key issues are the tradability of the data 

and time stamps. “If a system has a high miss rate for 

trading, then the value of its data is reduced, both for 

back testing of models and measuring a system,” 

notes Huffman. 

And, in order for the data to be meaningful it has to 

represent tradable data. For example, is the data time 

stamped at receipt by the platform, in the matching 

engine, or at distribution? “Models will require 

improvements in data access speed and increases in 

data storage,” he says. 

Thomson Reuters’ Doe says that in terms of storing 

or sourcing the data, often when firms store it 

themselves they can encounter issues around “gaps” in 

the data. And, the problem is not just isolated to a 

few firms. Largely it is due down to the firms’ own 

collection mechanisms and where they are storing it, 

he explains. That is why firms come to a source to 

obtain this data (e.g. Thomson Reuters). 

Cleanliness 

Bloomberg’s Brittan assets that data cleanliness is the 

“most important factor” in this regard and is pertinent 

to all types of users. The questions here are: 

• Is the data free from ‘spikes’?; and, 

• Is the frequency of updates acceptable? 

Minor Huffman 

“If a system has a high miss rate for trading, then the 

value of its data is reduced, both for back testing of 

models and measuring a system”

FEATURES 

Next is whether the data truly represents executable 

bids and offers available at the time. 

“This is critical for algo modellers and for users 

looking to do trade validation,” Brittan points out. 

“For users storing tick-by-tick data, managing the 

sheer volume of data can be a challenge and requires 

special consideration in itself. That said, the cost of 

mass storage has plummeted in recent years.” 

There are also many issues in terms of data rights, 

licences to actually store the data and use the data in an 

historical environment or even a real-time environment. 

In terms of handling, managing and processing huge 

volumes of data, Doe points out: “Simple queries in 

that scenario can take an extremely long time as you 

are dealing with a certain amount of computing 

power. And, when trying to calculate terabytes of 

data, high performance engines are required to 

calculate this type of analysis if you are looking at a 

year of data, let alone a decade or more of data.” 

In this regard, Thomson Reuter’s acquisition of Vhayu 

in August 2009, will help in fulfilling client needs. 

Vhayu provides a high-performance engine for clients 

to store, analyse and process this data, as well as 

undertake real-time analysis of Thomson Reuters’ feed 

and send real-time messages to trade upon. Doe 

confirms that the firm is “investing heavily” in their 

historical Quant business and the FX space in 

particular. They view it as a growth area and also want 

to stay ahead of the curve. 

Streamlining access 

On efforts that providers are making to streamline the 

process of accessing historical FX price data, ICAP’s 

Kohler says: “As with all our offerings we’re trying to 

make it as painless as possible for our customers to use 

our [FX] data as well as offering them the best possible 

service.” The reduction in time slicing on the EBS 

platform to 10x/second is illustrative of the improvement 

in their service. He adds: “People know how to write to 

it. And, every single market participant who is present in 

the FX space is reading a market data element from 

ICAP EBS, whether real time or historical.” Further 

enhancements - as yet undisclosed - are in the pipeline to 

improve the quality of data quality for ICAP EBS feeds 

as well as the real-time element, Kohler reveals. 

FXall’s Huffman says: “We make an effort to give our 

clients access to the data they are looking for. For 

example, our customer savings reports have market 

data built directly into it and included with the 

analysis, such as the rates at the time of trades.” 


Philip Brittan 

“For users storing tick-by-tick data, managing the 

sheer volume of data can be a challenge and requires 

special consideration in itself. That said, the cost of 

mass storage has plummeted in recent years” 

At Bloomberg, Brittan explains that they are making 

it easier for users to find the vendor’s data through 

functions like ‘FXTF’. They also offer an evergrowing 

range of tools to undertake data analysis right 

within the terminal, including functions like ‘VOLC’, 

‘XCRV’, ‘XDSH’, ‘FXFM’, and ‘CIX,’ as well as a 

whole suite of charting functions. “This all means 

that users don’t have to deal with exporting, storing, 

and providing their own analysis tools, for a wide 

range of analytical applications,” Brittan says. 

Distribution formats 

Turning to the kinds of data distribution formats that 

are available and what factors may influence how 

firms choose to integrate data into their research and 

FX trading infrastructures, FXall’s Foster says: “For 

live market data, FXall offers a proprietary format 

(Accelorate), using very compact messages to keep the 

transmission and processing time on the client side 

extremely low” For historical data, the firm offers a 

format, which is claimed “can easily be imported into 

client systems.” 

Bloomberg offers several enterprise-level data 

products, but also makes it easy for individual users 

carry out ‘desktop analysis’ via their Excel API. 

ICAP’s Kohler notes here: “I’ve found in this 

particular space, that even if it is extremely

complicated to integrate, if you have the granularity 

of data, market participants will go miles to read your 

data. As such, we make every possible effort to 

facilitate the integration and reading/usage of our data 

- presenting it in a way that is at least user friendly 

and industry standard.” 

The firm has had examples where clients require a 

type of format that they would not accommodate in 

the normal course of business, and not in a format 

that is usually presented to people consuming data. 

Kohler says: “They’ve still been happy to take the data 

in any format that we could provide.” 

Thomson Reuters’ Doe speaking on formats reveals that 

the firm does come across a lot of different 

infrastructures. “This accounts for why we provide it in 

pretty much a common CSV format, which is the 

standard format loaded into any database 

infrastructure,” he says. “However, we do try to be as 

open as possible and always accommodate client needs.” 

Cleaning and customisation 

In relation to FX data services and solutions available 

to help sort, clean and customise FX data, 

Bloomberg, ICAP (EBS) and Reuters Dealing are 

among the leaders in the expertise they can offer 

clients. With the FX market very well split, each of 

these players has their respective segments. 

ICAP’s solutions are usually pre-packaged depending 

on what sort of package the client orders, with 

different levels of service available to be purchased. 

Sourcing and integration of historical pricing data for FX applications 

Kohler adds: “If you buy real-time services from us, 

these are graded under three levels, while the 

historical data package is graded to five levels.” 

According to Brittan, one of the advantages that 

Bloomberg data has is that since the organisation 

spend a great deal of effort on quality controlling and 

cleaning the data, clients can avoid this task. 

By contrast, Doe says that many of Thomson Reuters’ 

clients - particularly FX proprietary trading clients - 

are often obsessive and “very particular” about how 

and what they want to clean in terms of data. 

He adds: “If we clean the data for them it may be 

wiping out a potential source of alpha for them, as a 

result of the way in which we cleanse. And, many of 

our clients are keen to only clean it [data] themselves 

so that they can ensure what has been cleansed.” For 

these players receiving raw, unadjusted or unsorted 

data is critical in not harming their ability to make 

serious money. 

Bloomberg publishes many derivative time series, 

including realised volatility, skewness, and kurtosis 

[from the Greek meaning a measure of the 

‘peakedness’ of the probability distribution of a realvalued 

random variable], GARCH volatility, fixings, 

analyst forecasts, currency strength indices, PPP parity 

levels, and total/carry return indices, alongside raw 

market data. Adds Brittan: “This provides our users a 

tremendous depth of available tools for their analysis. 

Bloomberg's CIX function is an additional very 

powerful tool for creating custom indices.” 

FXall’s Foster says: “Internally we have our own 

proprietary algorithms for cleaning data in real time. 

We believe it’s critical to have a robust methodology 

to determine unbiased prices that clients find reliable 

and use as many rate sources as possible, removing 

outliers to produce a consistently usable data set.” 

Conclusion 

Guessing may be fatal in FX trading. Sophisticated 

traders and trading desks cannot disregard 

fundamental and technical data analysis to ultimately 

secure their investments and retain a stable level of 

profit. At the same time there is no sense trusting 

money to a trading system without total thorough 

testing of it with a wide and full range of historical 

data. This is why reliable and error-free historical data 

are essential for an adequate technical analysis and 

successfully verifying trading strategies. The data 

cannot and should not be full of spikes or gaps. 


VIEWPOINT 

Mark Biezup 

Mark Biezup, FX product Manager – SunGard 

Sierra, outlines why recent and projected 

regulatory changes along with a focus on risk 

management will have significant implications 

for FX brokers. 

Regulatory 

measures and realtime 

FX margining 

The FX market has endured the financial crisis 

significantly better than most other asset 

classes. Nevertheless it has not escaped the eye 

of regulators. Previously FX firms have not faced many 

restrictions on either margining or leverage, but the FX 

market has grown enormously in a short time thanks 

to the adoption of electronic trading. Regulators are 

keen to ensure that adequate protection measures exist, 

from the day trader up to larger firms, as the market 

continues to grow. These changes also attempt to 

prevent systemic risk from seeping outside of the FX 

market and, by domino effect, affecting any underlying 

companies or retail investors. 

New requirements 

Many of these new requirements come from the US 

and the National Futures Association (NFA), which 

regulates the FX industry in the US. The NFA has 

proposed some specific measures regarding margining 

and leverage, so that both customers and brokers can 

reduce the risks created by rapid market fluctuations

and potential liquidations. FX firms will now have 

to collect a minimum 1% margin on the G7 

currencies and 4% on minor currencies. Meanwhile 

leverage will be capped at 100:1. Another recent 

regulation, enforcement of First In First Out 

(FIFO) position management, will prevent hedging 

strategies in the same trading account. 

These regulatory measures will have a direct and 

significant effect on margining techniques, forcing 

them to be both more flexible and granular. The 

move from static to variable methodologies, such as 

from flat rate margining to variable currency 

margining, has already started to branch into 

product, tenor, volume, concentration and 

customer type margining capabilities. Another such 

trend will likely involve customer configuration, 

both a narrowing towards multiple sub-accounts, 

which would allow users to hedge across accounts, 

and an expansion of customer groupings for higher 

level monitoring of risk. 

Benefit to margining 

The benefit of these changes to margining will be 

more than simply compliance. Trading firms can 

also reduce their own market and credit risk on a 

global scale. More granular margining, by product 

and across products, will enable firms to expand 

their product offerings with increasingly 

sophisticated FX instruments, as they can better 

manage the risk associated with those products 

without affecting their vanilla FX margining. 

For FX options, risk managers have traditionally 

relied on delta notional margining. This is a good 

starting place, but in the current environment 

where both investors and regulators are focusing 

more on risk management, this may not be 

enough. Firms will have to go further by taking 

more complex pricing and revaluation models and 

applying this sophistication to the margining 

calculations. 

At the same time that firms expand the complexity 

of their product offerings and with algorithmic 

trading becoming increasingly popular in the FX 

market, margining systems must be able to both 

manage the risks associated with complex algodriven 

strategies and the higher trade volumes 

without sacrificing the speed of execution and the 

speed of margining calculations. 

More flexibility 

Faced with a future of increased regulation and ever 

increasing trade volumes, margin systems must be 

VIEWPOINT 

able to handle both of these trends without 

compromising risk management or performance. 

More flexible margining configurations allow 

broker/dealers to comply with regulations out of 

the box, while allowing them to better manage 

their own risk. SunGard anticipates the effects that 

new regulations will have upon the margining 

sphere, and is proactive in enhancing its Sierra 

Advanced Margining solution to meet these new 

requirements. www.sungard.com/sierrafx


The next wave of 

FX Algorithms 

taking order execution 

strategies to another level 

76 | january 2010 e-FOREX

Nicholas Pratt 

What will be the next wave of FX 

algorithms? Nicholas Pratt charts the 

development efforts of the leading algo 

providers to examine how execution 

strategies in FX can be taken to 

another level. 

>>> 

It may have not been the greatest year for growth in 

the capital markets but there have been pockets of 

positive progress, not least in the FX market and 

particularly so in terms of algorithmic trading. “FX 

algorithms have certainly come on in the last few years. 

Electronic trading in FX has increased, through both 

multi-bank portals and single bank offerings, and 

algorithmic trading has been widely adopted, as it has 

in other asset classes,” says Giles Nelson, senior director 

of strategy and evangelism at Progress Software, a 

provider of application infrastructure software. There 

are, of course, a number of different ways that 

algorithmic trading is used. The classic execution 

strategy is where traders look to split their order into 

several smaller trades that are then carried out over a 

period of time rather than executing all at once – the 

idea being that any market impact is minimised. “But, 

of course, the FX market does not have the same 

market impact issues as in equities because of the excess 

liquidity and the OTC structure,” says Nelson. “In FX 

it is more about achieving a weighted price than 

chopping an order into small parts.” 

Finding liquidity 

Another reason for using algorithms is to find liquidity 

– something which has become far easier for FX traders 

thanks to the advancements in aggregation. Traders are 

now able to replace their multi-screen set-up with a 

single interface that shows all available prices and can 

also execute on an automated basis, thus freeing up 

traders and sales staff to focus on more quality tasks or 

more complex trades. Aggregation, however, is not 

universally popular among the banks, says Nelson. 

“They feel that it diminishes their relationship with the 

dealers. But if they want them to use their single bank 

offerings, they’ll have to be far more innovative and up 

their game because traders just want the best price.” 

One way for banks to reclaim the relationship with 

their customers is to embrace multi-asset trading. Not 

only will such a move attract the increasing number of 

buy-side firms using the same platform for all asset 

classes, it will also reflect the evolution of algorithmic 

trading. In terms of the next generation of FX 

algorithms much of the current interest is around the 

continued growth of multi-asset trading, as Nelson 

explains. “If you want to buy or sell an equity in dollars 

but are based in London, you will want to pay in 

sterling. This means that the best time to trade will be 

somewhat dependant on the exchange rate. You do not 

want to think you have a good price for the asset and 

then find the FX rate has changed. Instead you want to 

wrap that trade all up in one so the exchange rate does 



Giles Nelson 

“In FX it is more about achieving a weighted price than 

chopping an order into small parts.” 

not become an unhelpful variable in the execution. 

Multi-asset trading is still an emerging area,” says 

Nelson. “Many brokers are still very siloed when it 

comes to different asset classes, however we are seeing 

some of the barriers coming down, particularly when it 

comes to equities and derivatives.” 

Second-mover advantage 

In many ways, the FX market is just following what 

has already taken off in other asset classes but this 

slower pace of development does have its benefits 

when it comes to implementing algorithmic trading 

tools – a kind of second –mover advantage, says 

Nelson. “Electronic trading has only really become 

popular in the last few years so this means that there 

are not the legacy systems that exist in equities. FX 

firms trading electronically and looking at adding 

algorithmic trading capability can adopt the latest 

technology and implement it much quicker.” 

Nelson points to the example of aggregation where 

multiple liquidity pools are displayed on one screen. 

“Aggregation is possible because there are these 

different venues that are all easily accessed through 

electronic trading. But in equities there are all of these 

different alternative venues like Turquoise and Chi-X 

which are all different. You may not get the same range 

of choice in FX but in aggregation terms, it has a more 

modern infrastructure and is a less complex product.” 

While FX is undoubtedly a less complex product, there 

are nonetheless drawbacks in applying algorithms to 

the emerging currencies which are far less liquid than 


>>> 

their G7 counterparts. However, says Nelson, these 

obstacles can be overcome through the use of synthetic 

currency pairs. “For example, if you wanted to pair the 

Serbian dinar with the Brazilian real, you would be 

hard pressed to find a bank willing to arrange that 

currency pair. But if you were to trade both currencies 

against the dollar, you would then have two liquid 

trades rather than one illiquid trade and you simply tell 

the algorithm that it is a dinar/real trade. All of this can 

be done through new software and it makes it easier to 

get a good price for this currency pair.” 

What is beyond doubt, says Nelson, is that black box 

algorithms should be a thing of the past. “A lot of firms 

may start with a black box but eventually they will 

want to do something different and change the way 

their orders are traded. Being able to alter the 

algorithms is such an important feature. As the 

industry matures and becomes more accustomed to 

using algorithms, it will be easier to make money if you 

don’t have the same algorithms as everybody else. There 

are broker-supplied algorithms that traders may get for 

free and are easy to set up but they are the same as 

everyone else’s. You really need an algorithmic trading 

set up that enables you to create your own algorithms.” 

Work in progress 

Despite the great progress made in the development of 

FX algorithms, the majority that are used are still works 

in progress, says David Hastings, global head of FX sales 

at FlexTrade, a broker-neutral provider of algorithms for 

multiple asset classes. “There are still the two camps in 

terms of algo users – those who are using them to add 

alpha and those who are using them to trade more 

opportunistically. More recently we are seeing a greater 

interest in the latter, although overall we are not seeing 

any developments that are to dramatic.” 

The development of the algorithms is also dependant 

somewhat on how the various liquidity providers in the 

market have set themselves up, says Hastings, 

particularly if they have embraced aggregation rather 

than remaining opposed to the idea of consolidated 

displays of prices. “Some of the larger banks are more 

particular about how their flow is displayed. But 

ultimately the decision of whether to open the bank’s 

flow to aggregation will be driven by clients rather than 

the banks themselves. Eventually I think most banks 

will have to embrace aggregation.” 

One of the banks’ concerns with the rise of aggregated, 

electronic pricing is that customers will now be guided 

solely by price and will be unconcerned by the identity 

of the sell-side counterpart in a currency trade, thus 

threatening the ‘relationship’ aspect that has


underpinned the FX market for decades. But Hastings 

believes the claims that relationship banking will cease to 

exist is wide of the mark. “The prices in the FX market 

are heavily commoditised at the moment and I think 

those relationships still exist.” If anything, the rise of 

electronic and algorithmic trading could well strengthen 

the relationship between sell-side banks and brokers and 

their buy-side customers. “All e-commerce has ever done 

is allow the sales staff to focus on doing what they are 

good at, which is about talking to their customers.” 

David Hastings 

“There are still the two camps in terms of algo users – those 

who are using them to add alpha and those who are using 

them to trade more opportunistically.” 

Algorithmic trading has of course been around in the 

equities market for longer than it has been in FX and 

while many aspects of the algorithms are easily translated 

from one asset class to another, this is not the case for all 

of them. For example, stealth algorithms have become 

more popular in equities due to the need for traders to 

reduce their market impact and restrict any unhelpful 

price movements that may result from making their 

trading intentions known. Equally in demand in the 

equities space are algorithms for discovering hidden or 

dark liquidity as off-exchange liquidity and dark pools 

continue to thrive in the post-MiFID era. 

However the OTC nature of the FX market and the 

relatively huge levels of liquidity means that market 

impact and hidden liquidity are minor issues for FX 

traders. Nevertheless, says Hastings, these are some 

developments in these areas. “There has always been a 

fear among all traders when it comes to executing their 

trades and they want to keep their cards close to their 


>>> 

chest. But it will take longer for stealth algorithms to 

make an impact in the FX market.” Right now it is the 

multi-asset trading firms that are using FX as an alphagenerating 

asset class that will have most interest in 

stealth algorithms. The algos they are currently using are 

more juvenile and immature and are based on simple 

VWAP or TWAP strategies but the more the multi-asset 

traders get involved in the FX market, the more 

sophisticated the algorithms will become. 

“We do have a stealth algorithm that is available and we 

are seeing some interest from FX traders but it is more 

interest than active adoption. I think everyone wants to 

wait and see how it pans out. For all of these trading 

strategies that have come from the equities world, it 

takes some time for them to be adapted to the FX 

market. You cannot simply flick a switch and make 

equities algorithms work in the FX market. There is a lot 

more manipulation of the order that needs to be done. 

You are able to slice and dice an FX order far more than 

in the relative restricted equities world. The algorithms 

may be on the same baseline but I think there will be far 

more modifications and adaptations for FX algorithms.” 

More exotic strategies 

Another growing area in FX trading involves emerging 

currencies and alternative FX order types, such as FX 

options. Will FX algorithms also be able to cater for 

these more exotic trading strategies as well as the vanilla 

side of the business? “I find it hard to believe that 

liquidity providers will completely embrace the practice 

of streaming a price in large quantity for some of the 

emerging currency pairs out there. If I was trading an 

emerging currency pair, I wouldn’t want a price for a 

large amount accessable for a long period of time. The 

ability to manage or hedge that risk becomes more 

complex because of the lack of liquidity around these 

currencies,” says Hastings. 

As for FX options, these have been a holy grail for any 

multi-bank offering, says Hastings. “There is a lot of 

dialogue and negotiation between counterparties 

needed for an option and streaming volatility does not 

answer all the idiosyncrasies associated with these 

instruments. I think they will be incorporated into the 

FX algorithms world but we are not there yet.” 

Many of the latest generation of algorithms have more 

of an emphasis on highly technical trading rather than 

just the fundamentals, says Joey Horowitz, chief 

technology officer at Aegisoft a provider of global 

trading solutions, software and professional services 

Similarly the algos have also become much more 

market aware. "As more venues have come onto the 

market, it is important that the algos reflect the


differences between each venue. The key is to keep the 

reject rate low and not be fooled by misleading market 

data that can cause you to leak out your trading 

intentions to the market. Algorithms have become 

better and smarter at recognizing this." 

When traders complain that they are not getting a high 

enough fill rate, it is up to the technologists to solve 

that problem, says Horowitz. So they have to look into 

why the fill rates are often low and then change the 

logic of the algorithms to make them more effective. 

"Sometimes it is down to the speed of the technology 

but other times it is down to the fact that the market 

data is not consistent with the dealable liquidity, this is 

especially true when execution venues are not sending 

the market data quick enough. This was not always 

evident in the equities and fixed income markets but it 

soon became clear in FX. The fastest algo is not always 

the best in FX because it's frequently more important 

to handle the different characteristics of the various 

trading venues." 

Again, this point demonstrates that an algorithm that 

works in one asset class cannot simply be dumped into 

the FX market and be expected to perform to the same 

level. "FX algos have to be smart and much more 

intelligent than other performance-based algorithms," 

says Horowitz. Similarly the popularity of dark and 

hidden liquidity algos in equities has not crossed over to 

the FX market yet but, says Horowitz, there is an 

increasing interest from FX traders on including and 

aggregating more direct bank venues in order to draw 

on more liquidity. Consequently Aegisoft has developed 

new technology to aggregate the full liquidity from all 

single-bank venue platforms, regardless of how they 

stream them, and to enable banks to stream a second set 

of prices that, if dealt, will prevent the trader from 

trading at another venue for an agreed amount of time. 

"This feature frees the banks to offer large quantities at 

better prices and with less risk to the bank; the bank 

receives the whole deal and the bank's client can't move 

the market at the same time," says Horowitz. 


>>> 

Synthetics 

When it comes to the issue of using FX algos in the 

pursuit of less commoditised currency products, such as 

FX options or emerging market pairs, Horowitz is far 

more bullish than others. "Algos are being used heavily 

for these types of products. The ability to run synthetic 

currency crosses is a big deal for our clients and this is 

why they have driven us to provide this capability on 

an out-of-box basis." Aegisoft also provides for crossasset 

trading where the algos run on both the outright 

and the synthetic - taking an FX future and converting 

it into a spot equivalent. For example, "if I'm trading a 

Euro/Yen currency cross, I could trade that outright, 

synthetically or through a series of FX futures. Bringing 

in all these possibilities, analysing them and presenting 

them on a graphical front end for traders to use and via 

an API for algos to use is what we are all about." 

Joey Horowitz 

“It’s much easier to deal with algorithms than orders. 

Algorithms remove a lot of the manual drudgery, so traders 

can focus on the goal, and less so the mechanics.”


In terms of how algorithms can help FX trading firms 

meet their different execution timeframe and visibility 

preferences, Horowitz says he is seeing much more 

use of 'synthetic' algorithms that can only be executed 

over an FX aggregating platform, such as synthetic 

icebergs. "We also see that traders prefer not to watch 

orders as much as algorithms. They want to make a 

decision, fire off an algorithm and be alerted when it 

trades or other changes happen. It's much easier to 

deal with algorithms than orders. Algorithms remove 

a lot of the manual drudgery, so traders can focus on 

the goal, and less so the mechanics." Horowitz adds 

to really understand the phenomenon of advanced FX 

algorithms being deployed by major sell-side banks 

and broker dealers one should speak with several of 

Aegisoft's premier customers such as Citi, which has 

its Silent Partner and Ripple Algorithms. 

One recent phenomenon in the world of FX 

algorithms has been the development work taking place 

at the major sell-side banks and broker dealers. 

According to Mark Sykes, director, Foreign Exchange 

at Citi, we are now seeing second and third generation 

algorithms that are able to operate opportunistically so 

as to more efficiently match implementation strategies 

with the investment objectives of the users. 

“The primary objective of the execution strategy is 

always to ensure that the balance of the speed of 

execution versus the risks of showing the flow to the 


>>> 

external market is perfectly balanced,” says Sykes. 

“Attempts to get an execution done faster inevitably 

lead to adverse price movements as your intentions 

become exposed; this is particularly true of more 

illiquid currency pairs in the emerging market space 

which demonstrate a very high signal to noise ratio in 

their price action. Second and third generation 

execution algorithms have had immense amounts of 

intellectual capital embedded within them, massive 

investments in quantitative analysis, all with the aim 

of ensuring that this balance is perfectly achieved. 

Looking forward, I would expect more sophistication 

in this area, particularly in the way that short term 

price and flow patterns are recognised by the 

execution algos, and subsequently acted upon.” 

As with any market innovation, says Sykes, some 

speculators will attempt to use it to their advantage in 

order to generate alpha and FX algorithms are no 

different. “For every execution methodology, be it by 

a manual spot trader or a black box, there are many, 

many systemic trading houses monitoring market 

data, attempting to detect patterns, and subsequently 

act upon them. The easiest flow to detect and 

monetise is of course that of the manual trader. 

Throughout history, mankind has demonstrated a 

wonderful disregard for history and simply repeated 

the same mistakes time after time. This trait is the 

mainstay of algorithmic houses,” says Sykes. 

James Dalton 

“As a general rule the more aggressive strategies will suit the 

active intra-day traders and the passive strategies are more 

about providing ‘best execution’ to those who look to enter 

positions that are held for a day or longer.”


Consequently, says Sykes, there is a legitimate demand 

for the ‘stealth’ algorithms that have been so prevalent 

in the equities market as a means of defence against 

the above mentioned traits. “Automated execution 

brings its own set of patterns and behaviours, which 

again, other algorithms are attempting to model and 

trade off. The prevalence and important of the stealth 

algorithm within this context cannot be overstated. 

Citi has already released Ripple and Silent Partner, 

specifically to provide an effective defence against these 

market characteristics, and a further two are due to be 

launched in the near future.” 

There is no ‘one-size-fits-all-strategies’ principle that 

can be applied to FX algorithms, says James Dalton, 

director, FX algorithmic Execution at Citi. For 

example, those looking to take 10-20 pips profit on a 

position over a number of minutes will find limited 

use in a simple liquidity seeking algo, however there 

are those on the market that are designed to be more 

opportunistic in nature and more relevant for an 

active trader working during the peak liquidity hours, 

Kim Bang 

“..the ability to set time-queued orders and specific 

start and end conditions for specific algorithms has enhanced 

the ability of the FX community to seek better executions 

and execute orders throughout the day.” 

says Dalton. “As a general rule the more aggressive 

strategies will suit the active intra-day traders and the 

passive strategies are more about providing ‘best 

execution’ to those who look to enter positions that 

are held for a day or longer. For passive execution 

where you may be adjusting a hedge position or 

shifting funds to settle fixed income or equity trades, 


it is all about minimising your transaction costs over a 

portfolio of trades.” 

Future developments 

As for future developments, Dalton believes that current 

efforts to extend the applications of algorithms to less 

commoditised currency products, such as FX options 

and emerging market pairs, will eventually bear fruit. 

“This will happen over time but the reality is that right 

now many of the products have insufficient liquidity 

available in electronic venues to be able to match the 

service that voice brokers can offer.” And despite the 

obvious differences between the FX market and other 

asset classes, Dalton still feels there are lessons that can 

be learned and applied to FX from the continuing 

development of algos in other markets. “There is plenty 

to be taken from the other markets in terms of 

connectivity to multiple venues and smart order 

routing, order placement strategy and cloaking 

techniques. However, with FX the range of different 

market participants and the presence of large global 

players who are almost exchanges unto themselves, 

brings a unique set of challenges to the table.” 

Another provider of algorithms for multiple asset 

classes is Bloomberg Tradebook which operates on an 

agency brokerage basis. According to president and 

chief executive Kim Bang, Tradebook is increasingly 

offering execution strategies based on the ability to 

handle large institutional block orders that source 

from multiple liquidity venues – lit, dark and neutral 

– and opportunistically chase available blocks or 

otherwise work smaller orders for spread capture. 

“More than ever institutional investors are searching 

for ways to minimise execution costs and to overlay 

alpha generating FX programs. By employing an 

anonymous electronic agency broker with direct 

market access (DMA) and algorithmic strategies it is 

possible to reduce implementation costs significantly 

when compared to traditional execution providers.” 

Today’s algorithms are also better able to help FX 

trading firms to meet their different execution 

timeframe and visibility preferences, says Bang. “The 

key with the algos developed today is the level of 

control, flexibility and customisation they provide 

traders. Depending on the currency pair, there are 

known periods of the day that they are most active 

and an FX trader is likely to find the deepest liquidity. 

These times may not be ideal based on that specific 

trader’s region or time zone. So the ability to set timequeued 

orders and specific start and end conditions 

for specific algorithms has enhanced the ability of the 

FX community to seek better executions and execute 

orders throughout the day.”

e-FOREX : INTERVIEW 

RBS 

leading the way 

with integrated 

electronic 

FX solutions 

e-Forex talks with Michelle Neal, Global Head of Electronic Markets at The Royal Bank of 

Scotland about the consolidation of the banks' electronic platforms and the continuing 

development of its best of breed FX e-commerce solutions and e-trading tools. 

Michelle, RBSMarketplace, which was launched in 

2008, is the Royal Bank of Scotland’s portal giving 

customers access to all of RBS Global Banking & 

Markets electronic solutions in one place. In what 

ways has your own role evolved and changed with the 

development of this new portal? 

eCommerce has always been an integral part of the 

trading and distribution strategy at RBS with strong 

business engagement and consistent investment. In 

early 2008, we merged the Debt and FX eCommerce 

teams into an Electronic Markets function to leverage 

our combined strengths and benefit from the associated 

synergies. I particularly wanted to move away from the 

word “eCommerce” and onto something more accurate 

and descriptive of eCommerce in a financial markets 

business and so Electronic Markets was born. Around 

this same time, we launched RBSMarketplace 

(“RBSM”), a platform with common architecture for 

RBS to leverage and build upon compounding 

successes within the business. The line between the 

Electronic Markets business and our traditional 

businesses are more blurred as customers use electronic 

services and execution tools to compliment their 

relationships with RBS. 


In addition, our touch points with the business have 

increased as clearing, credit risk, latency, and capacity 

are all factors that face both traditional and electronic 

businesses and need to be managed using better 

technology. We are a major conduit and centre of 

excellence within RBS for realising these synergies. 

My team has traditionally also been responsible for 

market structure initiatives and strategic investments 

within RBS. Combined with a delivery capability 

such as Electronic Markets, you get a powerful and 

highly coordinated continuum of activity spanning 

strategic alignment in our core markets, product 

development and delivery and distribution channels. 

So far, the progress made by Electronic Markets has 

been encouraging and RBSM has become a 

household name within RBS, The bank as a whole 

has tried to leverage the cross product nature of our 

product offering and client base to achieve 

coordination in servicing our customers and 

efficiencies in technology spend and delivery. Even 

the physical layout of our new offices in Stamford 

Connecticut is meant to create better 

communications and smarter uses of internally and 

externally facing electronic markets products.

What prompted the decision to integrate your esolutions 

to create RBSMarketplace, given that each 

of the platforms were already successful in their own 

right? 

You are correct, we had a series of strong electronic 

products across both FX and Fixed Income of a 

proprietary nature as well as the liquidity that we 

provide via third party platforms…but let’s go back to 

the concept of compounding success, and it’s just like 

compounding returns in investing. If others can 

build upon components in your electronic markets 

offering, like strategy, research, quant, execution and 

post-trade services, and PB you can move forward 

from the constant silo based mentality that hinders 

growth and is inefficient in utilising the bank’s 

resources. Working together and providing that 

platform for visibility and transparency of success 

allows for ideas to evolve. Research and strategy, 

electronic execution and post-trade services tend to be 

a common denominator in all businesses. 

Were customers already trying to create a single 

window internally to bring together the different 

trading platforms they trade on? 

Many customers have either bought or built some 

form of electronic consolidation product for their 

execution needs. Sometimes it is a cross product 

bleed from an existing equities or futures application, 

a strategic Order Management platform allowing for 

tighter integration from the point of the investment 

decision through to execution and post-trade or 

simply an in-house effort to make their workflow 

more efficient. Whatever the need or underlying 

business, we try to provide scalable products and 

solutions that compliment that need and allow clients 

to leverage our services. We bring more than just tools 

but a wealth of knowledge and a concept of a trading 

community. 

What instruments can now be traded on 

RBSMarketplace and what services are available? 

FX and Fixed income services such as strategy, 

research, and quant tools, compliment our execution 

services on both our proprietary and 3rd party 

platforms as it is crucial that clients can access the 

liquidity and community of RBSM via the channel of 

their choice. Proprietary FX Options, Streaming 

rates, Benchmark trading, and Direct Market Access 

(FX DMA) continue to evolve and gain market share. 

We also provide access to Futures execution and 

clearing and one of our newest additions to RBSM is 

Investor Products. Our SmartPrime product is also a 

great example of giving clients access to hybrid 

product models and services. 

How quickly can you get new users live on 

RBSMarketplace and has it broadened the range of 

instruments existing clients can trade through the 

bank – i.e. can existing clients from one platform 

automatically gain access to other products? 

Cross product connectivity and speed to market is key 

to keeping your customers interested and satisfied and 

giving you a deserved place on the customer desktop. 

As stated before Electronic Markets tends to be the 

common denominator for many clients who trade 

multiple products with RBS. RBS has made great 

efforts to make a global model of client services and 

staff it with knowledgeable people who understand 

not only the business needs of the client, but also the 

technology needs. By working with the existing sales 

force as well as clients directly, the client services team 

can help the sales force fully understand the client’s 

cross product footprint to build a better relationship. 

What feedback have your e-commerce teams had 

from clients about RBSMarketplace and what 

applications do you think particularly add value for 

customers and differentiate the portal? 

>>> 

“Whatever the need or underlying business, 

we try to provide scalable products and 

solutions that compliment that need and 

allow clients to leverage our services.” 

We have had positive feedback from both our clients 

and internally from our Sales force but ultimately, it 

depends on the client base as we aim to serve up the 

right mix of product and services depending on client 

segment, user profile and even geographical location. 

For the Real Money accounts the interest is in 

automation and providing transparency. This is our 

RBS FX Benchmark product which can be integrated 

into upstream and downstream systems at the client, 

adding value but streamlining processes that need 

accountability and an audit trail. 

In the Retail and Partnership arena, it’s defiantly our 

FXMicropay business that’s consistently winning 

market accolades and allowing our client to realize FX 


e-FOREX : INTERVIEW 

revenue that was previously being lost in the simple 

cross border nature of their business. 

In the Hedge fund and CTA space it is our 

SmartPrime product that leverages our existing 

market connectivity to give funds access to the ECN 

Direct Market for Foreign exchange while leveraging a 

top rated FX PrimeBrokerage and risk taking team, 

combined with automated services for rolls and 

position management for a new level of 

differentiation. 

To what extent can users customise their 

RBSMarketplace platform? 

Dashboards and montages are overused terms. But 

RBSM is a montage of component applications that 

can be configured based on your access level and 

business need. RBSM.com, the portal side of our 

offering provides customisation and other 

personalised capabilities such as subscriptions. 

Over the last few years e-Forex has been reporting on 

the continuing growth of Algorithmic FX trading and 

many larger banks are moving into this space to give 

clients access to this powerful method of trade 

execution. Is RBS looking to join them? 


The visible growth in algo trading is coming from the 

high frequency shops that are contributing record 

amounts of turnover in the FX markets. RBS has 

supported many of these players with a highly scalable 

PB offering and more recently algo (instructional 

execution) via its SmartPrime offering. SmartPrime 

leverages our own experiences in optimising execution 

techniques and allow clients to tailor their execution 

to their own needs, choosing strategies that help 

minimise slippage, transfer risk or keep their 

anonymity. We will continue to grow these 

products with our own risk taking capabilities to help 

customers lower costs and build electronic 

partnerships with RBS. 

Given the increasing interest in Algorithmic trading, 

many commentators expect to see rising customer 

demand for Research and Analytical (R&A) 

applications across all asset classes. What steps has 

RBS been taking to cater for this and offer new client 

interfaces for both pre-and post trade R&A? 

RBS has a deep team of quantitative experts that have 

used the framework of RBSM to build research tools, 

bespoke query analytics and more recently its own 

models to help define optimistic execution strategies 

and entry points. Combined with regional quant 

specialists to answer specific question or help conduct 

TCA, we feel we have a winning formula for the 

future of a data driven world. 

Are post-trade services, middle and back office 

processing and clearing systems all 

integrated into RBSMarketplace and how 

can the platform help users improve their 

straight-through-processing? 

I think people realize that Post 

trade services are important for 

efficiency purposes and 

controlling costs, but 

of Lehman it is 

important to 

realise it is an

integral part of controlling risk. Real time reporting 

and controls for clearing are a fundamental part of the 

equation. 

By offering clients multiple ways of managing their 

trades, confirming their risk and margin is an integral 

part of the RBSM strategy. Staying aware of trends 

and being involved with market structure initiatives 

helps RBS to stay sharp and focused so we can pass 

that benefit to our customers. Our customers value 

an advisory service about how changes in market 

structure can affect them and what they should come 

to expect from their bank relationships. 

Prime brokerage services have also been included in 

RBSMarketplace. What key functionality does your 

Smartprime module offer to clients and how do you 

see the FX prime brokerage model evolving, postcrisis? 

Having a PB (or multiple PBs 

in the new world order) is a 

vital relationship service 

providing access to liquidity 

and risk management and 

increasingly to services like 

OTC clearing. This 

relationship has to go beyond 

standard services like trade giveup 

and extend into areas of 

added value such as legal, 

credit, technology, back office 

services and direct sales services 

and execution. Most 

importantly providing a packaged approach to these 

services helps customers to grow their own business, 

the ability to expand to other asset classes while using 

capital efficiently by optimising margin across their 

portfolios. RBS SmartPrime is just one tool that 

helps with the hassle of building or buying an 

execution platform to access ECN and RBS bank 

liquidity while also aiding in traditionally time 

consuming processes like rolling positions. 

RBS has always had a very innovative and successful 

electronic FX option franchise. Do you expect to see 

the use of FX options continue to grow amongst 

currency traders and investors and in what ways are 

you looking to further automate FX options trading? 

Absolutely. It is a major focus for the risk 

management and sales businesses at RBS as well as for 

Electronic Markets. Earlier this year, our FX spot and 

RBS - leading the way with integrated electronic FX solutions 

Currency Options businesses merged under the 

leadership of Mark Barnes on the trading side and 

Chris Leuschke on the sales side. This new 

organisational structure is enabling us to take a more 

strategic approach to all elements of FX and treat 

them as an asset class from a risk management 

perspective while providing a more integrated solution 

based service to our client which will obviously 

extend to our provision of FX services via RBSM. 

Over the coming months, what work will your ecommerce 

teams be doing to further enhance 

RBSMarketplace to move it even closer towards the 

complete one-stop shop? 

We will be focused on product coverage, workflow 

and the integrated provision of services to ensure our 

products continue to be best in class but accessible in 

a multi-product environment that considers the entire 

trade lifecycle and the changing 

market environment. 

Like many large financial 

institutions, RBS has been 

dealing with difficult business 

issues arising from the global 

financial crisis of last year. 

Looking to the future, how 

committed is the bank to 

continue making the necessary 

investment required to maintain 

and further develop your world 

class suite of e-commerce 

solutions? 

Its been said before but companies that are successful 

treat their investment in Electronic Markets as a 

strategic asset and not a liability or cost that needs to 

be assessed constantly based on market moods or 

modes. Sure there is always an element of cost: 

benefit analysis but you have to look at it on a holistic 

basis, rather than on a stand alone one – it is a core 

part of the franchise business and not a business in its 

own right. One thing is clear - the market will 

continue to evolve and those who optimise their 

spend in ways that leverage the existing talent will be 

the ones who will gain market share, become more 

profitable, have better client relationships and in 

general succeed. 

As we said before, it’s not an optional business if you 

are a top liquidity provider. It is an integral part of the 

approach to risk management and customer work flow. 


FOCUS 

DMA - an increasingly 

attractive toolset for 

the FX buy-side 

The concept of ‘Direct Market Access’ (DMA) is a 

simple one and is yet another example of an 

invention that started out in the equities market 

and is now being adopted in the FX market. 

Nicholas Pratt examines the evolution of DMA 

and what it means for FX traders 

In equities DMA emerged over the last decade 

as a way of providing buy-side firms with an 

undiluted means of access to the exchanges 

and other execution venues. Up till this point the 

only way that an asset manager, hedge fund or 

corporate could access the market was via a 

broker. However as electronic trading began to 

thrive, leading to more advanced strategies such as 

algorithmic trading and facilitating the growth of 

high frequency trading hedge funds, the 

conventional broker-based means of execution 

began to feel insufficient to these new breed of 

buy-side traders. 


The advantages of DMA were threefold. Firstly it 

offered the quickest route to market with little 

latency being a sole connection between buy-side 

firm and execution venue. 

Secondly it offered lower transaction costs because 

of the absence of a broker. And thirdly it gives 

buy-side firms greater control over their own 

trading - something that has become more and 

more important as shown by the various regulatory 

initiatives such as commission unbundling and the 

Markets in Financial Instruments Directive 

(MiFID) – both of which were aimed at 

deconstructing the role of the broker and its 

relationship with buy-side traders. 

DMA in FX 

As we have seen with electronic and algorithmic 

trading, what starts off in the equities market 

usually finds its way to the FX market and the 

same has happened with DMA, however there are 

some noticeable differences, not least because 

there is not the same exchange-based structure to 

the FX market. 

“DMA in the FX market did not really start until 

there was the market structure to allow it,” says 

Chip Lowry, chief operating officer at Currenex, 

which along with Hotspot FX, was one of the first 

venues to bring an exchange-based model to the 

FX market in the early stages of the century. “Not 

only did we have an exchange-based model but we 

also had executable streaming prices which helped 

create the order book.”

The early users were not the typical FX traders 

looking to smooth out currency transactions or hedge 

their positions, says Lowry. “They were hedge funds 

trading FX as an asset class and this was only possible 

because there was the technology to allow it and the 

prime brokers to provide the credit line they needed. 

All of this created an environment within FX for 

DMA.” 

The advantages of using DMA has not changed much 

over the years but, says Lowry, what is needed to be a 

successful user or provider of DMA has changed. 

“Low latency is now critical for high frequency traders 

– how quickly does the matching engine work? How 

quick is the network? How close to the execution 

venue are you?” 

Of course the natural conclusion for this march 

towards low latency nirvana is that everyone ends up 

at the same point where the matching engine can go 

no faster and co-location can get no nearer. “We’re 

getting very close to that point,” says Lowry who adds 

Chip Lowry 

“DMA in the FX market did not really start until there 

was the market structure to allow it,” 

>>> 


FOCUS 

that the next stage of development is making sure the 

code is faster by putting it directly onto the chip 

rather than the memory of the computer, thus 

shaving vital microseconds off the trading time. 

Another provider of DMA services for the FX market 

is US-based Advanced Markets. “The key advantage 

to our FX DMA model is that it enables trading on 

highly competitive prices from more than 10 leading 

banks on a fully transparent, anonymous, low latency 

platform,” says Anthony Brocco, chief executive at 

Advanced Markets. “Further, DMA goes beyond the 

STP model in that all rates are directly from banks 

with fully transparent market and revenue models”. 

“In practical terms this means trades are done on 

excellent prices for the full ticket amount because 

banks are refreshing their prices several times per 

second. Partial fills almost never occur and platform 

rejection rates are significantly less than one per cent. 

Our clients report this high success rate, in terms of 

full amount trade executions, stands in stark contrast 

to ECNs and other multilateral platforms.” 

Main users 

Brocco says that the main users of the DMA service 

range from hedge funds to experienced individuals 

“who want to trade on tight, neutral prices that are 

not spread or skewed in any way”. He is also seeing 

strong demand from large banks and brokers. “These 

Anthony Brocco 

“DMA goes beyond the STP model in that all 

rates are directly from banks with fully transparent 

market and revenue models”. 


>>> 

institutions are seeking the best possible FX model to 

offer their clients in terms of transparency, pricing, 

liquidity, low latency trading capabilities. “In terms 

of traders, the interest is from those market 

participants who are concerned with optimizing their 

trade execution performance. 

Of late, model traders are becoming significant users 

too. They tend to value the pristine, robust neutral, 

realtime market data that our DMA platform 

generates to power their trading models. The appeal 

of anonymous access to institutional grade pricing is 

attractive to our clients. Bear in mind, that many FX 

DMA platforms are not anonymous either because 

the client is disclosed or because the broker offering 

the platform is a market maker on it.” Technology is 

one of the main ways in which providers of DMA 

services are looking to differentiate their offerings as 

well as widening access and broadening the 

distribution of these services. “From an IT 

standpoint, our DMA model is relatively simple to 

support because it provides equal access to all 

participants to the same liquidity pool of prices,” says 

Brocco. “As such, our technology partners have been 

able to ramp up execution speeds and market data 

dissemination impressively in short order to name 

two of a host of other ongoing technology 

refinements. 

“We are also looking to differentiate our offering by 

constantly refining our model to provide the most 

straightforward, purest expression of centralized order 

book DMA we can,” says Brocco. “That’s what our 

clients want. 

Raising standards 

As DMA grows in popularity, it will place pressure 

on the various FX execution venues to improve their 

technology standards and execution quality as these 

properties become more conspicuous to trading 

firms. “DMA is an enabling market structure in 

terms of efficient liquidity access and market 

transparency,” says Brocco. “So to the extent that it 

raises standards in terms of execution quality, 

meaningful trading cost analysis and higher quality 

market data, other venues could feel pressures to 

adjust their models.” 

Overall Brocco says that DMA will evolve and grow 

as market participants add it to their array of FX 

liquidity access venues. “We are seeing the seeds of 

this growth now as bellwether fund managers adopt 

this method of market access to support compatible

FOCUS 

Harpal Sandhu 

“We’ve always believed that DMA existed in the market 

but it was always manual so the first task was to put all 

of these ideas from a trader’s head into a computer.” 

trading strategies and tactics. On the retail side, we 

see DMA as becoming the market structure of choice 

among experienced individual traders as well as 

brokers and banks globally that are looking to offer 

the best possible FX product to clients.” 

“We first brought DMA to the FX market over five 

years ago,” says Harpal Sandhu, chief executive of 

Integral. “We were very focused on transparency and 

OTC trading connections between liquidity takers and 

liquidity providers. We’ve always believed that the 

fundamentals of FX trading is based on (OTC) 

relationships but without a DMA facility, it would take 

the participants a long time to setup their own 

electronic connectivity to their providers or customers.” 

DMA has since evolved into something far beyond 

simple point-point networks, says Sandhu, citing the 

array of business services that run on top of the 

network. This development has added a complexity 

to the design of a DMA service that Sandhu believes 

is beyond the majority of trading firms that are 

considering developing such a service in-house. 

“For people building their own connectivity, there are 

things that they do not even know that they don’t 

know. For example, you have to work out your price 

discovery, so you can convert apples to apples. All of 

these liquidity sources have their own formats which 

have to be normalised so there is an aggregation 

aspect, there is credit line management, netting, 


>>> 

straight-through-processing (STP) for pre and post 

trade processes, verification of execution and the 

monitoring of connectivity and rejection rates. These 

are all key aspects of any DMA offering. It is all about 

the services that run on top of the infrastructure.” 

Building DMA models 

One firm that has developed its own DMA model is 

Rockshore Partners, which also boasts an in house 

proprietary fund with Rockshore Funds. Rockshore 

Partners provides the black box-type trading 

application for the fund. "Rockshore Funds is our inhouse 

fund which licenses the software that we 

developed" says Nick Pittarelli, a quantitative analyst 

with Rockshore Partners. We have several FIX-based 

API’s that connect us to portals such as Hotspot, 

Integral, Currenex and others. 

We designed it purely for passive arbitrage. We colocate 

and are within half a millisecond from all of our 

counterparty connections, and trade identification is a 

mere 12 microseconds. It might not be the fastest, but 

it is extremely quick. When we developed it, we kept 

in mind that we wanted to use it through a prime 

broker service tailored to high frequency algorithmic 

trading companies. We obtain our service through a 

top tier global bank in conjunction with our funding 

partners at Graceland Capital. By building this for 

DMA we eliminate the interfacing directly with the 

broker and we reduce latency while maintaining 

completely transparent pricing. To Rockshore, DMA is 

the only way to deal as our platform is built for ultra 

high frequency trade opportunities in retail and 

institutional FX market," says Pittarelli. 

"We trade arbitrage passively, with linear, triangular, and 

market making strategies so our application handles 

complex event processes through this DMA access. Our 

market making interface conducts a vast amount of 

high frequency autodealing price computations and 

incorporates a multitude of proprietary methodologies. 

Much of this is material a typical institutional prop shop 

would not have because of the complex programming 

involved. It is a sophisticated system that took us two 

plus years to build. We started in early 2006 and it is a 

constant work in progress. We have the ability to make 

markets in a traditional manual fashion or with 

complete automation. Its capacity is measured to stream 

more than 5 million quotes per day to all of our trading 

venues. This is what we deem as buy-side paradise." 

states Pittarelli. 

In terms of the using APIs for DMA, Pittarelli says 

that FIX connectivity has been a key component due

FOCUS 

Nick Pittarelli 

"We passively create linear and triangular 

arbitrage opportunities through our DMA via our 

Autodealing Model, DMA is crucial." 

to the fact that the protocol has developed at a 

reasonable pace and all of its various formats are 

backwards-compatible. "So from the very start of 

putting the APIs into use we have not had to change 

anything or modify the core architecture. Our 

trading style is quite vanilla, the only technical 

resource we compute for forecasting is depth of book 

globally. It’s all about the prices as they are now, and 

can we do anything with them? There is hidden 

magic in the raw and executable quotes, and our 

entire operation is based on the DMA to these 

hosted venues. We built our own aggregation into the 

platform, which gives us the best of both worlds and 

is much of the magic behind the software." 

While Pittarelli has put considerable effort into 

assuring that his system has as low latency as 

possible, he is also reliant on the liquidity venues he 

connects to being equally competent at reducing 

latency. "We have to do some minimal measurement 

on latency to compute the time it takes each venue to 

respond. If it consumes considerable time to receive 

an acknowledgement, it begins to eat into our 

profitability. Therefore, it is a case of marrying the 

best price with the latency computation integrated in 

the response time. We are pretty quick from our end, 

each order is sent out in microseconds but we have to 

provide some leeway to mitigate against any venue 

latency. The venues themselves with increased DMA 

traders will have to be able to handle an increasing 

number of bids and offers. We are quite capable of 


streaming a significant number of bids and offers, 

and we are just one entity using DMA. The numbers 

are mind-boggling as to how many quotes are going 

to these venues given the increase in this trading 

activity." 

Self-build versus off-the-shelf 

Pittarelli and the Rockshore team are in fairly rarefied 

company when it comes to building their own DMA 

system. So why exactly did they decide to go down the 

self-build route? "Some of it is the number-crunching 

background of the team and some of it is the desire to 

maintain proprietary methods and strategies from 

outside influences and in their confidential state. We 

knew that we could build something extremely fast 

and we wanted to make sure that if our competitor 

wanted a similar application, they could not acquire a 

duplicate off-the-shelf. The cost of the production was 

relatively equal to what we would have invested for an 

off-the-shelf system. With our own design and 

development, we kept confidentiality and secured 

ourselves as the only entity utilizing our aptitude for 

alpha. We have some modules that we are willing to 

white label and other applications that we build for 

customers from scratch. Our software entity in 

Rockshore Partners manages third party development, 

data center hosting and sales. 

Despite these reasons, Pittarelli believes that the 

majority of FX participants will instead opt for an 

off-the-shelf DMA product. "But if a firm has deep 

pockets or is specifically looking at high frequency or 

proprietary trading, then the most effective approach 

is to build your own. Everyday there is a new 

programming language that purports to be better and 

faster. We are constantly investigating new 

technologies in low level programming. DMA 

provides the avenue to combine the features a

customer needs with fastest programming available, 

serving both the buy side customers and in the case of 

Rockshore, market efficiency as well. 

Regardless of whether participants choose to buy or 

build, Pittarelli is clear that DMA will continue to grow 

in FX and it will have a key influence on how the 

market itself develops. "I think it will continue to open 

up and traditional brokers will reluctantly become 

increasingly passive in terms of the services that they 

provide, making it a parallel to the utilization of a prime 

broker for the retail environment and offer lower 

commission structures to institutional firms as well. In 

terms of off-the-shelf products I think there will be an 

accepted standard. We believe the market itself will 

become more efficient due to the competition in high 

frequency trading and open knowledge of DMA. Any 

companies that do not have the correct adaptive resources 

to operate in the combination of low latency and DMA 

market segment will realize substantial customer attrition 

to those service providers that offer a cost effective and 

responsive low latency framework." 

DMA - an increasingly attractive toolset for the FX buy-side 

Michael Markarian 

“There are four clear benefits to DMA in FX – 

transparency, efficient execution, standardised 

pricing and anonymous trading.” 

>>>

FOCUS 

Benefits of DMA 

Most of the providers of DMA services are in 

agreement when it comes to describing the benefits 

of DMA. According to Michael Markarian, president 

of Divisa Capital, a New Zealand based investment 

house and Currenex partner that offers Spot FX and 

Metal trading services, there are four clear benefits to 

DMA in FX – transparency, efficient execution, 

standardised pricing and anonymous trading. “The 

issue of transparency is resolved as the DMA broker 

is acting purely in an agency capacity. DMA orders 

are based on two variables – the price and the time 

the order is placed so the result is a far more efficient 

execution. DMA pricing is based on institutional 

standards of 1/10 of a PIP. And anonymity provides 

traders with a level playing field.” 

John Miesner 

“The advantage of DMA in FX is that enables clients to 

aggressively buy and sell but also passively bid and offer,” 

“The advantage of DMA in FX is that it enables 

clients to aggressively buy and sell in addition to 

passively bidding and offering,” adds John Miesner, 

Head of Global Sales for Knight’s Hotspot FX 

platform. “They are not being subjected to a specific 

spread by one provider – it is about accessibility to a 

pool of liquidity.” In addition to the aforementioned 

advantages of anonymity and accessibility, Miesner 

also highlights the benefits of low latency execution 

and the provision of multiple order types such as 

market and limit orders. “Traditionally these have 

been important features for any FX trader however, 

the low latency demands have become more 


pronounced due to the influx of high frequency 

traders into the FX market.” 

Regulatory perspectives 

As with any new trading model, there is always the 

concern that changes to the regulatory environment 

will either render certain aspects redundant or add 

unhelpful complexity to the current market structure. 

Will the development of DMA be threatened or even 

enhanced by the arrival of new legislation? In the US 

the NFA is looking to regulate the retail FX market 

for those trading FX as an asset class while in the EU 

many of the principles associated with MiFID may 

be extended to cover the FX market. But perhaps 

most important will be the possibility of central 

clearing for some FX instruments, particularly swaps, 

says Lowry of Currenex. 

“There are clearinghouses like CME and ICE saying 

that they will clear FX which in turn may make it 

possible for non-traditional DMA users such as 

institutional money managers to trade in the FX 

using anonymous or aggregated liquidity pools,” says 

Lowry. “On the one hand it will make clearing easier 

but on the other hand it will introduce the need for 

collateral management.” 

Others, like Divisa Capital’s Markarian, hope that 

DMA users will benefit from the efficiency execution 

provided by the model when it comes to measures 

such as capital requirements. “We would hope to see 

the various regulatory bodies recognize and make 

concessions to firms that use the DMA model with 

regards to their capital position. There are already 

some regulators that have lowered capital 

requirements for DMA brokers since these firms do 

not act as the counterparty to their clients’ trades. 

These regulators recognize that this eliminates 

counterparty trading risk and the need for the 

increased net capital requirements (i.e. NFA 

minimum net capital is $20M USD). We also see a 

benefit with the transparency that DMA trading 

brings to the industry and hope this may usher in 

regulation standards around the world.” 

In Europe the regulatory landscape has been 

dominated by MiFID, the EU directive which aims 

to harmonise Europe’s securities market and 

promotes best execution. If the same initiative is 

aimed at the FX market, says Hotspot FX’s Miesner, 

then the vast majority of buy-side firms – traditional 

asst managers as well as the hedge funds - will want 

to trade on a platform with multiple participants

ather than being subjected to single bank offerings 

with their limited pools of liquidity. 

Transaction Cost Analysis 

Such a development would also increase the demand 

for transaction cost analysis (TCA), a vital element in 

achieving best execution by showing the cost of each 

trade. These TCA services have become much indemand 

in the equities market and we are starting to 

see the same in the FX space, says Miesner. “TCA is 

becoming more of a buzzword in FX although I’m 

not sure I’ve come across anyone who has successfully 

implemented a TCA offering Going forward it is 

going to be a big area of interest particularly for the 

traditional asset managers that require it. These 

traditional asset managers will most likely just be 

accessing one or two venues and those 

venues will have to provide TCA, 

however the biggest stumbling block 

is that there are only a handful of 

venues that publish their 

volumes. When this barrier is 

broken down, then it will be a 

lot easier for TCA to flourish in 

the FX market.” 

Despite the mature status of 

DMA in other asset classes, 

notably equities, Integral’s Sandhu 

believes it is still in its relative 

infancy in terms of the FX market. “I 

don’t think most people in the FX market 

even use the DMA term. Although the equities 

market is fragmented, most trading is done at the 

major order-book venues, of which there are a 

limited number. These exchanges or ECNs and they 

all have central order books. 

They are generally homogenous in the way they offer 

execution. But in FX they are order books and OTC 

liquidity providers, lots of prices and lots of venues that 

are unregulated and all behave differently. It is DMA in 

an OTC world and to build an effective DMA tool you 

have to solve all of these issues. This is not to say that 

these equity-type services have not added something to 

the FX market but you cannot just transplant a service 

from one asset class into another.” 

Other major issues 

One of the major issues with DMA in the equities 

market is its state of independence. One of the early 

heralded benefits of DMA was the fact that it offered 

DMA - an increasingly attractive toolset for the FX buy-side 

a means to execution through an agency broker that 

bypassed the principal brokers. However when 

investment banks then offered their own DMA 

services or else bought out the independent 

providers, the waters were muddied somewhat as to 

what constitutes a true DMA service. According to 

Sandhu these same issues are now relevant in the FX 

market. “There are also those services that started off 

as a DMA provider – such as Currenex – that have 

now become venues in their own right with their 

own order book and their own liquidity pools rather 

than simply the plumbing to get to a host of 

independent sources. They are now competing with 

Reuters, Hotspot FX and EBS. 

There are also banks now claiming that they are 

DMA providers, pretending to be agency 

brokers and offering to execute your 

orders. In an OTC market like FX, 

where there is no exchange, the 

banks are ultimately the primary 

sources of liquidity. It is not that 

the buy-side wants to avoid 

using the banks but they want 

to be able to access them all on 

an equal footing. Banks want 

their customers exclusively so 

they are offering DMA in the 

hope that some buy-side firms will 

just be looking to tick a box to say 

that they have a DMA tool without 

really knowing what a true DMA offering 

should be. As liquidity providers, banks won’t act as 

facilitator of DMA services. In fact, it would be 

unreasonable to assume for liquidity providers to 

provide DMA that would facilitate their customers’ 

best execution efforts. As far as I’m concerned you 

can either be a principal or an agent but you cannot 

be both and a DMA offering can only be so if it 

comes from an agent. All those banks offering DMA 

that are not agency brokers are misrepresenting their 

goals to customers.” 

Nevertheless Sandhu is confident that the evolution of 

DMA will bring with it complete transparency, truly 

aggregated pricing and clean trading and will become 

the normal means of execution for the interbank 

market at least. “This will mean that FX will start to 

look a lot like other asset classes and there will be 

three main participants – the banks; the agency 

service providers (true agency brokers); and customers 

who will learn to expect to be treated fairly.” 



Achieving more effective 

Risk Management in Retail 

FX platform operations 

Faced with a need for more effective risk 

management of their Retail FX customer 

positions, banks and brokerage firms in the FX 

space are being challenged by ballooning small 

ticket items, varying customer credit limits, risk 

mitigation issues as well strains on their back 

office processing capabilities. Roger Aitken 

talks to leading industry players to explore the 

key issues involved. 

ARetail FX customer base is very different 

from the traditional corporate and 

institutional client base of a bank or large 

brokerage firm. For a start client numbers are 

generally far greater and the pressures of servicing 

these customers who produce a greater percentage of 

small ticket FX trades, places an extraordinary load on 


the bank/broker systems, staff and processes. 

Whilst the credit crunch has forced firms to improve 

their risk management operations, the beauty of 

margin trading is that there are no credit lines, with 

clients posting collateral upfront with their broker or 

bank, and trading a multiple based on that figure. This 

multiple will depend on a number of factors, 

including the quality of the client, what FX products 

they wish to trade - from straight forward spot FX, FX 

forwards through to vanilla and exotic FX options. 

Automation is key 

Clearly to remain competitive and avoid potential 

blow-ups, firms need to step up to the plate and deploy 

cutting-edge technology in their risk management and 

FX margining systems. Having fast systems in place to 

calculate real-time position and further calls on clients, 

if positions deteriorate, is essential.

“Automation is key in revaluing customer 

positions in a timely and accurate manner,” 

notes Sean O’Donnell, Director of Technology 

at Cognotec based in London. “As each 

customer’s credit limit can be different - typically 

with different leverage ratios - a slower revaluation 

process means there is a risk that market price 

movements may be missed, thereby leaving the bank 

or broker with exposure from a customer’s position.” 

There are also historical and technological reasons 

why banks and brokers are facing a need for more 

effective risk management of their Retail FX customer 

positions. Traditionally bank systems were designed 

for institutional clients. And, these clients normally 

depend on their own reporting software to determine 

outstanding risk and deal confirmation. “In the Retail 

world, where a system such as FX Bridge’s ProTrader 

Plus platform is best suited, the burden is shifted 

to the broker,” states Joe Cunningham, President of 

FXBridge. “This is why we’ve implemented a robust 

and comprehensive reporting system. We simplify the 

complexity of the information to make it easily 

understandable by a less experienced client base.” 

In addition, with a large number of Retail clients 

under management, FX Bridge’s ability to 

automatically manage client exposure and “auto-cut” 

clients to prevent a negative equity position is critical. 

Finally, the firm’s robust implementation of straight 

through processing (STP), from reporting to 

confirmation to risk management, is the “icing on the 

cake” asserts Cunningham. 

Risk management 

Denis Borisovsky, CEO of leading platform provider, 

PFSoft, based in the Ukraine, believes risk management 

is and should be “the most important part” of a 

brokerage business. “The most successful brokers we’ve 

seen have very sophisticated risk management models,” 

he says. “Usually they have extremely smart hedging 

strategies, and in some cases are ready to take risks - 

becoming accurate market makers.” 

In order to minimise risks many brokers today are 

connecting to more than one liquidity provider, in FX 

as well as across other asset classes. Sometimes they 

even create their own ECNs, which allows for fairly 

complex rule-based risk management and price 

aggregation. Consequently this requires agile risk 

systems to be in place. Borisovsky adds: “Ideally risk 

management depends on both the behaviour of a 

particular customer and market conditions. Only by 

>>> 

Denis Borisovsky 

“Only by having flexible models in situ is a broker able to 

provide the best conditions for their clients and with 

sufficient risk management.” 

having flexible models in situ is a broker able to 

provide the best conditions for their clients and with 

sufficient risk management.” 

Plethora of available solutions 

There are a host of companies providing margining 

and real-time risk management technologies for Retail 

FX trading activities. SS&C Technologies (SS&C), is 

one which delivers investment and financial 

management software. By virtue of its acquisition of 

MarginMan, the firm now offers collateralised 

trading software to many of the leading global players 

in the FX marketplace. MarginMan fully supports 

collateralised FX trading, precious metals trading and 

over-the-counter FX options trading. In terms of 

solutions catering specifically to the Retail end of the 

market, there are plenty of products available, says 

Peter Kelleher, Product Manager for MarginMan, 

who deals solely with the margin trading business at 

the firm. “However, by and large they [solution 

providers] have typically just offered a very simple 5% 

or 10% leverage calculation,” notes Kelleher. “And, 

clients are seeking more information and on a realtime 

basis, more aggressive netting and lower 

calculations in terms of the margin requirement.” 

The USP of MarginMan is that it is highly scalable, 

rich in functionality and flexible in terms of the rules 

in calculating client exposure. But this should hold 

true for all robust FX risk management and 

margining systems. 



Peter Kelleher 

“Clients are seeking more information and on a real-time 

basis, more aggressive netting and lower calculations in 

terms of the margin requirement.” 

Traditionally MarginMan was developed for banks 

who are catering for a private client base. Kelleher 

says that more recently they have come to look at the 

Retail FX market and hedge fund side of the business 

in terms of prime brokerage or give-up trading - the 

market place that has evolved into high volume-type 

transactions - in conjunction with on-line capability. 

Exploding volumes 

Another top provider is SunGard, with its Sierra 

product line for FX Retail margining. Jim Dennelly, 

senior vice president at SunGard’s Sierra business unit 

based in Philadelphia, says that currently FX Retail 

margining and FX STP is the number one business 

currently for the Sierra product, a solution for FX 

trading. He notes there has been a major shift in 

margining over recent years. “The challenges facing 

clients are unique with exploding volumes and having 

to handle the tremendous growth in FX margining,” 

he remarks. Go back a decade and margining was 

something that was performed at the end of the day, 

with a report produced that revealed what was owed 

the next day. Limits were typically intra-day and there 

were no real valuations. 

“Today, the whole paradigm has shifted,” says 

Dennelly. “Now even the smallest players are 

distributing their services out across multiple platforms. 

So, you could be a start-up and end up having two or 

three electronic platforms right out of the gate.” 

Sungard also have bigger firms who are connecting to 


>>> 

around ten electronic platforms using Sierra, which 

incorporates a margin trading and collateral 

management module that monitors and analyses 

client positions and risk in real-time. The solution 

also incorporates a customer white-label module that 

helps banks provide clients with easy access to 

streaming rate dealing, position management, deal 

status check and current market quotes. 

Co-branding tools 

David Lucas, managing director, Business 

Development, Fortex Inc. in Chicago, says: “For us 

the risk management tools that we put in place are 

appropriate for any client, whether they be an 

individual or an institution that is trading someone 

else’s money. The firm, which has FX brokers as 

customers rather than traders, has a preference to cobrand 

its risk management and margining tools. 

Recently their offering went live with FC Stone, a 

large Chicago-based FX broker. 

One thing that differentiates Fortex from a number of 

risk management competitors is that the firm monitors 

risk on the front end as well as the back end. “A 

broker could have a risk warning on the back end that 

would necessitate a reaction within the firm,” notes 

Lucas. “Yet since we incorporate the trading and risk 

management, we can automate the response to a risk 

event.” Lucas notes in relation to the many parties that 

have a vested interest in risk management issues, that: 

“The broker certainly has a great interest in self 

preservation. They don’t want to see a blow-up among 

Jim Dennelly 

“Now even the smallest players are distributing their 

services out across multiple platforms.”


their client base. Also, many assumptions [in this risk 

area] that were made in the past have obviously been 

proven to be incorrect.” While there have been 

infrequent negative events in the FX markets - usually 

due to the liquidity of certain currency pairs having 

dried up - brokers giving out credit (leverage) to their 

customers are keen to preserve their capital. 

Margin calculations 

In terms of the elements usually required for 

calculating a customers’ available FX margin in the 

Retail space, the core elements are the opening cash 

balance, customer foreign exchange positions, the 

leverage ratio per instrument and a particular 

customer’s call and close-out values. 

Cognotec’s O’Donnell says here: “Next generation 

platforms greatly assist the process of determining a 

customer’s available margin by tracking changes to all 

of this data, with the best of these systems 

undertaking this in real-time.” 

Lucas says Fortex has gone “a step further” when it 

comes to calculation of the margin calculations for its 

clients (the brokers) and added an extra layer of risk 

comfort. In addition to the brokers setting initial 

margin requirements, maintenance requirements and 

liquidation requirements for a trading client, by utilising 

Fortex technology, maximum position limits per 

currency pair can be set, as well as limits per orders and 

Sean O'Donnell 

“Next generation platforms greatly assist the process of 

determining a customer’s available margin by tracking 

changes to all of this data, with the best of these systems 

undertaking this in real-time.” 


>>> 

number of orders. It can even be applied to customers 

trading more than one account. (Critically though the 

customer can never override the broker’s limit). 

He adds: “What we’ve done is to develop tools that can 

set limits that are more restrictive depending on the 

currency in question. For all those margin requirements 

mentioned, if a trader hits the maintenance level, we 

will generate real-time emails for all the relevant 

constituents involved.” With cash deposits made in 

brokerage accounts by clients usually receiving the full 

margin calculation (i.e. no market risk), posting 

securities into that same account will likely be subject 

to a margin ‘haircut’ (i.e. to offset the market risk). 

Fortex’s extra layer takes into consideration differing 

margin requirements on different currency pairs. For 

example, traders probably have a good idea of what 

the margin required is when trading a G8 currency 

(US$, Yen, etc.), and that the requirement is close to 

the actual risk. But when it comes to a more exotic 

currency, the margin requirement could well be 

higher to reflect the potentially greater risk. 

Also, if a trader trading on margin decides to say 

initiate an FX position, they might have to post a 2% 

margin. By making a $100,000 deposit, this would 

provide the potential to have a US$5m position (i.e. 

leverage of 50x). If the maintenance requirement level 

is set at 1% (US$50,000) and the trader’s equity falls 

below that figure, Fortex would again generate an 

email alert to all parties involved. This would include 

the customer (Retail trader), the broker’s risk 

department as well as an introducing broker - if used. 

Scalable and multi-dimensional 

Dennelly at SunGard Sierra says crucially “Whatever 

solution is going to be purchased, one needs to make 

sure that it can handle all types of [FX] products that 

clients are going to need to use. On top of that the 

margining calculation engines need to be extremely 

flexible and scalable.” Presently in Sierra, there are over 

68 different margining algorithms. They also provide 

an open API, so that if the customer has something 

that is unique and proprietary to them, they can “plug 

that in” and use it. The Sierra platform is “expected to 

be margining plus limits”, Dennelly says. 

FX margin calculations could also take a lesson from 

using a SPAN ® approach from FXBridge, a global 

provider of innovative software solutions to 

companies operating in the high-volume/low latency 

FX. “Look at the entire product portfolio, assess risk, 

and then determine margin,” says Joe Cunningham, 

head of FX at FXBridge, based in Atlanta, Georgia.


“At FX Bridge, we evaluate a currency pair, such as 

EUR/US$, by looking at the total combination of 

long and short spot positions, calls, and puts. Then 

we evaluate the risk assessment of the portfolio by 

changing the underlying asset up and down as well as 

the volatility.” By looking at a portfolio in this multidimensional 

way, the firm assigns a margin 

requirement that is said to accomplish two goals. 

“Firstly, it protects the dealer with a sufficient margin 

requirement. Secondly, it only encumbers the margin 

capital for the risk, thus leaving the remaining margin 

available to continue trading,” Cunningham explains. 

Real time considerations 

A big issue in terms of risk exposure for traders in 

years gone by was that the prevailing trading platforms 

would only calculate margin based on the position 

amount, not taking into consideration a position’s 

market value (in real time). This exposed traders and 

brokers to potentially significant levels of risk from 

intra-day volatility and sudden jumps in FX rates. 

These less sophisticated models were only capable of 

handling a limited number of calculations and often it 

was a case of a batch process at the end of the trading 

day, with all the risk consequences that came with it. 

Platforms nowadays, originally designed for the high 

volatility and algorithmic FX market, provide far more 

complex margining models. These are based on the 

current value of a certain position and move in real time. 

Borisovsky says: “This requires the recalculation of 

margin requirements for all clients’ positions on each 

new quote, which can sometimes mean that hundreds 

of quotes per second/ per each instrument are 

required.” He also points out that it is sometimes 

necessary and critical to block the margin required for 

orders, depending on stop limits, the order execution 

and/or destination within a brokerage platform or in an 

external liquidity provider platform. Whilst not great 

for traders, it can limit risks faced by brokers as they 

can be confident that when an order is executed their 

clients always will have margin required. Borisovsky 

believes that this is area where improvements have to be 

made “by extending standard STP interfaces using the 

next generation of FIX.” 

Tailored solutions 

Turning to what technology solutions are now 

available to help Retail FX platform operators address 

their specific margining requirements, Cognotec’s 

O’Donnell says there are two key attributes that 

solutions for an “enterprise class” margin trading 

system need to have. “The solution firstly needs to be 

flexible enough to support the wide variety of margin 

rules that operators apply,” he explains. “These rules 


>>> 

David Lucas 

“What we’ve done is to develop tools that can set limits that 

are more restrictive depending on the currency in question.” 

can change based on how a bank/broker wants to 

track a customer’s credit - by currency, by currency 

pair, by volume traded, tenor, as well as differences in 

regional regulatory requirements.” He adds: 

“Secondly, it needs to extremely fast and robust, 

which is why Cognotec has chosen to base our 

platforms architecture on the Java Enterprise Edition 

(JEE) standards.” JEE is widely regarded as the 

leading technology architecture for highly flexible, 

performant and scalable solutions that can handle the 

load of large Retail customer based systems. 

Recognising the huge challenge from dealing with the 

sheer volume of small volume FX tickets, Fortex has 

built a ‘warehouse’ specifically for such trades from 

their clients. “Clients can warehouse such FX trades 

until they become of a marketable sized amount,” 

explains Lucas. “We can set up exactly when these 

trades become auto hedged when the broker goes to 

market, either by size of the exposure or by what has 

happened in the market since they started taking on 

this exposure.” This saves costs for everyone, since 

passing trades to liquidity providers incurs costs, as a 

market maker has to clear and settle the trade as well 

as the broker. In respect of PFSoft’s ProTrader, which 

the firm dubs the ‘One Trading Platform’, six 

different margin models are provided to customers. 

These cover all kinds of margin requirements faced on 

various different markets and by different market 

participants. Furthermore, it has a highly 

customisable scripting interface to enable new margin 

models to be added in order to reflect any specific risk 

management in future.”


Joe Cunningham 

“At FX Bridge, we evaluate a currency pair, such as EUR/US$, 

by looking at the total combination of long and short spot 

positions, calls, and puts. Then we evaluate the risk 

assessment of the portfolio by changing the underlying asset 

up and down as well as the volatility.” 

Client benefits 

As to why more effective real-time risk management 

leads to more accurate margining and what benefits 

Retail FX brokers can pass onto clients by having an 

improved margining and risk management capability 

on their trading platforms, Cognotec’s O’Donnell 

says: “All risk management systems operate by acting 

on events that either raise or lower the risk to the 

participants involved - in this case the bank/broker 

and the customer.” 

By having a real-time risk management system, the 

bank/broker can react to changing events (market 

prices, customers positions, leverage ratios, etc.), thus 

reducing the risk to both parties. This can enable 

higher leverage and more attractive credit lines to be 

provided to clients. O’Donnell adds: “For example, if 

a risk management system of a bank/broker is being 

supplied with prices once every second (and not in 

real-time), then they will have to lower the leverage 

per instrument as there is a possibility that a price 

change will occur within the one second interval that 

could cause a customer to be closed out.” 

By its very nature failure to provide real-time risk 

management creates risk. “Gaps in time create gaps in 

market coverage,” Cunningham adds. “And, in order 

to be comfortable offering aggressive leverage to 

clients, the broker needs a high degree of certainty in 

closing out clients prior to a negative equity 


situation.” The closer to “real-time risk management” 

in conjunction with auto margin management, the 

greater the leverage a broker can offer clients without 

becoming subject to undue market risk. 

Competitive advantages 

As to the new business opportunities and competitive 

advantages banks/brokers can obtain by ramping up 

their risk and margining infrastructures, the events of 

the past year highlight that they must understand 

their own exposure along with their customers’ credit 

exposure if they want to run effective businesses. 

As O’Donnell puts it: “Those operators who can 

manage their risk with real-time margining platforms 

will be able to ensure that they are able to handle the 

volatility of the markets, support very large numbers 

of customers whilst still offering leverage/credit terms 

that are aggressive - without compromising risk.” As a 

pointer to future opportunities and enhancements, 

SunGard Sierra’s Dennelly notes in relation to FX 

margining more and more clients are wanting to FX 

margin FX options. Retail clients usually start off 

trading spot FX, might follow that up with a move 

into forward market and eventually embrace the 

options market. Again this underscores the need for 

choosing a solution that can cope with all types of FX 

products. 

Despite certain legal restrictions currently in place, 

Dennelly suggests that the next big trend in the 

market could be well be “cross margining” FX 

products, whereby integrated statements are produced 

for clients showing their cash margin positions, 

futures positions and the overall consolidated picture. 

FXBridge’s Cunningham says that banks and brokers 

open a new world of product and revenue 

opportunities by offering trading accounts with 

combined spot and options margining. “First, the 

account holder can implement trading strategies for 

volatile and non-volatile markets that can rise, fall or 

remain range bound,” he explains. “Second, the 

account holder can implement risk management 

strategies that simple stop and limit orders cannot 

provide.” He adds: “By keeping an active account 

holder longer, the dealer not only derives more 

opportunity for revenue, but reduces one of the most 

significant costs, namely that of customer 

acquisition.” 

Critically though, as Fortex’s David Lucas says: 

“Everyone in the foreign exchange market food chain 

has an interest in managing their risk effectively, 

because no one can make money from a customer 

who goes out of business.”


Taking steps to prepare 

for Disaster Recovery 

By Eric Burgener, Senior VP of Marketing InMage 

In today’s climate, most enterprises maintain some 

form of business continuity plan. Business continuity 

plans provide a way for an enterprise to continue 

functioning in the event of a catastrophic disaster that 

shuts down business operations at one or more 

primary locations. Business continuity plans 

cover information technology (IT) 

infrastructure recovery, human capital 

issues that arise when business 

operations must be restarted at 

a remote location, and physical 

infrastructure issues, such as 

re-establishing communications, 

ensuring physical security, and 

providing appropriate work areas at 

remote locations. IT infrastructure 

recovery, sometimes referred to as 

disaster recovery (DR), addresses the issues 

involved with recovering computing 

equipment (servers, storage, etc.), data, and 

application services. DR provides a necessary 

foundation for business continuity plans but is not 

a substitute for them. An effective DR plan is 

especially important for online foreign exchange (FX) 

brokers, whose trade servers are absolutely essential 

to their businesses. 

Any downtime events, such as a server failure, virus or 

natural disaster, significantly affects a broker’s ability 

to complete transactions, generate revenue and service 

its customers. FX brokers also operate in an 

increasingly strict regulatory environment. The National 

Futures Association (NFA) requires all members to 

adopt a disaster recovery (DR) plan reasonably 

designed to enable them to continue operating, reestablish 

operations, or transfer their business to other 

members with minimal disruption to their customers, 

other members, and the commodity futures markets. 

Additionally, all downtime events must be reported. 

This article will focus on the key elements of creating 

an effective DR plan, and then provide a short case 

study of how a leading provider of foreign exchange 

trading services, Interbank FX, implemented an 

updated DR plan to meet their requirements. 

112 | january 2010 e-FOREX

Eric Burgener 

Market Forces Driving Change 

The conventional approach to DR was to periodically 

ship copies of backup tapes to remote locations, where 

they were often stored for years, to ensure data 

recovery in the event of catastrophic disasters which 

may shut down primary sites. In the world of DR, 

two key metrics govern recovery capabilities: recovery 

point objective (RPO) and recovery time objective 

(RTO). RPO defines the minimum acceptable level 

of data loss (e.g. no more than 24 hours, no more 

than 4 hours, etc.) per recovery event, while RTO 

defines the maximum acceptable time to recovery 

(e.g. data and/or applications restored and running 

within 8 hours, etc.). 

Remote recoveries from tape generally exhibit lax 

RPO and RTO. By the time tapes are stored at 

a remote location, the data may already be 

several days to a week old, and recovery can 

easily require several days to a week. Data is 

growing at unprecedented rates, and evolving 

business and regulatory mandates are driving 

ever more stringent recovery requirements. 

For most critical application environments, 

a tape-based DR approach just can’t meet 

these requirements, putting businesses at 

risk for lost revenue, poor customer service, 

and, in certain extreme cases, overall 

business viability. These market forces 

are driving many FX brokers to reevaluate 

how they plan for DR. 

>>> 

Planning for Effective DR 

There are four critical planning steps that FX brokers 

must take in either setting up a DR plan for the first 

time or re-evaluating their pre-existing plans: 

Step 1: Understand business priorities 

While FX brokers have a number of business 

processes, certain ones are more critical than others. 

Generally, any business processes that are directly 

related to revenue generation or customer support are 

deemed critical. To focus in on areas for which a 

recovery plan must truly exist, it helps to: 1) 

understand the time-sensitivity of recovery and how it 

relates to business priorities; and 2) identify the 

impacts of failures, quantifying them in terms of 

dollar amounts (e.g. revenue lost per hour, etc.) where 

possible. Create a prioritized list that includes all 

major business process areas, and then map those 

business processes to the relevant supporting IT 

infrastructure. The end goal of this exercise is to have 

a list of applications, servers, and storage that must be 

available to support each business process. 

Step 2: Assess your recovery requirements 

Once major business process areas have been 

prioritized in terms of their criticality to the business, 

you will know which ones need to be focused on first. 

The next step is to determine the business impact of 

longer versus shorter recovery times for these key 

business processes. Recovery tiering is an approach 

that is often used when evaluating the recovery 

requirements associated with various business 

processes. Instead of evaluating and setting recovery 

requirements individually for all major business 

process areas, a small number of recovery tiers is 

defined. Each tier has a set of recovery performance 

metrics (e.g. RPO, RTO) that are associated with all 

application environments within that tier. For 

example, you may define three tiers: the highest tier 

for your most critical business processes without 

which you cannot run your business, a middle tier for 

applications that are not critical but still important, 

and a lower tier for all other applications. 

Keep in mind that it’s not just data recovery you’ll 

need to focus on. When you have to recover from a 

major outage, you’ll likely need to recover both data 

and applications. Many enterprises implement a DR 

plan for just data, assuming that servers and 

application environments will be manually rebuilt and 

recovered if they need to be. By relying on manual 



recovery processes for applications, you are putting 

your business at additional risk. Automated 

application recovery will be more reliable and perform 

more predictably because it will not be as dependent 

upon the skill of the administrators that are actually 

performing the recovery (your best trained 

administrators may not always be available when a 

real disaster hits). 

Step 3: Match the right solutions to your recovery 

requirements 

Once you’ve determined the key recovery metrics of 

RPO and RTO, you’ll need to consider just what type 

of IT infrastructure you need to meet them. 

Understand the recovery capabilities that various 

technologies deliver. Tape has low storage costs, but 

supports very lax RPO and RTO and requires a lot of 

administrative overhead during recoveries. This, 

however, may meet your requirements. If you need 

better RPO and RTO performance, you may want to 

consider disk. Disk has higher storage costs, but can 

support very stringent RPO/RTO, requires 

significantly less administrative overhead for 

recoveries, and supports access to a variety of next 

generation data protection technologies like 

continuous data protection (CDP), asynchronous 

replication and WAN optimization that solve a lot of 

other recovery problems that tape cannot. Finally, 

don’t just consider data recovery technologies; look for 

technologies that can help automate application 

recovery as well for your highest recovery tier 

application environments. 


Step 4: Test your DR plans 

There is a big difference between theory and reality. 

We’ve probably all heard the story about the bumblebee. 

Scientists evaluating the aerodynamics of the bumblebee, 

given what we know about aeronautics, would have to 

conclude that it could not fly. And yet it does. 

To be sure your DR plan will work as expected, you 

have to regularly test it. If you are using some form 

of replication to meet stringent DR requirements, 

these are complex configurations that can evolve and 

degrade over time in unexpected ways. You want no 

surprises - your DR plan should work predictably. 

Newer technologies like server virtualization and 

application failover/failback can help make DR testing 

non-disruptive to production environments and much 

less expensive than it has been in the past. Regular 

testing also helps you fine tune and improve your 

recovery capabilities, evolving them over time as your 

own recovery requirements evolve. 

Illustration of a DR Plan 

Headquartered in Salt Lake City, Utah, IBFX is a 

leading provider of online foreign exchange trading 

services that serves over 35,000 clients across more 

than 140 countries. IBFX maintains two data 

centers, a main production center in Salt Lake City 

that houses all of their business-critical trade servers, 

and a remote data center in New York. 

With data growth rates skyrocketing, IBFX was 

looking to maintain compliance while at the same

time improving their recovery capabilities. The main 

production center had a variety of heterogeneous 

servers and storage, and IBFX was looking for a 

solution that would provide the flexibility to 

accommodate all of them. Of particular concern were 

minimizing data loss on recovery, shortening recovery 

times, and solution scalability. 

“We needed technology that would enable us to fully 

recover our data center in the event of a catastrophe, 

without any gaps,” said Paxton Powers, IT 

Infrastructure Manager, IBFX. “Our idea was for a 

completely virtual DR site. Real-time replication from 

physical to virtual machines would be the fastest way 

to transfer data from the Salt Lake City data center to 

the New York DR site.” 

After evaluating their requirements, IBFX came to the 

conclusion that tape-based infrastructure could not 

meet their highest recovery tier requirements, and that 

the business impacts of excessive downtime justified 

an investment in newer technology. Candidate 

technologies to meet IBFX’s recovery requirements 

included CDP, asynchronous replication, recovery 

automation, and disk-based recovery. 

InMage Systems provided a software-based recovery 

solution that integrated local (backup) and remote 

(DR) recovery capabilities into a single solution 

designed to support heterogeneous environments. 

InMage’s foundation technologies, which included 

CDP, asynchronous replication, application 

failover/failback, WAN optimization, and disk-based 

IBFX headquarters 

Taking steps to prepare for Disaster Recovery 

Paxton Powers 

“We needed technology that would enable us to 

fully recover our data center in the event of a 

catastrophe, without any gaps,” 

recovery, were a good fit for IBFX’s needs. CDP 

helped minimize the impact of data protection 

operations on trading servers, helping them to 

maintain high performance, and provided options to 

minimize data loss on recovery while meeting very 

short RTOs. Asynchronous replication, combined 

with WAN optimization, allowed IBFX to maintain 

very current copies of their production data sets at 

their remote data center in New York while keeping 

bandwidth costs to a minimum. Application failover 

and failback extended the solution’s abilities beyond 

just recovering data, helping IBFX to automate 

application-level recovery operations to make them 

faster and more reliable. 

“Our main objective was to be able to recover our 

data center and remain operational during downtime 

events,” said Powers. “InMage gave us that ability. 

We’ve got our production trade servers being 

replicated between our two data centers, which is a 

huge win. Additionally, we can meet near-zero 

recovery time objectives, enabling us to come back 

online very quickly after a problem. In the trading 

business, time literally is money and every minute of 

downtime counts. We have peace of mind now that 

we’ve minimized the risk of impacting customers or 

revenue due to server downtime, whether it’s a simple 

failure or a natural disaster.” 


SPONSORED STATEMENT 


360° Consulting: 

A leader in business development 

services for the Retail FX sector 


Costas Constantinides 

360° Consulting is a consultancy based in 

Limassol, Cyprus (EU), which provides a 

variety of consulting services to the Retail 

Forex / CFD /Commodity investment 

services sector. Costas Constantinides, 

Director and Chief Consultant of the firm, 

highlights some of the key areas where the 

consultancy is assisting Retail FX market 

participants to develop their establishments 

and improve their business practices. 

Costas, 360 degrees offers a powerful message. 

What is the underlying concept and history that led 

to the launch of this consultancy? 

The concept stands for servicing our clients with 

excellence in all specialized aspects of forex business 

where value is sought: Simply, 360 degrees of care 

and reach. 

The experience stemming from our team’s 

professional roles in the sector, led us to realize that 

most developing Forex/CFD firms & funds around 

the world had limited choice in where to seek 

regulatory and operational advice relevant to the 

nature of their business. Consequently, in a 

considerable number of cases, this led to 

inconvenience due to delays, inflated and 

inconsistent consulting costs, and inadequate results. 

360 o Consulting joined together all of the relevant 

expertise of each member of our team, dating back 

to the development of some leading Forex firms in 

2005. This included their global license and 

operational projects expertise. As a result a unique 

and specialized consultancy came about to offer very 

needed services to the forex sector. We are proud 

that our efforts in the forex sector have left 

significant achievements and have helped Cyprus to 

become an attractive forex business hub. 

From your experience, what type of forex broker 

regulation is of particular interest to the market? 

Regulatory and establishment issues focusing on 

capital requirements, operating frameworks, 

credibility and taxation are of particular interest to 

forex brokers. Since beginning of 2008, there has 

been strong interest in forex broker establishments 

in Cyprus with a CySEC (Cyprus Securities & 

Exchange Commission) license, alongside limited 

interest in other international licenses. 

What services does 360 o Consulting offer that a 

forex business can benefit from?

The different types of businesses we are involved with 

include: Brokerages, Market Makers, Asset Managers, 

and Investment Funds. It is important to structure and 

develop a business by taking into consideration these 

key factors: 

• market penetration 

• tax-structure 

• regulatory frameworks 

• service value 

• operational efficiency 

• cost 

In most such cases it is not necessary to reinvent the 

wheel, but merely to get the best design and 

components in place to make up a robust business 

player. Our care and broad support gives rise to trust 

and satisfaction. Our clientele then usually involve us 

in larger areas of their business operations to save costs, 

time and realize higher returns. 

The main service categories we provide are: 

1. International Licenses for Forex/CFD Brokerages, 

Market Makers & Asset Managers: 

In the case of the most popular CySEC license project, 

we consult our clients on the applicable regulation and 

corresponding operations, support our clients for their 

required initial setup, swiftly prepare and submit the 

relevant application, and finally support it up to the 

granting of CySEC Cyprus Investment Firm license. 

2. Private Investment Vehicles for Fund 

Management: 

360o Consulting can assist in establishing and 

operating licensed private investment vehicles most 

suitable for fund management. Within regulated, taxefficient, 

and low cost structures, fund managers can 

attract and pool their client funds for trading. 

3. Ongoing Business Support 

Firms choose to appoint 360o Consulting in 

managerial and/or consulting roles so as to maintain 

ongoing operations in accordance with regulatory 

requirements and to transmit operational expertise to 

staff. This in turn allows for considerably less “humanresource” 

costs and for more focus on the development 

side of the business. For business ease, 360o Consulting 

makes available, through a consortium, all required 

auditing, legal and accounting services. 

The best kept secrets are now being 

unleashed with 360 o Consulting, the 

cornerstone for Forex License consulting 

and Business Strategy development 

4. Branding | Marketing | Sales 

360o Consulting offers to existing clients expertise in 

business development within the forex market place 

specifically for: 

• Brand consulting and/or full Brand 

implementation; 

• Consulting in Sales & Client Relationship 

Management processes, to improve retention 

performances; 

• Consulting in Online/Offline Marketing 

processes, to improve targeted parameters (i.e. 

cost-per-acquisition); 

Given your expertise and activity within the market, 

what do you see as currently the most important 

challenges facing forex businesses? 

The current and future business challenges stem from 

increasingly demanding regulatory requirements, 

unstable economic recovery, tight credit and liquidity, 

growing numbers of market participants, and in some 

cases lack of client trust. Hence, there arises the need 

to build credibility, differentiate service value and to 

optimize the costs & benefits of development. This 

need not necessarily mean a barrier to establishing 

and/or developing a forex business, as long as good 

foundations are put in place. In this respect regulation 

and a well-thought out business setup are a great 

investment. 

Finally and most importantly, how can interested 

parties get in touch with 360o Consulting to explore 

and realize potential? 

We recommend that interested parties meet us in 

person to discuss their needs or they can contact us at: 

Email 360-consulting@cytanet.com.cy 

Web www.360-forex.com 

Tel. + 357 99 48 44 40 / Tel. + 357 25 73 55 35 

Fax + 357 25 73 63 33 



CFH WebTrader: 

looking to re-define the boundaries 

in web-based FX trading platforms 

CFH Markets, which was founded in 2007, 

develops custom-built solutions for clients 

looking to operate in the retail FX market. The 

company achieves this is by working with a 

variety of technology vendors and liquidity 

providers to produce a service matching the 

unique objectives of the bank or broker. e-Forex 

talks to the CEO of CFH Markets, Lars Holst, 

CFA, about the company's business model, 

services and WebTrader platform. 

Lars, brokers or banks that want to offer Retail 

FX trading solutions have traditionally had to 

either adopt a white-label platform or deploy 

one that combines various differing trading 

technologies. How does your business model differ 

from these? 

Correct, so far new entrants have either had to whitelabel 

the platform of an existing player in the retail 

FX markets and live with all the commercial 

challenges and limitations that involves or the new 

entrants have had to get involved in major - and upfront 

expensive - IT and integration projects and put 

together the puzzle themselves. 

We have essentially created a new route and we pride 

ourselves in providing next-generation customized 

white label and retail FX solutions for banks and 

other financial institutions. 

Our white label model is extremely open and we try 

not to put any limitations on our clients and partners. 

Within CFH we have assembled a unique world-class 

team, taking only the best of the best from the 

industry. We benefit from having a team with senior 

level understanding of all parts of the value chain that 

can give a 360 degree view of the industry as well as 

inside industry knowledge. This senior level industry 


know-how combined with proprietary cutting edge 

technology and partnerships with some of the top 

liquidity sources in the world gives our clients 

complete flexibility in how they want to work with us 

– from the local retail broker and fund manager who 

wants to access interbank liquidity and state-of-the-art 

trading technology to the large global provider 

looking for customized trading solutions and 

consultancy in how to structure their online business 

through the full value chain. 

Unlike many white-label FX providers, CFH Markets 

does not target retail clients. What advantages does 

this give you? 

We try to avoid getting into any situations where 

there might be conflicts of interests between us and 

our clients and partners. We have white label clients 

all over the world today and we believe there is an 

inherent conflict of interest between being a white 

label provider and targeting retail clients and we 

believe that this business model has a limited life time 

and is not viable in the long run for any serious player 

that wants to make an impact in the market. 

Along the same lines we have also decided not to run 

a dealing desk to avoid any conflict of interest with 

trades or orders. All trades go STP to our interbank 

market providers and we have even decided to have a 

limited license as matched principal broker where we 

simply cannot take risk on our books to assure that 

we can act with integrity and without conflicts of 

interests at all times with our clients and partners. 

CFH Markets has developed a margin-based trading 

platform called CFH WebTrader, which is already 

being white-labelled. How does the platform help 

providers differentiate themselves in the highly 

competitive Retail FX market? 

The CFH Web Trader provides a very simple, yet 

efficient user interface that makes it very easy for retail 

clients to trade. Our white label solutions is a lot more

than the actual Web client GUI though, it consists of a 

number of components and it is this holistic approach 

combined with our superior CFH Web Trader that 

makes our solution truly unique. 

Please describe some of the 

advanced trading functionality 

that CFH WebTrader offers. 

CFH WebTrader 

I think it is difficult these days 

to say what is really advanced. 

What was considered an 

advanced trading functionality 

not long ago is standard and a 

minimum requirement today 

and our CFH Web Trader 

obviously supports all of this 

but we are careful in what we 

add as we believe there is a 

trend towards simplicity and 

away from more and more 

complexity and so far all our white 

label clients have shared this point of view with us. 

In what ways is the platform designed to provide 

exceptional flexibility? 

The CFH Web Trader provides full flexibility for 

clients to configure what they want to see on the 

screen. The client can configure multiple workspaces 

and tabs as they desire. Everything is customizable on 

the fly from the colour of the background of your 

charts to the news that you want to subscribe to so 

every user can create his own version of the CFH 

Web Trader and the created version is persisted and 

follows the user on all PCs 

used. In a similar way the 

white labeller can configure 

default workspaces, colours, 

stream in-house content and 

even build trade buttons for 

their clients and differentiate 

themselves 100%. 

Web-based platforms 

sometimes sacrifice 

performance, including 

speed of execution. How 

competitive is CFH 

WebTrader with 

downloadable platforms? 

Speed of execution is really a 

server side issue plus a factor of distance from the 

client to the server. A web based platform doesn’t 

really differ from downloadable platforms on these 

parameters so we haven’t experienced any performance 

issues wherever we have operated around the globe. 

Reconciliation viewer 

Product Review >>> 

What are the usual deployment timeframes for CFH 

WebTrader and how are the charges and fees 

involved structured? 

We do not have an out-of-the-box solution as all our 

clients have different needs and requirements but if 

the required changes are mostly cosmetic and there is 

no major integration work required then we can have 

a solution ready within 2 weeks. On the same note we 

don’t have any standard charges or fees as each 

deployment and solution is different but our main 

goal is that our clients and partners can compete with 

anybody in the market at all times! 



CFH Markets also offers CFH 

ProTrader. Who is this 

professional platform aimed 

at and what key features and 

functionality does it provide? 

CFH Pro is specifically 

designed for fund managers 

and professional traders. Like 

the CFH WebTrader it offers 

direct access to interbank 

liquidity and the average 

execution speed is sub 10 

milliseconds from multiple 

banks. The professional 

trading layout with complete 

market depth and price view ensures the user easily 

can monitor rapid market movements. 

For fund managers and hedge funds we have build an 

automated allocation tool with comprehensive client 

and manager reporting so the fund managers can 

focus on the trading side and leave all the 

administration to CFH Pro. Both fund managers and 

clients are granted real-time access to 24 hour back 

office to view account and trading history. 

What FIX Protocol versions does CFH Markets 

support and how do you deliver your FIX API feed to 

clients? 

The majority of our clients connect via FIX 4.4 over 

public internet using SSL but we also support FIX 

protocol versions 4.1, 4.2 and 4.3 and we have a Java 

API as well and we can establish dedicated lines if this 


CFH ProTrader 

CFH Liquidity Manager 

is a requirement from the 

client side. Through our FIX 

API feed we can stream 

quotes directly from our 

banks and from the clients 

themselves if they are price 

makers and our FIX API 

supports streaming of quotes, 

orders and executions. 

A big part of our direct 

liquidity distribution goes 

into the Metatrader 

environment via our MT4 

plugin. Through our MT4 

plugin we allow our clients 

and partners to use CFH 

both as a source for price feed 

and to hedge their exposure in the interbank market. 

The CFH MT4 plug-in can connect MT servers 

directly to CFH’s tier one liquidity providers and use 

CFH as a second tier prime broker. 

CFH Markets is a prime broker to the interbank 

market and offers clients direct trading access to its 

participants. Where do you source your liquidity? 

CFH provides our clients with direct access to tier 

one bank liquidity. We don’t use ECNs or secondary 

liquidity providers but we only source liquidity from 

the top FX banks in the world. We offer margin 

trading to our clients and in turn we act as a prime 

broker for our clients towards the banks. 

If you would like to learn more about our solutions 

and services then please visit www.cfhmarkets.com or 

email us at info@cfhmarkets.com


Social networking 

helping to get Retail FX traders together 

Heather McLean 

Social networking has now come of age in the 

consumer market, with the likes of Facebook, 

Twitter, Bebo and LinkedIn all attracting record 

numbers of members. Heather McLean explores 

how this maturing technology has now given rise 

to increasing interest in social networking for 

retail FX users, with added trading tools, charts, 

news feeds and forums to maximise the benefits 

for end users. 

Social Networking is suddenly making its presence 

felt within the retail FX trading community 

because of a basic human instinct to create 

groups and tribes, notes Kellie Durazo, principal, 

professional trader and lead instructor at FX V-room 

(www.fxvroom.com). She comments: “I think there’s 

always been a desire within forex trading for a 

community, for a place where you can learn trading 

techniques, share information with fellow traders and 

learn about what’s happening in the industry. 

“With social networking growing on a global scale, and 

with Facebook having more than 300 million users 

worldwide, we are also no longer handicapped by our 

location,” she continues. “Additionally, I think you’ll see 


it grow even further with live 

group trading, webinars 

conducted not only by 

experts like ourselves, 

but peer to peer and 

especially ongoing 

education. But just 

like a classroom, users 

will be able to discuss 

amongst themselves 

the overall experience. I 

think as technology gets 

more advanced and 

bandwidth gets faster, you’ll 

start seeing more and more 

social networking through video 

too.” 

Currensee CEO, Dave Lemont, agrees 

that the main reason for the rise for the retail FX 

network is that the life of a forex trader can get fairly 

lonely and isolated. Traders need a support system of 

other traders but don’t know where to find them, 

Lemont notes. 

The role of networking sites for retail FX traders is in 

providing them with somewhere to learn about 

different trading techniques, agrees Kyle Cottrell, 

managing director at MoneyTec, an informal, 

interactive networking environment where members 

can exchange information and resources separately or 

as a professional group, and debate and discuss related 

experiences to enhance the quality of their knowledge 

and services. He adds that this is so they can find the 

best method for them, so they can adjust to market 

changes rapidly, and find new strategies when former 

trading techniques fail to be as effective. 

Cottrell says: “Social networking is the way to go, and 

we’re adding more social networking features to our 

site as we move along. Retail FX traders can learn 

more from the social networking format, from other 

people’s mistakes, successes and different trading 

styles; this is opening doors and planting seeds in 

people’s minds, and allowing new ideas to get into 

their heads and grow.” Some FX retail networking

sites are independent, 

supervised by voluntary moderators 

and sponsored by various big names in FX, while others 

are run by brokers and lead members towards a specific 

way of trading. MoneyTec and FX V-room are both 

independently run FX networking websites. 

Branded communities 

However, sponsored communities in FX are beginning 

to appear, which are taking the lead from futures and 

equities-based sites like Motley Fool, states Hayel Abu- 

Hamdan, head of business development at MIG 

BANK. “Engaging in a community is a dialogue, 

where much of the content is not actually created by 

the community sponsor. The traditional banking 

model struggles with the ceding of control that 

successful communities demand. 

“However there is no denying the growing popularity 

of communities like Facebook, LinkedIn and eBay, 

and to stay out of communities is arguably a riskier 

option than engaging with them,” continues Abu- 

Hamdan, who adds that a branded community may 

be the way to go for many looking at the value of a 

retail FX networking site, rather than an 

independently-run system. 

Kyle Cottrell 

“Retail FX traders can learn more from the social 

networking format, from other people’s mistakes, 

successes and different trading styles...” 

>>> 

“Any branded community will need to be overseen by 

a company man, and their role will be to stimulate 

debate and monitor for negative sentiment and 

engage to resolve such sentiment. The value to the 

company of a successful community is the customer 

lock in that this creates because once a customer has 

created a network in LinkedIn, it becomes hard for 

them to move to Plaxo,” he concludes. 

Currensee’s Lemont notes: “The forums, such as 

Forex Factory and FX Street, provide information and 

education, but it’s difficult for a trader to know who 

to trust. Currensee provides transparency; traders can 

see the real trades, performance and strategies of other 

traders, connect with traders with similar trade 

strategies and learn new ideas through collaboration. 

Traders want to understand what makes one trader 

more successful than another. This learning can only 

be discovered through collaboration via real trades 

and performance data,” says Lemont. 

Take it to the broker 

Lemont says in order to join Currensee, members create 

an account that links directly to their brokerage 

account. Currensee creates a secure connection to the 

broker, so that trades are recorded as they happen and 

are shared with the member’s trading friends in real 

time. Members can also elect to share their performance 

creating reliable transparency in the community. 

Most financial social networks that exist today are in 

the forum or discussion board space, or outside of the 



forex asset class. Lemont comments: “We see ourselves 

very differently from the forums and discussion 

boards because of the transparency and the real time 

nature of our trade information. Currensee traders 

come together to share real trade information with 

each other. It might be to share trade strategies, 

particular trading ideas and to ask technical questions. 

“We’ve found that a forex social network acts very 

differently when the members are talking about real 

trades. Our vision is to build a platform that is driven 

by authenticity and transparency, which means real 

traders collaborating on real trades in real time. You 

can almost think of it as Facebook meets TripAdvisor 

for Forex traders,” he states. 

Currensee’s goal is to support as many brokers as 

possible to give traders the option of joining their 

broker of choice. Today, it supports close to 100 

different forex brokers, including all MetaTrader4 

brokers, and have partnerships with many of them. 

Some of the brokers it supports include FXCM, Gain 

Capital, MBT Trading, FX Solutions, Forex.com, 

Alpari, FXDD, IBFX, and CMS. 

Its research, platform and educational partners 

include The Hansen Group, FX Tech Strategies, Ninja 

Trader, Candlecharts, NetPicks, Tradesight, Traders 

Laboratory, Forex Briefings, FX Instructor, Informed 

Trades and many more. It also has a relationship with 

Thomson Reuters IFR Markets, where Currensee’s 

traders can purchase exclusive widgets featuring their 

trade and market data. 

Educating the masses 

Abu-Hamdan comments on how a branded 

community can work well: “In the FX context, 

education satisfies the novice broker's immediate need 

to learn how to get trading, so it sells itself. More 

subtly it places the education provider in a position of 

expertise which is a different relationship to the 

customer-salesman relationship. Most people question 

the motivation of a salesman but are willing to accept 

information from someone we see as an expert. 

“The trick is to tie the prospect in while they are 

happily learning to trade,” continues Abu-Hamdan. 

“For instance, engaging them in a community, or 

grabbing their email address so that you can engage 

them on a personal level. This interaction should be 

considered in the context of the long term relationship. 

If done well it will create strong relationships which 

can withstand the odd negative experience and ideally 

will lead to the client disseminating viral marketing 

materials,” states Abu-Hamdan. 


>>> 

David Lemont 

“Traders want to understand what makes one trader more 

successful than another. This learning can only be discovered 

through collaboration via real trades and performance data..” 

On education, MoneyTec would like big brand names 

to openly discuss issues and subjects with its site 

visitors, as long as they add useful content and do not 

blatantly spam the community, yet most have not 

learned the proper way to harness the community 

assets to their benefit. Cottrell explains: “I’d like our 

site sponsors to come into the site, be transparent 

about who they are and even dedicate a team to talking 

to people on the site, educating and helping them. But 

they don’t see it that way and would rather just put up 

banners than have a dialogue with our members.” 

Independent minds 

Some retail FX networking sites are owned by 

brokers, while the likes of MoneyTec and FX V-room 

are independent. Cottrell notes: “We have had several 

offers from brokers to buy us out, but it’s not the way 

we want to go.” On how social networks for retail FX 

traders have differing value propositions, Durazo 

comments: “You have social networking forums 

created by brokerages and although you have a lot of 

people on them, the end goal for all these 

communities is for you to open up an account with 

the controlling brokers. FXCM with its DailyFX, and 

Cureensee.com, are mostly about guiding users back 

to a broker. 

“The main point of difference about FX V-room is its 

all about the user. We are a neutral party that does 

not manipulate the user in anyway. We offer a 

platform for peer to peer sharing and connecting. We


Hayel Abu-Hamdan 

“There is no denying the growing popularity of communities like 

Facebook, LinkedIn and eBay, and to stay out of communities is 

arguably a riskier option than engaging with them,” 

also offer a great deal of educations and tools for our 

community members who are seeking help in their 

trading. This is the biggest difference with us versus 

and Facebook or Linkedin,” explains Durazo. 

She continues: “Some of the main forex tools and 

features these networks provide are for a worldwide 

community of FX trader's from all backgrounds and 

all walks of life trading this industry. FX trading is 

decentralised and can be done from just about 

anywhere these days, so in order for traders to be able 

to communicate with each other and exchange ideas, 

analysis, and tips, these communities function to 

facilitate this. Of course, a well rounded, exceptional 

network is going to provide much more than this, 

including education, analysis by teams of FX experts, 

and a way to specifically connect with other trader's 

who trade similar to their own style of trading.” 

Big boys welcome 

As well as retail traders, MoneyTec has a good 

number of institutional traders on board. Cottrell says 

that while there is a lot less of them than the armies 

of retail traders out there, they are getting just as 

much out of the networking site as the retail 

fraternity, making their own groups and also mixing 

in with the retail traders. “I believe networking is a 

very useful tool for any kind of trader,” Cottrell states. 

“Yet as forex evolves, the rest of the world is really 

seeing retail traders falling out of the woodwork, 


particularly in Asia and India right now. At the end of 

the day, you can put as much software on your site as 

you want, but it’s the community that will make it 

evolve.” 

While Durazo comments: “Whether you are that 

individual trader who trades from their home 

computer, or the institutional trader, trading as a 

group, everyone should consider joining a network. 

The more trading ideas and analysis shared, the better 

everyone's trading will be.” 

Future 

On how social networking is likely to evolve, Durazo 

says she believes investment opportunities will begin 

to open up worldwide. “There has also been a great 

deal of talk about a global currency,” she adds. “I 

think social networking is beginning to close the 

global gap, and with new amazing translation tools, 

we’re beginning to see that language is no longer a 

barrier. My belief is that video will begin to have a 

stronger presence in social networking sites.” 

Lemont adds: “Forex trading is a global industry and 

we have traders from all corners of the world and 

almost every country in the world. We see this trend 

continuing. Social networking is evolving into social 

trading. The internet and Web 2.0 technology provide 

a platform for people to share their experiences and 

their real trades from anywhere in the world.” 

Kellie Durazo 

“Whether you are that individual trader who trades from their 

home computer, or the institutional trader, trading as a group, 

everyone should consider joining a network.”

BROKER STUDY 

Founded in the beginning of 2008, today, Broco 

Group has become an international brokerage 

company providing services in the financial markets, 

from Forex to stocks to futures. While working with 

qualified specialists, and supplying high quality 

modern products and services, Broco Group 

responds to the needs of the traders and the 

investors with various levels of experience, and 

provides them with the best environment and 

services for their work on the financial markets. 

e-Forex talks to the company's CEO, Valeriy Maltsev. 

Valeriy - Broco is actually a group of companies 

integrated under a common brand. How is the group 

structured? 

Our main division, Broco Investments, handles the 

financial and investment business and is licensed to 

provide brokerage, dealing and investment services on 

the Forex, stocks and futures markets. We are now 

developing our business not only in Russia (where we 

have seventeen branches and representative offices) but 

also on the international level, we have an established 

branch in Cyprus, and partners in several countries 

that provide us with the support and the development 


Valeriy Maltsev 

The Broco Group: 

providing solutions created 

for traders by traders 

of an international network. Another division of the 

Broco Group, the Broco Invest, is very attractive for 

long-term investments, and it caters exclusively to the 

Russian financial market. 

What factors have contributed to the significant 

growth of the company over the past 18 months? 

I think that the main factor is the people. First of all 

our clients are very important and precious to us 

because they don't let us relax. Our motto is “Made by 

traders for traders”, and since we are traders we know 

which products and services would be in demand for 

our customers. Thus, we continuously add to our 

products: it's hard to believe that a year ago we were 

offering only two trading platforms whereas now we 

offer nine. Not to mention a number of additional 

services that have been introduced in the past few 

months. And I would also like to mention the 

members of our team, their interest in our business 

and their fantastic working motivation makes every 

day full of new stories and events. 

And of course we should not forget our principles in 

business, keep in mind that we are not magicians, we 

are brokers, nonetheless sometimes we provide our 

clients with some exclusive services such as the Broco

Trader’s Platform or the fixing of the spread before the 

New Year holidays. We also spend millions of dollars in 

developing innovative ideas that are useful for the 

traders; this is our job and our mission. 

What FX trading platforms does Broco provide and 

what types of trader are they designed to cater for? 

We offer three platforms specialised in currency trading: 

Meta Trader 4, which is the most popular among 

traders, it offers a wide range of trading instruments 

while keeping a low cost of entrance to the market. 

The Currenex platform, which provides an access to the 

largest ECN area in the world, providing the best 

quotations and the opportunity to work with sound 

liquid instruments by applying hi-tech solutions. The 

third platform, Strategy Runner, has many popular 

features, and more, but mainly enables traders to 

automate trading if they wish to do so. 

And in the near future, one more platform will be 

available for our customers, the world famous Ninja 

Trader, which reminds us of the light e-signal and the 

familiar Meta Trader 4, but it also integrates a DOM 

along with many useful additional features for trading. 

What new products and services have you recently 

implemented or are going to implement? 

In addition to the Ninja Trader platform we are going 

to offer to our customers the CQG platform developed 

by the CQG company in the USA. This platform is 

designed for futures trading. On top of that our 

company is the exclusive representative of Volfix and its 

innovative product the Volfix platform which gives the 

user unlimited possibilities of visualization and 

structural processing for futures, stocks, options and 

Forex. This platform is based on the famous Market 

Profile trading platform, and the traders using Volfix 

are able to understand the market deeply and this helps 

them to trade more effectively. This is a unique 

mechanism for forecasting the market situation, for 

confirming the analytic information, and for getting 

the optimal entry and exit points. 

You provide an asset management services called 

PAMM accounts for your customers. What is it and 

how does it work? 

We provide the facility for asset management in the 

form of PAMM (Percentage Allocation Management 

Module) account. It means that investor can choose a 

manager for their funds – as a rule, it is a professional 

trader with a great trading experience. All the 

remaining procedures - starting from the contracts 

conclusion and loss risks minimization, and ending 

with dividends payout, is up to the chosen manager. 

The Broco Group provides the managers (and therefore 

the investors) with an access to the world financial 

markets and with the ability to trade, with the support 

of the PAMM account, with trading platforms, advisors 

and a technical support of all services provided. 

You have also created an innovative internet 

broadcasting solution called BrocoPulse. What 

information does this provide and how popular has 

this exciting initiative been to users? 

The BrocoPulse is an internet radio which was created 

for learning: we create and broadcast learning programs 

for the traders who receive valuable resources for free, 

useful information, which as you know is very 

important and will indirectly help traders to earn profit 

while trading. The BrocoPulse includes the author's 

programs about the financial markets and their 

specifics, the hourly news blocks, the complex of 

learning programs oriented for uses with various skills. 

What partnership programs does Broco offer and 

how can companies register for one? 

More than 500 partners all over the world are working 

with the Broco Group, and we still welcome more. 

Our partnership programs guarantees to our partners 

the maximum of advantages and the maximum of 

commissions based on their clients' trading. Besides 

our “Regional Agent” and “White Label” partnerships 

programs, there is the IB-partner that can participate 

in our business with a minimum effort. According to 

the partnership program in Broco Group the partner's 

profit is a part of the spread in Forex instruments and 

part of the commission for every CFD and indices 

contract closed. 

What plans do you have for growing the client base 

of Broco and extending the company's geographical 

footprint in the future? 

We have accomplished a great deal, yet we are still in 

the beginning of our development, and we still have a 

lot to do for the traders. For example, the company’s 

top-management is now working on the Quality 

Standards project which should make our customers' 

work more comfortable. As for our geographic 

expansion, we have a great plan in store; let’s just say 

that we will open new offices in many different 

countries. And we keep on encouraging people to 

participate and benefit from the potentially profitable 

financial markets, all the while we do all we can to 

facilitate their working needs and requirements. 



Regional Retail FX Perpectives on 

Central & 


By Larry Levy 

The CEE generally refers to the group of 

"Central and Eastern European" countries, 

formerly called the Eastern Bloc during the 

Cold War. These include Albania, Bosnia and 

Herzegovinia, Bulgaria, Croatia, Czech Republic, 

Estonia, Hungary, Latvia, Lithuania, Macedonia, 

Montenegro, Poland, Romania, Slovakia, 

Slovenia, Serbia and, though it was never in 

the communist Eastern Block as such, Turkey. 

Recently, eForex interviewed Karol Piovarcsy, 

head of the newly opened Saxo Bank branch 

office in Prague and Vladimir Kisyov, Head of 

Business Development at Deltastock in Sofia, 

Bulgaria about the growth prospects for Retail 

FX in this region. 


Local Presence 

Saxo Bank is clearly looking to take advantage of newly 

created wealth and disposable income in the CEE 

region, and it's obvious that having a local office 

enhances business development in that country and 

surrounding countries. Deltastock, with its head office in 

a CEE country (Bulgaria) looks naturally to business in 

the region and now also elsewhere, having also opened 

offices in Romania, Spain and the United Kingdom. 

Of the various CEE countries, both confirm that 

Poland is the biggest country in terms of customers. 

This is due to is relative wealth, population size and a 

relatively high disposable income. Also surprisingly 

highlighted was Romania as a major market, which 

Piovarsky mentioned as a growth area and where 

Deltastock has opened a branch office. 

Based in Prague, Piovarcsy highlights the local Czech 

Republic and Slovak Republic markets as customer 

sources (formerly Czechoslovakia). Both also 

mentioned the relative wealth of neighbouring 

Hungary as a valuable source of customers. Deltastock, 

based in Bulgaria is also in a good place to harness 

more South Eastern European countries such as 

Bulgaria itself as well as interest from Turkey. However, 

the republics of the former Yugoslavia and other 

countries in the CEE appear to have generated fewer

Regional Retail 

FX Perspectives 

customers. If anything the interviews highlighted just 

how regionally biased customers can be, and that 

having a regional office and language support can 

prove attractive to customers rather than having to 

deal with a team far away, despite the internet. 

"The relative size of CEE markets should be kept in 

perspective, as the size of the Polish market dwarfs the 

size, for example of the Russian market, though this 

market is mainly covered from our Copenhagen 

office," stresses Piovarcy. He adds: "Of the smaller 

countries, Bulgaria is up and coming for us. Albania is 

a problem due to the unstable political situation. 

Croatia, Serbia and Montenegro have huge future 

potential however with some of those countries there 

are still regulatory problems as they don´t offer free 

transfers abroad so its difficult from those countries to 

actually open an account." 

Customer Profile 

"The general demographic of the retail FX trader in 

the CEE is male age 20-24 to 53-55. Mostly they 

start with around $2000, even though they can open 

an account for as little as $100," according to 

Karol Piovarcsy 

>>> 

Deltastock´s Kisyov. He also states that the customer 

will often open a smaller account and then put more 

and more resource into the trading account, so that 

the customer account experience is a "process", with 

the customer learning more and more as time goes on 

to take advantage of opportunities offered. This 

contradicts with the view that customers come in, lose 

some money and necessarily terminate their accounts. 

Individual vs Corporate 

Both Piovarcsy and Kisyov confirm that most 

transaction volume takes place as their bespoke forex 

operations provide a viable alternative to dealing with 

local banks, and that a significant part of their 

turnover now takes place not just from individuals, 

but from small to medium size businesses looking to 

conduct forex trading for hedging or other purposes 

in their local crosses or other currencies. The number 

of customers is still 70% retail, according to Kisyov, 

and the retail customer makes up more overall volume 

than the non-retail. 

In Saxo´s case, retail individuals make up only 60% 

of client content, and the fact that Saxo offer options 



Vladimir Kisyov 

and forward rates makes it more attractive for 

corporate hedging, for example, that a brokerage 

offering only spot fx. 

"Besides Spanish, English, Russian, Bulgarian and 

Romanian, we do also provide language support in 

French, Chinese and Japanese," notes Deltastock´s 

Kisyov, highlighting how this CEE broker has reached 

beyond their region. 

Impact of Recession on Growth and Turnover 

The negative overall impact of the downturn has been 

countermanded by more interest in currencies due to 

the downturn in previously popular local equity 

markets. Saxo Bank increased its business in the CEE 

region by 212% in 2008 compared to 2007. Growth 

in net customer numbers is still 30% higher in 2009 

for Deltastock than in previous years even though 

transaction volume in the second half of the year has 

been lower due to lack of volatility. In the face of 

tumbling equity prices both Kisyov and Piovarcsy have 

observed that forex is now seen as a relatively "safe 

haven", as currency movements are relatively recession 

proof. 

Saxo supports its own platforms, which include 

mobile web access. An automated trading platform is 

currently in development. Minimum account size is 

US$ 10,000 and Saxo offers over 145 crosses, 

including Russian Rouble, Polish Zloty, Slovak 

Koruna, Czech Koruna, Turkish Lira, Estonian 

Kroon, Hungarian Forint, Croatian Kuna, Latvian 


Lati and Romanian Leu. At the moment Saxo only 

supports the fixed spread model. Minimum size is 

half a mini lot ($5000) subject to a surcharge under 

$100,000. 

Deltastock supports its own platform, Delta Trading 

as well as the MetaTrader 4 platform. Deltastock also 

supports either ECN style or fixed spread models 

from the same platform. Minimum account size is 

US$ 100 and accounts can be funded by credit/debit 

card, wire transfer or Moneybookers. Crosses include 

Russian Rouble, Polish Zloty, Turkish Lira, Hungarian 

Forint, Bulgarian Lev, Romanian Leu and Czech 

Koruna. Minimum trading size is one micro lot 

($1000). 

Security of Funds 

It is clear that EU regulation has made it far easier to 

sell forex across borders, and that customers can more 

easily trust EU client state regulated entities. "Provided 

we are a MIFID regulated investment company, we do 

offer security. Clients funds are guaranteed by the 

investors compensation fund so in the case of any kind 

of liquidly problems with Deltastock compensation is 

offered for up to 90% of receivables," notes Kisyov. 

Deltastock is primarily regulated by The Financial 

Supervision Commission of Bulgaria. 

For Saxo the advantage and claim to a regulated bank 

is clear. In fact, notes Piovarcsy, all clients of the 

Prague office are actually technically clients of the 

Saxo head office in Copenhagen, and, despite initial 

bureaucratic hurdles, authority to transact business 

can be "passported" from one EU state to another 

such as in the case with the new Saxo Prague 

operation. 

Conclusion 

The CEE region is clearly growing as a highly 

educated population with increasing disposable 

income, high speed internet and European integration 

make forex a clear choice for traders wishing to 

speculate. However, the market is clearly still small 

compared with several of the western European 

markets. The variety of local currencies not part of the 

Euro zone has also attracted a number of companies, 

which means that small to medium enterprises in the 

CEE are increasingly using companies like Saxo and 

Deltastock for their currency trading. This significant 

niche market looks set for continued growth, 

especially as more of the SE European countries 

deregulate and more local markets open up.


e-Forex talks with Mariusz Potaczala, CEO of 

Dom Maklerski TMS Brokers S.A. (TMS) one 

of the first financial advisory and brokerage 

institutions in Poland to specialise in currency 

and money market operations. 

Mariusz how would you describe the mission of 

TMS? 

We were the first financial advisory institution on 

the Polish market, specializing in brokerage 

operations in the currency and money markets. 

We have existed since 1997 although the 

company's roots go back to France. Our mission 

is to ensure that market participants have all that 

they need for action: recommendations, 

information, trading tools and capital allocation 

strategies. Additionally, our mission is to provide 

knowledge by educating investors at all stages of 

their activities. We underpin our offerings with 




on Central and 


TMS Brokers: 

Offering a high class service coupled with proven technology 

Offering a high class service coupled with proven technology 

three high quality financial products which all 

utilize the latest technologies. 

TMS was a pioneer in providing currency risk 

management solutions for your domestic 

market. How important has technology been in 

helping your company deliver the extensive 

range of services it now offers? 

The advantages that TMS has in the 

Polish market are information 

resources and technology. 

Modern IT solutions, 

generated by our own 

IT team, allow us to 

effectively and quickly 

share the knowledge 

about the market and 

for ten years our clients 

have been able to contact 

us online.

Mariusz Potaczala 

Regional Broker Review 

>>> 

However these are not our most important attributes. 

The people who make up the TMS team are the greatest 

strength of the company. We focus on people, as they 

are the way to the success of both customers and the 

company. I personally choose people for our crew and 

not only the knowledge they possess but personality is of 

a great importance. We are like a big family, where the 

atmosphere is building a strong morale. 

TMS was the first Polish FX brokerage company to 

be regulated by the Polish Securities and Exchange 

Commission. Do you believe being properly 

regulated is now a key requirement for all 

successful FX brokers and does it provide TMS with 

any competitive advantages? 

We obtained a permit to conduct a brokerage business 

in 2004, becoming the first licensed brokerage house 

for the FX market in Poland. Our business activity is 

in the custody of the Financial Supervision 

Commission (KNF), which assures the high standard 

of our services. By entrusting us with their money, 

customers can be sure that we won’t disappear from 

the market, because all of our activity is regulated by 

law, which excludes such a likelihood. 

Our professionalism and compliance with the EU 

standards give our customers a sense of comfort and 

security. I believe that every broker should be monitored 

and regulated by law. It should not be a competitive 

advantage, only the obligation of each institution 

involved with customers assets entrusted to them. 

What key financial services does TMS offer and what 

types of clients are you currently working with and 

seeking to attract? 

We are responding to new challenges within the global 

business environment and the key factors influencing 

our services in Poland are trends effecting most of the 

developed worldwide markets. The most important 

products and services within our offerings are: 

• Consulting advice on the risk management 

of Exchange rates 

• TMS Direct transaction platform 

• GO4X transaction platform 

• Financial information system 

Each of these products is targeted to a different 

audience. 



GO4X was introduced quite recently. What 

influenced the decision to include this offering? 

Yes, this is our youngest child. We introduced 

GO4X in November 2009. GO4X is a platform 

for those who are starting out on their journey 

with Forex. After analyzing the market we 

decided to separate the needs of novice investors. 

For them, the most important thing is 

educational support and the intuitiveness of the 

tools they use with platforms like GO4X. We 

have planned a series of training seminars 

throughout Poland, which are designed to 

familiarize novice investors with possible strategies, 

general knowledge about the forex market and 

technical analysis. 

In addition, the GO4X platform provides the GO4X 

News Reader which allows customers to receive up to 

date market information from TMS Brokers analysts. 

Furthermore, customers may also attach selected RSS 

feeds by themselves, such as Bloomberg, CNN or 

Polish information services. 

GO4X is focused on knowledge and training. What 

about your TMS Direct platform? 

TMS Direct is a product for more sophisticated 

investors who already have knowledge and experience. 

This platform distinguish itself with larger quantities 

of financial instruments, currently there are over 10 

000. Besides the instruments, client receive very 

individual brokerage care, recommendations, analysis 

and forecasts prepared by the TMS Brokers analysts. 

I can proudly say that our currency forecasts gain the 


highest ranking accuracy of the forecasts 

organized by FX Week. (In 2009, we 

achieved first place 7 times in the historical 

one month FX Week rankings and 26 times 

achieved first place in the historical three 

month rankings. We also achieved a first 

place in the historical twelve month FX 

Week rankings). These good forecasts attract 

major polish players which is why our 

volumes have increased very strongly. This 

fact was recognized by our major partner 

Saxo Bank who awarded the prize “FX 

Champion” for 2009 to TMS. We are 

proud to say that we are the biggest partner 

in Europe in terms of volume for this Bank and much 

bigger than other Polish competitors. 

TMS also offers a platform called TMS WebDirect 

and TMS MobiDirect. How do these differ from TMS 

Direct and how popular is mobile trading becoming 

amongst your clients? 

Both of these products provide an ideal supplement to 

the TMS Direct platform. TMS WebDirect is based 

on the user interface platform transactional Web site 

for investors and provides full and secure access to 

financial markets via the worldwide Internet. 

TMS MobiDirect allows clients to invest anytime and 

anywhere by using a mobile phone with an Internet 

connection. One login and one password is needed to 

be able to manage positions, use the interactive chat 

or monitor the condition of the account, whatever the 

time and place. Mobile investing is very popular 

among our customers. With this solution they don’t 

lose any opportunities to invest.

What exactly is the "Academy of Investment" 

and how does the TMS training system work? 

The training system of TMS is very large and 

depends on the products and targeted groups. 

We provide online training (webinary) as well 

as stationary in selected cities. Stationary 

training is organized under the brand GO4X 

and it’s designed for those who are taking the 

first steps into the forex market. Training is a prelude 

to investing and it shows how to use a platform. 

Coaches discuss all of the financial instruments, and 

various situations on the market for participants to be 

able to better select the appropriate order. They teach 

the fundamentals of Technical Analysis and what 

aspects are most important about charts. 

The Academy of TMS Direct investment is training 

for advanced players. The topic range here is much 

more complex. The platform itself is complicated and 

therefore a large part of training is devoted to using it. 

Both classes – Technical Analysis and Financial 

instruments are also taught on this advanced level. 

We also organize seminars for Financial Institutions. 

TMS offers a Data Sharing programme. How does 

this work? 

We have developed a system for the distribution of 

data specific to the currency market. This system 

allows us to provide comments, analysis and reports 

for the Polish media and most of our online applets 

with quote rates are available on many portals in 

Poland. Entirety is based on barter contracts, which 

govern the entire legal process for data transmission. 

What benefits do your partners get from it? 

We cooperate with journalists from radio, television, 

newspapers and the Internet and we have our own TV 

studio. Providing them with knowledge, comments 

and our analysis, we help them to work. We take part 

in radio and television programs, commenting on 

current market situations, and also have own blogs. 

One blog is from our chief analyst, the other blog is a 

result of the collective work of the Advisory 

Department. Additionally, online applets containing 

quote rates, every day help medium and small 

businesses in conducting their currency exchange 

activities. 

In what ways has the extensive experience of TMS 

in the Polish market helped you to attract a wider 

range of corporate and individual clients? 

Building trust in business is not a simple thing. It 

cannot be achieved in a single day. We are always 

looking for new ways to reach customers and to show 

them that TMS is a professional company with strong 

roots. We try to be innovative in the way we reach 

customers. Apart of standard media - radio, television, 

press and well-known Internet portals we also use 

communications channels such as the social 

networking sites of Facebook, or Twister 

mikroblog and it’s Polish counterpart Blip. 

The Polish Financial market is new and in my 

industry, I can honestly say that we are a 

pioneer from whom the competition is 

copying ideas. 

Looking ahead, what plans do you have for 

expanding the regional footprint of TMS to 

take advantage of new business 

opportunities elsewhere? 

We have been considering expanding TMS 

beyond Poland for some time. Having a 

strong and well enough established position 

in our own region gives us the freedom to 

look further afield. This is one of the projects 

on which we are working now, but I would 

not like to share the details of this just yet. 



DeltaStock 

helping clients to expand their 

trading and investment horizons 

Vladimir Kisyov 

DeltaStock AD is a Global Forex and CFD 

Broker with its head office in Sofia Bulgaria, 

and branches in the United Kingdom, Spain 

and Romania. The company was founded in 

1998 and since then has been providing high 

quality online trading services for a wide 

variety of clients. Vladimir Kisyov, Head of 

Business Development at the firm, tells 

e-Forex more about the company’s trading 

platforms and plans for the future. 

Vladimir, Delta Trading is the firm’s in-house 

developed trading platform. In what 

particular ways does it broaden trading and 

investment horizons for your clients? 

Delta Trading is Deltastock’s core platform for online 

trading in over 1000 financial instruments comprising 

Forex, Precious Metals, CFDs on Stocks, Indices, 

ETFs and Commodity Futures. 


The competitive edge of company’s service offering is 

evaluated by the extensive range of unique trading 

tools as well as bespoke terms and conditions to 

traders and investors. Delta Trading major distinct 

advantages comprise: 

1. Guaranteed fixed dealing spreads and true 

ECN/STP environment – both trading models 

available in one platform, through one trading 

account; 

Put in other words, through its online platform 

Deltastock provides both Dealing Desk and No 

Dealing Desk (ECN+STP) trading. Clients can open a 

position by placing a trade at the fixed dealing spread 

and later on close that same position by choosing to 

have their order executed through the ECN/STP (Level 

2) panel of Delta Trading. So it is the trader who 

decides whether and when to deal at the fixed Forex 

spreads or/and through the ECN/STP module of Delta 

Trading. This process has been further streamlined for 

the convenience of clients. They do not have to meet 

any additional requirements or criteria whatsoever to 

freely cross-use trading at fixed spreads and dealing at 

ECN variable spreads as low as 0.1 pips on FX majors. 

It is worth noting that Deltastock’s fixed dealing 

spreads remain fixed at all times. Unlike other 

brokers, the company does not freeze nor does it 

widen its FX spreads during macroeconomic news 

releases. The fixed spread for EUR/USD is 2 pips 

2. Platform’s integration with MT4. Deltastock 

Meta Trader 4; 

Meta Trader 4 is probably the most popular Retail FX 

trading platform. Deltastock integrated MT4 with 

Delta Trading and released Deltastock Meta Trader 4. 

Combining the simplified and convenient for many 

Retail FX traders interface of MT4 with the ample 

functionality of Delta Trading valuable to advanced 

and professional traders, has predetermined the market 

success of the synergy between the two platforms.

Regional Broker Spotlight 

The orders clients place in Deltastock Meta Trader 4 

are executed in the company’s platform – Delta 

Trading, as market orders with no re-quotes. This is 

an automated process using a bridge interface to 

MT4, called Meta-Delta. Meta-Delta MQL script 

synchronizes the positions in MT4 and Delta Trading 

platforms. Both Meta Trader 4 and Delta Trading 

share the same price feed. 

Deltastock Meta Trader 4 enables the execution of 

MT4 Expert Advisors in Delta Trading. 

Very important from a client perspective is the 

difference between the Deltastock Meta Trader 4 

offering and that of other MT4 brokers. In 

Deltastock Meta Trader 4, there is no quote freezing 

as well as no dealer intervention. The benefits of 

Deltastock MT4 can be summarized in the table 

below: 

Benefits 

>>> 





Deltastock Other MT4 

MT4 Brokers 

Margin on 

Hedge Positions 

NO YES 

Rollover fee on 

Hedge Positions 

NO YES 

Requoting NO YES 

A major difference in money terms is that when 

trading with Deltastock MT4, margin is withheld 

only on the net Forex position. Moreover a Rollover 

fee is applied only to the net position held overnight. 

3. Financial Instrument Diversification – access to 

multiple markets; 

Offering diverse asset classes for trading through 

company’s in-house developed platform, among 

others, has proved crucial for Deltastock’s market 

growth. Currently the Company offers online trading 

in Forex, Precious Metals and over 1000 CFDs on 

Shares, Indices, ETFs, Crude Oil Futures as well as 

other commodity futures. 

Among the currencies available for trading are some 

exotics, such as HKD, SGD, ILS, MXN, TRY, PLN, 

CZK, HUF, RUB, BGN, RON etc. With Delta 

Trading clients gain access to online CFD trading in all 

major US, European and Asia/Pacific Stocks, as well as 

Index-tracking CFDs that follow major global indices. 

4. API – Application Programming Interface; 

Deltastock offers a proprietary API compatible with 

Delta Trading. The API allows the integration of 

automated systems for online trading. 

5. Master Account for Money Managers; 

Deltastock’s Master Account (Percentage Allocation 

Management Module) is a front end solution 

designed for money managers to trade multiple sub- 



accounts via one single interface. Order execution is 

allocated to sub-accounts by their pre-set percentage 

weight. 

6. Virtual Portfolio; 

Delta Trading enables structuring and configuration 

of virtual portfolios of customized groups of financial 

instruments. 

Any trading strategy can be back-tested in the Virtual 

Portfolio Module, risk-free. Moreover any virtual 

portfolio or part of it can be promptly converted into 

a Live one by placing a basket order. The convenience 

to monitor and analyze performance of any of the 

Virtual or Live Portfolios is ensured by the ROI 

(Return On Investment), P/L (Profit/Loss) and Index 

Live Charts available in the Virtual Portfolio module 

of Delta Trading. 

The number of ECN/STP 

Forex Brokers increased 

tremendously in the last year or two. In that respect, 

what makes you different from the others? 

Well, I totally agree this particular segment of the 

Retail e-FX sector has seen a vigorous growth recently. 

Deltastock offers a pure ECN/STP environment. 

Our Delta Trading L2 module integrates the price 

feeds and liquidity of a number of Liquidity providers 

– Banks, Market Makers, FX Brokerages. 

In fact, Deltastock is one of the first Forex brokers to 

offer a true ECN, where clients can not only see and 

choose a certain liquidity provider for the execution of 

their trades through STP (Straight Through Processing), 

but they are also able to track with which Liquidity 

Provider their order has been executed. 

The Delta Trading L2 module enables Client-to-Client 

order execution with no dealer intervention as well as 

trader’s direct access to the Interbank FX market by 

dealing with Deltastock Partners through STP. 


I should clarify that Deltastock is still a counterparty to 

client trades, nonetheless the company acts as a broker. 

This is the so-called Agency Execution Model – trade 

orders are routed to the respective Liquidity Provider or 

client on behalf of Deltastock. At the same time, for 

the purposes of ensuring full transparency of the 

ECN/STP trading, L2 module shows the names of the 

Liquidity Providers next to their live price feeds, which 

generate the liquidity pool and build market depth. 

Clients can either choose with which Liquidity 

provider to trade or place orders under the SMART 

Routing Regime – dealing at the best BID/ASK price 

of the market depth. 

The Delta Trading L2 module ensures the competition 

among the FX quote feeds of the Liquidity Providers 

that translates into tight spreads for Deltastock Clients. 

Another very important advantage of L2 (ECN/STP) 

module is the ability for traders to open 

positions with one Broker, Bank or Market 

Maker and close them with another Liquidity 

Provider: 

• no need to open separate trading accounts 

• no losses from paying the spread; 

• no need to wire transfer funds for margin to 

different bank accounts 

• no different margin requirements 

• no swap for holding opposite positions 

Do you offer any additional services for 

novice or inexperienced traders? 

Clients less knowledgeable about FX Margin Trading 

as well as investors who pursue it to supplement their 

existing portfolio without having to learn a 

completely new market, are offered our company’s 

Managed Forex Account service. It follows the latest 

trends on the FX market and clients are offered a 

number of trading strategies to choose from. These 

strategies are provided by the company or third party 

experts and are automatically executed by Deltastock. 

Unlike other Managed Forex Service providers, 

Deltastock publishes only live performance data and 

no back-test results on its website. 

What are your company’s plans for future 

development? 

We plan to keep our business line of international 

market expansion by opening more branches across 

EU countries in the next couple of years. Our next 

stop is very likely to be Frankfurt, Germany, as the 

most probable home of the upcoming set-up of a 

Single European Financial Services Regulator.


Ivo Seizov 

Bulbrokers (www.bulbrokers.bg) is a nonbanking 

financial and investment intermediary 

company which was founded in 1996. It is a 

leader in providing brokerage services both for 

the Bulgarian and regional markets. e-Forex talks 

to Ivo Seizov, Executive Director running the FX 

and Retail trading operations of the company. 






Bulbrokers: 

meeting the needs of all types of investor 

Ivo, you were one of the founders of STS Finance 

(www.stsfinance.bg) a leading electronic 

brokerage firm which merged with the leading 

investment boutique Bulbrokers at the end of 2008. 

What benefits for clients have resulted from the 

creation of this new enlarged company? 

The process of STS Finance's merging with 

Bulbrokers has already been successfully concluded. 

Our main objective of the merger has been to offer 

high-quality servicing both to institutional and 

individual customers through high standards of 

coverage in all aspects of investment intermediary. 

Optimum synergy and optimization while retaining 

complete continuity in the activities of both 

companies has been attained. 

Bulbrokers is proving popular with increasing 

numbers of retail FX traders and investors. What do 

they particularly like about the way your company 

does business? 

Our business model is based on building long-term 

relationships with our clients, in that way we are a 

reliable partner. Our clients know we offer one of the

est trading platforms in the world and further more 

our trading conditions are competitive not only in 

Bulgaria but on a regional level as well. 

What type of clients is Bulbrokers looking to attract 

with your brokerage and investment services? 

We have a very diversified portfolio of services 

designed to meet not only retail level client needs but 

also to attract institutional business and professional 

customers which have much higher requirements with 

Regional Broker Profile 

regard to execution and 

quote flows. 

>>> 

Do you separate customers 

funds from those of 

Bulbrokers and what protection 

and guarantees regarding 

funds and accounts do you 

provide? 

Separating clients’ funds is 

prerequisite to establishing a 

successful brokerage and 

investment service. Bulbrokers is 

regulated by the Bulgarian National Bank and 

Financial Supervision Commission. As a licensed 

investment intermediary according to Bulgarian 

legislation we are obligated to contribute to the 

Investors Protection Fund. We allocate clients funds 

only to top rated local and international financial 

institutions. 

What forex trading systems does Bulbrokers offer? 

Bulbrokers offers the MetaTrader 4 platform which is 



our flagship product for 

both OTC and 

exchange trading 

instruments. In 

addition, we have a 

trading and clearing 

agreement with 

Interactive Brokers LLC 

USA, which is the 

global leader with its 

Trader Workstation 

software. In this way we 

offer to our customers 

access to more than 80 

stock and derivatives 

exchanges worldwide 

via one account and 

multiple currency bases. 

How many currency pairs do you quote 

on and what are the key products and 

functionality available to customers 

using your MetaTrader 4 platform? 

Currently we trade 26 currency pairs and 

several hundred CFDs on stocks indexes 

and commodities. Over the years MT4 

has proved itself as one of the most 

successful products designed for retail 

customers to trade. Top level charting 

package, fast execution, an easily 

designed and customizable workspace, 

custom indicators, facilities for back 

testing of indicators and strategies and 

most of all MT4 is a leader of automatic 

trading activities with Expert Advisors. 


Do you offer Mobile FX trading 

services and if so what key 

features are available to traders? 

Bulbrokers was one of the first to 

offer mobile trading via PDAs and 

smart phones with the MT4 Mobile 

product. MT4 Mobile is easily 

customisable and offers most of the 

regular version functionality 

features. We are proud to point out 

that Bulbrokers was the first 

intermediary offering mobile trading 

at the Bulgarian Stock Exchange 

and soon also to be available at the 

Macedonia Stock Exchange.

Together with Tradency and via its 

services and support, you offer 

auto trading with the Bulbrokers 

System Selector trading account. 

What facilities are available on 

this account? 

Trading in the global marketplace 

especially in the Foreign Exchange 

markets requires tremendous 

efforts and time to keep up with 

all the fundamental and technical 

developments. In addition, 

sufficient level of expertise is 

required in order to develop 

winning trading strategies. 

Bulbrokers System Selector is a 

tool designed to save time. Various systems are offered 

to individual clients which are implemented and 

supported by Tradency experts and partners. 

Do you expect to see increased interest from clients 

in automated trade execution? 

Moving towards automated signal generators and even 

automated trading is now a proven trend in the FX 

market. Clients slowly accept some or most of the 

advantages provided by automated systems. Looking 

forward we expect significant volume migration to 

this type of trading activity. 

Your Trader Workstation system offers direct market 

access to stocks, options, futures, bonds and funds 

to over 80 market destinations worldwide. What FX 

trading tools are available on this system? 

TWS offers access to Electronic Crossing Network 

and interbank volume and quotes flow through our 

FX Traders module. This feature is designed to meet 

requirements of medium and high level investors who 

require fast execution, unlimited liquidity and tight 

spreads, but on the other hand are also willing to 

sacrifice some of the advantages of retail platforms 

like fixed spreads, high leverage and order execution. 

What solutions does Bulbrokers provide for 

investment professionals needing to manage 

multiple accounts? 

What we offer is software, which is part of 

MetaTrader 4, called MetaTrader 4 Multiterminal. It 

allows working with any amounts of accounts, 

receiving quotes for any symbols, placing all types of 

orders, and viewing history for all accounts. 

Bulbrokers: meeting the needs of all types of investor 

Moreover, within this application financial news can 

be delivered in real-time mode. This terminal 

successfully combines great functionalities that allow 

effective trading with many accounts and with 

exceptional usability. The program interface is similar 

to that of the MetaTrader 4 client terminal. It is very 

simple, any trader using the MetaTrader 4 can easily 

get acquainted with this new program within a few 

minutes. 

Over the coming year, where will Bulbrokers be 

looking to add to the already extensive range of 

electronic FX trading tools you offer to your FX 

clients? 

We are on course to add more exchange trading 

instruments primary from regional stocks exchanges 

which is a part of our strategy to diversify trading 

activities beyond the Bulgarian market. 

Bulbrokers has over 25,000 customers. In what 

ways are you looking to grow the business and 

expand your regional and international presence? 

We are currently entering the Macedonian market via 

Eurobroker which a leading local investment 

intermediary and a member of the big family of 

Financia Group which Bulbrokers is also part of. We 

are going to expand our regional presence by offering 

the first trading platform in the Macedonian market. 

We are working on creating a wide range of 

introducing brokers, white label partners and sales 

agents in the region. We are also opening a branch in 

Romania. For Bulgarian investors we will provide 

regional cross border online trading via Meta Trader 

at low commissions levels and faster execution speeds. 




Service, innovation and security are the three 

key areas for winning the hearts and minds of 

retail traders. But what do these smaller traders 

really want from their platform providers? 

Heather McLean sets out to explore what leading 

brokers are doing to improve the FX trading 

experience for the armies of retail traders 

spilling out of the woodwork across the globe.

What retail traders want 

The key features and functionality that retail traders 

are looking for from FX trading platform providers 

are, according to Interbank FX vice president of 

customer experience, Marilyn McDonald: broker 

integrity; execution; and spreads. This is the trifecta of 

must haves, she claims, adding: “One without the 

others is ok, but the retail trader should look for a 

company that provides all three. For instance, a 

broker can supply the lowest spreads. However, 

without good execution then spreads don’t really 

mean much. Slippage could eat up more than the 

trader would have ‘paid’ to enter the trade with a 

broker that had slightly higher spreads.” 

First and foremost, retail clients want consistency, says 

Greg Michalowski, FXDD’s vice president and chief 

currency analyst. He states that if spreads remain 

consistent, and if the executions are consistent, the 

client is happy. Additionally, if support is 

knowledgeable and reliable, and if the trading 

platform allows the client to act freely, the client 

remains content. 

Michalowski adds: “I believe the mobile experience 

has the potential to be the next major advancement in 

Retail FX. There are still connectivity issues that 

continue to hold the advancement back, but with 

improved wireless infrastructure, the potential for 

growth is definitely there.” 

Yet most retail traders are looking for simplicity and 

immediate understanding of the platform itself, says 

Mario Persichino, head trader at leading Italian broker 

Cfx Intermediazioni, so they can understand how to 

place an order without any help. “Programming 

courses offered by brokers are a very helpful 

>>> 

Service, innovation 

and security: 

taking key steps to improve the 

Retail FX trading experience 

instrument of learning for end users. At the same time, 

clients are looking for all of the information they need 

about economics news and about the forex market. 

But the most important thing required by users is a 

very liquid market; they need to see all prices in real 

time and want their orders executed fast,” he notes. 

Be competitive or lose out 

Retail FX brokers are ramping up their platforms and 

technology infrastructures to take their service 

provision to the next level, by expanding functionality 

beyond the realm of what off the shelf platforms 

deliver, according to Hayel Abu-Hamdan, head of 

business development at MIG BANK. He says in a 

world of vanilla offerings, platform differentiation is 

key. This includes improvements in the desktop 

feature set as well as truly usable mobile connectivity 

on smart phones. MIG BANK is working on a new 

proprietary platform that it expects to launch shortly. 

Also, Abu-Hamdan points to new functionality of 

solid API offerings as another area being ramped up 

by retail FX brokers. “As retail customers are 

becoming more sophisticated, certain client segments 

are branching out and writing their black boxes to 

automate their dealing strategies. Having a solid, easy 

to integrate API is a must have offering to address this 

growing demand,” he notes. “Value added post trade 

services for enhanced reporting and analysis tools for 

post trade strategy and trade performance evaluation 

could draw client interest as well.” 

Retail FX brokers are definitely raising their games, 

claims McDonald. She says Interbank FX is very 

concerned with server up time, for the speed of 

execution. “Milliseconds count, no matter where the 



Marilyn Mcdonald 

“broker integrity, execution and spreads is the 

trifecta of must haves..” 

customer is in the world. The tolerance for server 

outages or platforms that lack basic functionality has 

dropped. The customers are demanding higher and 

higher levels of service and infrastructure from the 

brokers.” 

On the key features and functionality that retail 

traders need from FX trading platform providers, 

Patrick Meier, vice president at Dukascopy, notes: “It’s 

all about choices. Clients sometimes would like to be 

able to trade with a platform of their choice, which 

may differ from the platforms the broker offers; in the 

future brokers will need to be more flexible. With 

automation being in the midst of a tremendous 

growth phase, brokers need to provide an API in 

order for the client to connect external black boxes 

and robots to the feed of the broker. Many brokers 

still don’t provide clients with the API’s needed in 

order to connect such trading programs. 

Programming functions could be available directly 

inside the platforms in the future, removing the need 

for external programs altogether.” 

He adds: “FX is all about liquidity and it will become 

increasingly difficult for brokers to only quote prices 

without showing the liquidity as well; showing the 

market depth will become indispensable. Imagine an 

equities broker offering trading on the Nasdaq Market 

without providing Level 2 quotation; they almost 

certainly wouldn’t have many clients. “Brokers are 

moving towards instalment and development of 


>>> 

proprietary infrastructures. Rented and third party 

platform licensees are struggling to keep clients if they 

cannot solve technical challenges in-house,” concludes 

Meier. 

Improve the experience 

Abu-Hamdan says the most important steps that can 

be taken by online brokers to improve the overall 

trading experience for retail FX clients is perfecting 

platform stability and fault tolerance, which he adds is 

an obvious point, but critical nonetheless. “Nothing is 

more frustrating to the client than to experience a 

service interruption while they are in the midst of 

trading. At MIG BANK, we are building out our 

infrastructure to be truly redundant and fault tolerant 

with the ability to cope with minor service 

interruptions and disaster scenarios alike,” he explains. 

“The FX market is such a congested, competitive 

market place. Spreads and account offerings are 

practically the same at all houses. It is the trading 

experience that is the critical success factor. Retail 

customers will not tolerate the interruptions caused to 

their trading from platform instability. The closer one 

can get to a streamlined account opening process and 

a stable fault free platform the more likely one is to 

gain the trust of the retail client and an increased 

market share,” Abu-Hamdan continues. 

Michalowski believes that the market has made great 

strides in providing interbank forex price transparency 

to various groups of people. As a result, market makers 

Greg Michalowski 

“I believe the mobile experience has the potential to be the 

next major advancement in Retail FX…”


in the retail forex world need to be competitive or lose 

traders to the next forex dealer. 

However, the one aspect of trading that retail traders 

will never have is access to the interbank flows that can 

affect intraday movements, Michalowski adds. He says 

this is the advantage that the bank trader will always 

have, and deserves, by virtue of the customers they 

cater to on a daily basis for real currency transactions. 

“If there is an M & A flow into the Canadian dollar or 

British Pound, bank traders will be the first to know. 

Additionally, if a central bank is buying the EURUSD, 

or if there is a big repatriation of funds back to the US 

from a multi-national, the bank traders will also be the 

first to know,” states Michalowski. 

He continues: “However, all is not lost for the retail 

trader because he can still rely on the technical price 

action to tell customers what they don’t know. If the 

price moves above a shorter term moving average, retail 

traders don’t necessarily need to ask why; they just need 

their platform to give them a clue from the chart.” 

While Meier states: “Today small clients are often at a 

disadvantage. It is not unusual that retail clients trade 

with a price feed that is not always optimal, and can 

sometimes vary substantially from client to client. 

There is a need for more transparency and more 

uniform pricing. All traders should be able to trade 

on the best possible price, no matter what their 

trading style. As long as there is no ‘time and sales’ 

available, as is the case with exchange traded products, 

clients will continue to depend on the level of 

transparency their broker provides in this respect. 

“The industry will need to provide their clients with 

more choices in general,” continues Meier. “These 

choices should not be limited to just providing a 

selection of different platforms, but should also provide 

added options in regards to account funding. Today for 

example, the client still has too limited choices 

regarding posting of collateral to their account. Few 

brokers accept bank guarantees or provide solutions for 

segregation or the use of external bank deposits. 

Increasing demand from retail investors for broker 

innovation and transparency can no longer be ignored.” 

Flexible to fit all 

McDonald states: “I think we, as brokers, are entering 

a new age of enabling traders. Retail traders don’t 

really want to be told Buy or Sell. They want to 

understand the market and make their own educated 

decisions. Retail traders have a thirst for knowledge 

and don’t always want to be led like sheep. I think 


Mario Persichino 

“the most important thing required by users is a 

very liquid market; they need to see all prices in real 

time and want their orders executed fast,” 

that the brokers that respect that and offer their 

customers the tools they need to make their own 

decisions will ultimate have better and happier 

traders.” 

In terms of flexible accounts, Interbank FX offers 

Standard accounts (where one lot = a $100,000 

contract) and Mini Accounts (where one lot = a 

$10,000 contract). However, traders can opt to trade 

0.01 of a contract. On a mini account this equates to 

a $100 notional value trade. McDonald comments: 

“Our customers can also be set at our standard 

leverage (100:1) or choose a different level by 

requesting this at the account opening stage. We have 

traders at 20:1, 50:1 or a number of other different 

leverage levels. By allowing traders to choose a 

leverage level and then give them options on the trade 

size, our traders are able to really fine tune their 

trading strategy to suit their risk tolerance,” she adds. 

On flexible accounts, Michalowski states: “Our first 

tier is for new traders. This is our Mini Account. The 

contract size is 10,000 of the base currency. The value 

of a pip is $1 on a standard lot for the EURUSD. It is 

a great way for new traders to hone their skills 

without trading a demo, which, for some, does not 

give them enough incentive to trade seriously. 

“The next tier is our Standard Account which is for 

traders who opt for a contract size of 100,000 of the 

base currency which corresponds to $10 a pip on the 

EURUSD. In addition to the existing account types,

Service, innovation and security: taking key steps to improve the Retail FX trading experience 

we also have different platforms with different 

benefits and costs,” he notes. 

According to Michalowski, the main trading platform 

for retail traders is MetaTrader 4. “This platform is our 

most popular platform because it is stable, has excellent 

charting capabilities and a programmable scripting 

language. An alternative to MetaTrader 4 is the 

MTXtreme platform. This option has all the benefits of 

the Metatrader 4 platform, with the benefit of access to 

the best bid/ask price from the pool of FXDD 

interbank liquidity providers. The minimum account 

size is $10,000 for this particular account, as well as a 

small commission. The spreads on pairs is often more 

narrow.” However, Michalowski believes that they can 

have a tendency of fluctuating and being wider at times. 

While Persichino states: “There are many types of 

account offered to all kind of trader; from accounts 

with little cash required to enter that use a great 

leverage, to accounts with little leverage that require a 

larger amount of money to start. For example, Cfx 

Intermediazioni offers a retail account that uses a 

leverage of 500 and requires just €200 to start. This 

particular kind of account is similar to a demo 

account and offers to every kind of user the possibility 

to try the market with a minimum amount. 

Traditional accounts let users have a maximum 

leverage of 200, but require at least €1000 to start.” 

Hayel Abu-Hamdan 

“The FX market is such a congested, competitive 

market place. Spreads and account offerings are 

practically the same at all houses. It is the trading 

experience that is the critical success factor.” 

>>> 

On flexible account 

types, Meier comments 

that it is possible even for the 

small or novice investor to trade 

on interbank liquidity through an 

electronic network (ECN). He says 

this will provide a more level, uniform 

playing field for all. “It will also serve to 

reduce many common problems the small 

investor sometimes has to deal with,” Meier 

adds. “Order stipulation possibilities have 

become broader, and are offering more 

choices to the trader. It’s possible to set 

multiple various dormant open orders in order 

to enter and exit the markets under various 

conditions. The largest ECN’s that provide the 

possibility to absorb hundreds of millions per ticket 

with low latency, and find ways to allow the smaller 

trader also to benefit from their network, might 

benefit from a general trend toward ECN trading.” 

With the ascent in popularity of automated trading, 

which is predominantly based on technical parameters, 

the provision of quality historical data is becoming 

more important than ever, claims Meier. Such data is 

often not complete and mediocre, however, he warns. 

“Some brokers offer tick-by-tick data for free to 

anyone interested. Without complete data it is not 

possible to back test efficiently nor to develop strategy 

which can be used under real market conditions.” 

Differentiate or die 

Brokers looking to differentiate their offerings and 

strengthen their value proposition must focus on the 

idea that everything has to fit, claims Meier. Brokers 

who provide a good price feed but lack in liquidity 

will be surpassed by the ones who provide both, he 

says. A front end platform which is designed well and 

is practical, but is not connected to an ECN, will be 

limited, he adds. “The customer has become much 

more informed and demanding over the years. Today 

it’s a much more crowded space than, let’s say three to 

four years ago. Brokers must provide good trading 

technology, much more liquidity, more transparency, 

and again more client focused solutions in general.” 

The retail FX industry is starting to mature, states 

McDonald. “In my mind, this means that there is a 

tier of brokers at the top. These brokers all offer 

basically the same products at the same ‘price’. When 

an industry reaches this point in its lifecycle the 



Patrick Meier 

“FX is all about liquidity and it will become 

increasingly difficult for brokers to only quote prices 

without showing the liquidity as well; showing the 

market depth will become indispensable.” 

differentiators become harder for the broker but 

much more meaningful for the customer. I am talking 

about brokers creating long term strategies for 

bringing the customer the best possible experience. 

“This isn’t just customer service, I am talking about 

every interaction that a person has with the company, 

including defining the company’s products and 

services around customer requirements. This concept 

isn’t original to FX trading, it crosses all industries. 

Customers want to have a good experience with a 

company. I think that this desire will drive the next 

rounds of evolution in this industry,” she continues. 

In this highly competitive market, Michalowski agrees 

that brokers can differentiate their offerings and 

strengthen their value proposition by initially looking 

at service. “If you are not customer focused, you have 

nothing to offer,” he notes. “If you have a support 

team that is readily accessible, and is able to answer 

questions that come with opening 

an account, you will attract a 

solid customer. 


“Additionally, if you provide 

competitive bid/ask spreads, and 

are as consistent as possible with 

the spreads, you will retain those customers. The bell 

curve of trading knowledge for retail traders is wide, 

so you must be able to connect and educate both the 

novice and the more advanced trader,” he continues. 

There are several approaches to strengthening brokers’ 

value propositions, Abu-Hamdan says. He notes some 

focus on driving down cost, while others are offering 

value added services. On operational efficiency, he says: 

“The first option is to not differentiate the offering at 

all, but to focus on the lowest prices possible with 

operational efficiency. This is not necessarily an easy or 

cheap thing to achieve as it places emphasis on highly 

automated processes and large numbers of low margin 

trades. Some brokers have adopted this approach, 

offering accounts from $200. 

“Of those who are differentiating, some are choosing 

to place their offering as an aspirational brand; the 

Gucci approach. Rather like a concierge service that 

promises to get you tables at exclusive events. Others 

are attempting to demystify FX by presenting very 

simple trade platforms. The approach owes a lot to 

the online poker sites that have exploded in the last 

five years,” continues Abu-Hamdan. 

Persichino says: “Brokers are trying to cover all kind 

of clients, with different types of account, so that a 

more diverse group of users can approach the FX 

market. They can differentiate accounts by changing 

the leverage or the amount of money required to 

enter, or by letting the user decide what kind of 

parameters they want,” he continues. 

Benchmark winners 

Regarding the concept of benchmarking, Michalowski 

adds: “We are all benchmarked now. There are 

winners and losers in every business segment. The 

acceptance only comes from hard work, smart 

decisions, and, at a minimum, hitting the benchmarks 

prevalent in the market. New benchmarks will evolve 

as mobile technology evolves, and manners in which 

we educate customers will progress. Social media 

avenues seem to be a direction that headline 

knowledge can be distributed through in an effort to 

attract a new audience,” Michalowski concludes. 

While Meier states that brokers likely to be 

benchmarked in the future on: available liquidity; 

quality of execution; choices on front end options; 

platform functionality; support efficiency (how inquiries 

handled and resolved); added free trading resources; and 

last but not least, level of transparency. “The brokers 

that will rank highly in all categories might have a very 

promising future indeed,” he sums up.

SPONSORED STATEMENT 


FXCBS 

Placing the needs 

of clients first 

FOREX Central Brokerage Services (FXCBS) 

is a leading financial brokerage firm. 

The company has been focusing on the 

development of next generation solutions 

for forex trading. e-Forex talks with Mr. 

Mohammad Musleh, CEO, of Fienex Group 

Ltd. about how the company is deploying 

technology and achieving its vision of 

providing the best forex products and 

services for its clients. 

Fienex DMCC, a 100% subsidiary of Fienex Group is 

currently regulated in Dubai. How stringent are the 

regulatory requirements for online brokers in 

Dubai? 

Brokerage services fall under the broad category of 

“Financial Services”. UAE central bank through 

Securities and Commodities Authority of UAE 

(SCA) regulates the brokerage services within the 

boundaries of UAE. ESCA, a member of the 

International Organization of Securities 

Commissions (IOSCO) ensures that members 

maintain strict adherence to SCA approved DGCX 

By-Laws. Furthermore, brokers are required to 

conduct their business with clients in accordance 

with the international 'best' code of practice and 

standards observed on other major exchanges around 

the world. 

FXCBS has chosen to become MIFID compliant. 

What implications does this have for you 

operationally? 


We are gladly willing to comply with MIFID 

regulations as we believe that they ensure the best 

code of practice for Forex Brokers. This step goes 

hand in hand with our efforts to raise the sense of 

security for our clients and to apply the highest 

standards of operations. Becoming a MIFID 

compliant broker will open the doors wider to a 

global presence for FXCBS. 

In what ways does the culture you have created 

within FXCBS benefit your clients and help you 

cultivate your business? 

Our business model was meant to eliminate any 

conflict of interest and to reach the perfect win/win 

situation for our clients as traders and for us as a 

broker. Our clients are always encouraged to apply 

any trading style of their preference with no 

restrictions. We always welcome winners, and at the 

same time we benefit from the volume generated by 

our clients' trading activities. 

Unlike traditional spread-trading platforms, FXCBS 

operates an ECN (Electronic Communication 

Network). How does your ECN forex trading model 

work? 

The ECN model of FXCBS gives the Forex traders 

direct access to the inter-bank market where they 

can benefit from the best prices and execution 

available in the market. This process has two sides; 

1. Pricing: as our aggregation engine retrieves live 

prices from multi inter-bank liquidity providers

FXCBS Aggregation system and Bridge: A unique innovation 

>>> 

and aggregates these prices by selecting the best 

Bid and the best Ask at every quote resulting in 

the lowest Spread, and then it posts the selected 

prices to the client terminal of MetaTrader4. 

2. Execution: traders carry on their trading activities 

on the most popular trading platform 

MetaTrader4, where every single trade gets 

executed at one of our inter-bank liquidity 

providers. 

What advantages does ECN style trading have for 

Retail FX traders and investors? 

First of all, anonymity; which no other style can 

provide, due to the fact that ECN trading gives the 

trader access to MULTI inter-bank liquidity 

providers, and 90% of the time the trades are 

opened at one counterparty and closed at another. 

As a result, ECN style gives traders the freedom to 

apply any trading method with no restrictions unlike 

Market Maker style which has been denominating 

the FX retail market for long time and where the 

Market Maker is the only counterparty that takes the 

other side of each trade resulting in a big conflict of 

interest between the broker and traders. Low spread 

is one of the main advantages of our ECN style. 

Since we aggregate multi inter-bank prices, the 

spreads reach 0 pip level often. 



How do you fulfil smaller orders via your ECN 

system given that many banks demand a half lot size 

minimum? 

Banks have the ability to execute smaller trades of 0.1 lot, 

but they usually demand high trade size because they as 

well benefit from the trading volume. Therefore, we have 

reached an agreement with our liquidity providers to pass 

smaller trades through their trading systems as we 

generate high volume of total trading activities. 

FXCBS offers two state-of-theart 

trading platforms: Central 

Station and the MetaTrader4 

platform. What key functionality 

do these provide and who are 

they designed for? 

Central Station is specially 

developed to work in ECN 

environment; it contains the 

Aggregation Engine for pricing 

and the STP technology for 

execution and it is a FIX Protocol 

compliant platform. FIX 

(Financial Information Exchange) 

is the protocol recognized by 

banks and exchanges to pass prices 

and trades between different 

terminals. We provide this platform for our institutional 

clients upon request. 

MetaTrader 4 has the most popular client terminal for 

FX traders, although it was not designed to work in 

ECN environment. But for the first time with 100% 

success rate, we created the needed connection between 

MetaTrader4 and Central Station to make ECN 

functionalities available for FX traders through 

MetaTrader 4. 


What Mobile FX trading platforms does FXCBS provide 

and what important features are available on them? 

FXCBS provides MetaTrader4 Mobile platform which 

gives the traders full access to financial markets and 

making deals from anywhere of the world. Moreover, 

technical analysis and graphical visualization of 

financial instruments are available (including off-line 

mode - without connecting to server). Trade dealing is 

done with careful observation of confidentiality and is 

absolutely safe. If required, you always have the history 

of completed trade deals. 

What facilities and software 

solutions do you offer for Money 

Managers? 

FXCBS offers Money Managers 

special rebates according to the 

traded volume they achieve. We 

also provide Money Managers 

with PAMM & MAM trade 

allocation software so they trade 

on behalf of their clients using 

one client terminal. Furthermore, 

our Finance department provides 

assistance in profit allocation for 

Money Managers. 

You have a minimum account size 

of $3000, which is relatively high in the retail space 

today? Why have you set this relatively high? 

As stated earlier, we welcome winners, and we would 

gladly do anything to help our clients achieve higher 

profitability levels. We set the minimum deposit to its 

current level due to the fact that lower deposit 

amounts would expose the trading account to higher 

risk of liquidation, which some traders may overlook 

and find themselves losing the entire deposit and 

losing the chance of a recovery.

What services and solutions does FXCBS offer to 

Institutional Clients? 

We offer a wide range of services for institutional 

clients including White Label and IB partnership. We 

also offer coverage solutions for operating Market 

Makers that are looking for risk-free coverage solutions 

to handle some or all trading activities of their clients 

including Scalping and Expert Advisor trading. 

FXCBS also provides a range of easy to use "robot" 

trading systems called FXCBS Autotrader. Systems are 

provided via Tradency and the remuneration is 

commission based. How successful and popular has 

this facility been and do you expect to see continued 

growth in the use of robotic trading? 

Our clients have shown interest in FXCBS AutoTrader 

platform with high level of satisfaction. We believe that 

automated trading is an expanding segment in the FX 

Market for two reasons; it eliminates the emotional 

factor of trading, and because most of the FX Traders 

are not full-time traders so they tend to employ an 

Automated Trading software. 

Does FXCBS offer White Label partnerships and if so, 

what services do you provide and what fees are 

involved? 

FXCBS - Placing the needs of clients first 

Yes, we offer White 

Label partnership for 

start-up and 

operating brokers 

where they can give 

their clients the 

opportunity to trade 

on our ECN and 

benefit from all its 

features. Our White 

Label partners are 

provided a 24/5 

support by our 

institutional desk. So 

they can mainly focus 

on the branding and 

sales activities. 

Looking ahead, 

would you consider 

moving to the new 

MetaTrader 5 

platform? 

We are always open to 

new technologies and 

we will consider 

offering MetaTrader 5 

side by side with MetaTrader 4 once we have tested and 

evaluated the functionalities and the market demand of 

MetaTrader 5. 

Over the coming year where will FXCBS be focusing 

efforts to enhance your existing suite of online FX 

trading products and services? 

We believe that the Forex Market is still being 

developed and we would like to play a major role in 

improving this market. Everyday we take the feedback 

of the day before, we analyse it, and adjust our actions 

according to that. 

We will be focusing our efforts on providing complete 

solutions that suit larger institutional clients, including 

local banks, financial institutions, and brokers around 

the globe. And since technology plays a major role in 

the FX Market, we will be developing and 

implementing new technologies that help us and our 

clients achieve the 

ultimate common 

goals. New 

products will be 

added to our 

portfolio as well. 


TRADERTALK 

Ian, you began advising clients 

over 17 years ago and 

established Naismith Capital 

Strategies in 1996. With this 

substantial experience behind 

you what have you discovered 

about the skill-sets required to 

become a successful money 

manager? 

Know how to act disciplined when 

a trade is not going your way. No 

matter if you are trading stocks, 

bonds, commodities, real estate, 

currencies, etc. - begin with a 

predisposed plan of action when 

the trade is moving against your 

desired outcome. There are really 

effective ways of accomplishing 

this discipline – whether it be 

hedging techniques, trailing stop 

loss orders, selling at predisposed 

profit targets, etc. These all are 

logical and practical, but the 

meaningful part is pushing the 

button once a confirmation has 

sounded. In addition, when the 

markets are too volatile for trading, 

simply sit aside and watch. 

You formed Sarasota Capital 

Strategies with your business 

partner Anthony Welch, in 2002. 

What prompted you to set up the 

company? 

It happened due to a turning point 

in philosophy and strategy for both 

of us after the roaring 1990’s. In 

the 1990’s, Tony and I bought and 

sold individual stocks – which was 

quite easy, given the market 


TraderTalk 

With Ian Naismith, co-Principal at Sarasota and co-Manager 

of The Currency Strategies Fund (Ticker: FOREX) 

conditions. When I mention 

“bought,” I do mean we bought on 

the dips, and when sells occurred, 

it is because a stock was not “going 

up fast enough.” When 2000 

came and delivered a bear market 

for the previous years’ high flyers, 

buying on dips did not work. 

Thus, in the latter part of 2000, 

and especially starting in the early 

parts of 2001 and lasting into 2003 

– judicious allocations and stop 

orders became the norm. During 

that period, Tony and I decided to 

concentrate on trading indexes 

employing technical analysis using 

relatively new items called ETFs. 

We had known each other well 

since 1992, and since we were in 

concert with our thoughts, we 

decided to combine forces. It is 

hard to believe the roaring 1990’s 

was more than a decade ago. 

What type of investment style 

does the firm undertake? 

We are an absolute return style 

firm that primarily uses technical 

analysis with common sense 

overlays. Once in a while, 

unusual occurrences happen that 

provide opportunities that cannot 

be possibly measured by a rigid 

technical model. A great example, 

recently the Powershares DB US 

Dollar Bull ETF (UUP) could not 

issue new shares. Within minutes, 

demand overtook supply and the 

ETF was trading up 2% while the 

US Dollar Index was flat. In less 

than 2 minutes after this anomaly, 

we started selling the majority of 

our 21% position of the ETF to 

realize a nice gain; that, in a 

perfect technical world – could 

not have happened. By the end of 

the day, we replaced the sold 

shares for another fund that was 

tracking the US Dollar efficiently 

and wrote covered calls on the 

small amount of remaining shares 

of UUP. On the flipside, fourth 

quarter of last year, our firm 

simply hedged 

through

most of the mayhem. Because of 

unprecedented volatility, 

momentum and/or contrarian 

models did not work, so we chose 

the boredom of neutrality. It 

worked beautifully. 

Sarasota is the investment advisor 

for The Currency Strategies Fund, 

a series of the Northern Lights 

Fund Trust. What are the 

investment objectives of this fund? 

The main objective is to realize 

consistent total return with an 

emphasis on keeping the draw down 

and volatility to a minimum 

compared to individual currencies 

and other asset classes. Regularly, 

Ian Naismith 

advisors who have invested in the 

fund tell us “we don’t have to worry 

about your fund in our portfolios.” 

This is what we’re all about. 

Keeping the fund consistently 

performing is a balancing act 

between the simultaneous use of 

non-US Dollar currencies and the 

US Dollar Index. We believe using 

those opposing currency groupings 

help smooth out the return of the 

fund. Historically, in times where 

non-US Dollar currencies are 

showing strong trends, we tend to 

correlate with the trend – and when 

the US Dollar Index shows a strong 

trend, we tend to correlate with the 

trend. The combination of 

capturing ranges of return when 

non-US Dollar 

currencies are strong, 

and capturing ranges 

of return when the 

US Dollar is strong 

– gives us 

consistency. 

>>> 

What are your main day-to day 

responsibilities in managing the 

fund? 

We make sure the fund is adhering 

to the models that were created and 

keeping our eyes on opportunities 

that cannot be measured in a 

technical system. I’m a system 

driven person and Tony is an 

opportunity person – it works out 

very well. Early each morning, we 

know exactly where our exit or 

entry prices are on a currency by 

currency basis. If either limit is 

breached, we take action. Once 

trading begins, we look for intraday 

irregularities that might become 

opportunities. We also make sure 

that the trades are fairly priced 

compared to the intrinsic value of 

the items we are trading. Besides 

the trading and monitoring, we do 

the normal mutual fund type 


TRADERTALK 

things like prepare written reports, 

approve expenses, marketing, etc. 

Joe Garbade, our operations 

person, does an incredible job 

with day to day reporting and 

compliance. 

The Currency Strategies Fund 

invests primarily in exchange 

traded products and/or mutual 

funds, the value of which are tied 

to currency prices What do you 

like about exchange traded 

products and what advantages 

do they offer for investors? 

The vast majority of the mutual 

fund clients and audience to the 

fund are advisors and regional 

brokers. Right now, we believe 

that a fund of funds makes sense 

because the items we choose to 

trade do consistently track the 

prices of the currencies they are 

designed to replicate. It is easy for 

advisors and other professionals to 

use our fund because most 

understand how ETFs or mutual 

funds work, and it is simple for 

them to track as well. They can 

explain the fund it to their clients. 

As the fund grows, we will be 


integrating other tools for trading 

that will complement our ETF 

trading, but at the same time, give 

us more choices, liquidity, and at 

the same time will reduce overall 

expenses of the fund. In other 

words, we want to use tools that 

will get us to our goal – and 

sometimes ETFs are the way to 

go, and sometimes they are not. 

You use proprietary technical 

analysis to determine which 

currencies you believe will 

outperform the U.S. Dollar. What 

tools do you use to assist you 

with this and what momentum 

characteristics is the analysis 

based on? 

We are looking for out 

performance from either side of 

the pair, whether the winner is the 

US Dollar or not. Primarily, we 

have used Tradestation for 

building our unusual indicators 

and auditing of the code is verified 

by good old-fashioned Microsoft 

Excel. Momentum is measured 

on the ascension on consistency of 

price, but, we do receive 

contrarian sells when consistency 

>>> 

Anthony Welch 

is compromised and contrarian 

buys when consistency is reestablished. 

One beauty of 

Tradestation is that you can view 

your indicators in a columnar 

format that is sortable. This 

eliminates the need for 6 different 

video monitors in the workspace. 

We can see more actionable 

information for trading on one 

21” screen than we’ve seen on 

multiple screens in other offices. 

We like it simple. The hard work 

has already been done developing 

the models, thus, the trading 

signals derived from that hard 

work is clear and simply displayed 

for action. 

What measures determine what 

initial allocation to a currency 

you may make and then whether 

to increase or decrease it? 

This is not mandated by 

prospectus, but, we use equal 

weighting due to the 

overwhelming history that equal 

weighting enhances performance 

starting around 3 year rolling 

period and improves dramatically 

in longer timeframes. Equal

TRADERTALK 

weighting also smooths out 

volatility in portfolios. Thus, we 

have imposed investment limits on 

a currency by currency basis. 

Currently, the maximum 

investment limit we have for each 

G-10 currency ex-US Dollar is 7% 

and 4% for each emerging market 

currency. By prospectus, gold has 

a 10% investment limit. 

However, by prospectus, the US 

Dollar index can receive 100% 

allocation if it is in a raging bull 

market or is having a sharp rally 

because we would like to 

participate in those events as 

much as possible. It would be rare 

for us to be completely out of the 

US Dollar Index or 100% in the 

US Dollar Index. We can also 

expose the fund to 100% short 

term safe havens in times that 

excess volatility is occurring. The 

increasing or decreasing of each 

position happens when we receive 

a signal from our model. The 

adjustments are incremental to 

reduce the amount of noise 

trading when volatility is 

occurring. 

What key steps do you take to 

mitigate the various types of risk 

associated with your investment 

style? 

By nature, the inclusion of all 

types of currencies including the 

G-10, emerging markets, gold, 

and US Dollar Index gives us an 

actively managed single solution 

palette that advisors cannot find in 

the United States right now. The 

fact that we are not strictly an 

anti-US Dollar play only helps 

mitigate risk. In addition to the 

currency choices, the allocation 

limits, predisposed stop loss 

triggers, hedging techniques, 

covered call writing, and the 

ability to retreat to 100% safe 

havens gives us many levels of 

insulation in nasty markets. 


Do you expect to see significant 

growth in currencies being 

packaged in the form of new 

exchange traded products and 

what shape might these take? 

Well, we don’t see much more 

need for duplication of single G- 

10 or really liquid single emerging 

market currencies. However, we 

believe the market may see many 

baskets of various currencies. 

Wisdomtree has many currency 

baskets that have been in 

registration for quite some time. 

Of course, it will take demand 

from advisors and investors to 

make currency ETFs successful. 

What's the average length of time 

that you hold your positions for? 

We don’t limit ourselves to time 

holding periods. When we receive 

a signal or see an opportunity – 

we act. Some of the biggest 

mistakes made by advisors are 

adhering to a predisposed time 

period. 

>>> 

What advisors should be adhering 

to are price periods – meaning, if 

the price of an item reflects a trade 

that is capturing positive return 

with acceptable amounts of 

volatility, then it makes sense to 

participate whether the time is a 

week, month, or year. In volatile 

markets, our holding periods are 

compressed. In streamlined 

markets, our holding periods are 

extended. We would rather have 

more turnover with less volatility 

and draw down, than little 

turnover with more volatility and 

draw down. 

Risk Management, design and 

back testing of strategies and 

optimising trade execution are 

just some of the areas where 

trading tools and technology are 

now making a significant impact 

on how many firms trade 

currencies. How important is 

trading technology to your own 

team and in what ways does it 

help you maximise trading 

operations? 

Joe Garbade 

(compliance/operations)

TRADERTALK 

Trading technology is everything to 

us. It is imperative that we 

understand the past before starting 

a trading system using real money, 

so, we make as many mistakes as 

possible in the backtesting world. 

It requires numerous hours of 

studying what algorithms – based 

on history - increase chances for 

consistent, repeatable results and at 

the same time, we defer that the 

future may be a totally different 

road than the past. With that said, 

having smart trading habits 

improve total return. This means 

finding patterns intraday for buying 

or selling to improve overall cost. It 

also means not overpaying or 

underselling in relationship to 

intrinsic value. We have the 

technology to monitor these items 

in real time. However, technology 

means nothing if you do not 

translate the technology into action. 

The amount of money saved due to 

our trading diligence is astounding. 

Is your trading technology 

infrastructure built in-house or 

provided by specialist vendors? 

The trading technology is 

provided by specialist vendors. 

For real time tracking of intrinsic 

value, volume and bid-ask 

spreads/sizes, we use Tradestation. 

The intraday trading algorithms 

were also built in Tradestation. 

We use HydraTrade for 

executing the trades. So 

we have Tradestation on 

one screen and 

HydraTrade on the 

other. It is very 

simple. In 

addition, all of this 

is easily portable. 

When Tony and 

I travel, it is almost 

seamless to trade. 

As a backup, we 

can call the head 

trader at our 


clearing firm, Ceros Financial 

Services, for trading purposes. We 

have a long term relationship with 

the folks at Ceros, and we know 

we can count on them. If we need 

to search for liquidity for buying 

or selling ETFs with shallow 

volume and/or large bid-ask 

spreads, we can rely on 

WallachBeth to find the liquidity. 

So, a combination of machine and 

human resources is the way to go. 

Do you plan on utilising any 

algorithmic trading techniques or 

are you already applying them? 

We are already applying 

algorithmic techniques – however, 

the trades are being done by 

humans, not automated computer 

only trades. It is algorithms that 

dictate what currencies we’re in, 

the allocation of each, and how we 

trade in and out of the currencies 

intraday. 

In the future, where are you 

going to be looking to grow your 

business and search for new and 

innovative ways to utilize your 

investing expertise? 

Much like we have already. A). 

Identify gaps in the investment 

landscape; B). do homework and 

build intelligent models that 

advisors can use and not lose 

sleep; C). create and launch the 

product; D). educate and 

convince the advisory community 

to fill the gaps that exists in their 

portfolios. The beauty of this job 

is that there are still many 

opportunities in the investment 

landscape and we would like to 

have a stable of products that fill 

those gaps. They may come in a 

number of forms, but the intent is 

to provide value to the investor.

Forex - MoneyShow.com

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