Charalambos Psimolophitis, CEO FxPro, tells FX-MM editor Peter Garnham how aligning itself with the goals of its clients is paying off for the FX broker and how technology is driving its rise to the top of the industry.
The world is changing fast, and traders are increasingly able to take disruption in their stride according to Psimolophitis. In fact, he says, it is not just in the financial markets that we see that phenomenon, but in life more broadly as technology advances and the dynamics of the global economy and politics swing at an ever more vicious pace.
“We are living in a volatile world, it is not just the FX market, and I think people are becoming more adaptable to volatility in general,” says Psimolophitis.
It is not a glib observation, but Psimolophitis points to the heightened tensions surrounding global politics and, in particular, the increased resilience people have shown in the face of recent terrorist attacks.
“For the first couple of days, people are in shock, and then very quickly, they adapt to the new status quo; they go back to normality,” he says.
The financial markets, says Psimolophitis, are a reflection of this general shift in psychology. That, in turn, has been reflected in the fall-out from the Swiss National Bank’s (SNB) decision to remove the SFr1.20 floor in EURCHF in January 2015, an event which caused turmoil across the currency markets.
“Traders forget easily: they think ‘what happened has happened’. Everybody knows that it was an unusual event, a black swan, but something similar will happen again in the future. We just don’t know when and for what reason.”
Protecting the client
The event is old news, of course. Volumes in retail FX in recent months have recovered thanks to an uptick in, less violent, volatility. Indeed, as Psimolophitis observes, volatility is a double edged sword for retail investors: increasing risk while offering opportunities to trade.
Still, the ramifications for the industry following the SNB’s action have been widespread. Some brokers were forced to file for bankruptcy, while others chased clients for cash as their margin trading accounts went into negative balance as the violent price action meant that they were unable to close out their positions before falling into arrears.
FxPro, says Psimolophitis, did neither of those things, thanks to its strong balance sheet and its commitment to protect its clients.
“From what I have seen, at FxPro we gave our clients some of the best, or even the best prices during this time for closing out their positions,” he says.
Some retail traders do not have a deep understanding of how FX technology works. They look at charts which show where prices are on a minute by minute basis, and do not appreciate the speed of the price action that occurred in the wake of the SNB decision as prices in EURCHF dived from SFr1.20 down to SFr1.03 in seconds.
Clients looking at minute charts could not perhaps understand why their stop losses were not covered at the level at which they were placed, but as Psimolophitis explains prices in FX can change by the millisecond, meaning that, in fact, during the minute after the decision the price changed 3,000 times.
Reaping the benefit
FxPro’s technological capabilities meant that it could cover a lot of their clients’ orders in the market, but it still lost money as it upheld its commitment not to push margin clients into a negative balance.
“It is the job of a broker to protect its clients. That is why from day one after the event, despite the fact that we covered many of these trades in the market at a loss, we were not chasing clients as the negative balance protection was our commitment to our clients” says Psimolophitis. “That meant that everybody was protected. Some other brokers did not do that.”
He says the way the company behaved during the SNB event demonstrated how FxPro puts the client’s interest at the top of its agenda. It was, according to Psimolophitis, taken very positively by the firm’s clients and those of other brokers. Indeed, he says, since the event, FxPro has seen a huge increase in its client base and how many clients it is on-boarding.
“It was an inflexion point for FxPro in a positive way. It was a demonstration of how dynamic and adaptable FxPro is – and the strength of our technological capabilities,” says Psimolophitis. “We stayed true to what we said – that clients would be protected in the case of a negative balance – despite the fact that we suffered a negative financial impact from the event. We never went against any of our clients.”
The common goal
Another way in which FxPro looks to protect the interest of its clients is through its pricing. Unlike other retail FX brokers which run their own risk book and act as market makers to their customers, FxPro moved to an agency model in mid-2012. That meant that all client trades were covered in the market and the broker was not keeping any exposure on its own book.
“The reason behind this was that we didn’t want to have any conflict of interest between us and our clients,” says Psimolophitis. “It meant FxPro makes money from the spread, but it would not benefit in any way from the losses of the client. It was very important to remove this conflict of interest between the client and broker.”
FxPro has since refined the model as it meant, because of the costs involved, it often had to price its clients more expensively compared to its rivals. It took its technology, therefore, and adapted it so that it maintained the same automated system with no dealer intervention, but hedged only its net risk position in the market. It thus eliminates the conflict of interest, while delivering better pricing, according to Psimolophitis.
“We call it a no-dealing desk model. We can provide this because we have the technological capabilities that we developed for the agency model,” he says.
“We cover our risk position in the market, but we remove any perceived conflict of interest by using the same automated system to execute client trades. No dealer will intervene in any way with the trade of a client. Everything is totally automated.”
Likewise, the firm does not internalise any part of the trades associated with its SuperTrader platform, covering them directly in the market. The platform has been designed to allow clients to invest in algorithmic trading strategies, developed either in-house or by third parties. The firm has a quant team analysing the strategies, calibrating them according to market conditions.
Psimolophitis says investment on the platform is picking up, but for now it has not been heavily promoted as the firm looks for empirical evidence on the strategies’ ongoing success.
A world of opportunity
As far as clients are concerned, FxPro is a global operation, although it has a particular focus on the UAE at the moment. It is a region in which it sees a lot of business potential, and the firm has plans to become regulated and set up an office in the state according to Psimolophitis.
FxPro, he says, has also responded to customer demand by offering access to indices on around 35 global stock markets on its platform, reflecting their popularity as trading vehicles among FX traders.
“We don’t want to have three or four thousand products that you can trade, but we want to have more depth in our offering than just FX,” says Psimolophitis. “People that trade FX don’t like to trade specific stocks necessarily, but they like trading stock markets.”
Psimolophitis says FxPro’s ambition is to become one of the world’s top three FX brokers, but the firm wants to do it the right way.
“There are different ways to measure how big you are: one is volume and another is profitability,” he says. “There are companies that may have more volume than FxPro, but they are much less profitable. For us, there is a combination: we need to have the critical mass of volume to be profitable, and then we focus on technology for synergies.”
Indeed, it is technology that is one of the keys to the FX business according to Psimolophitis, and one which helps the firm to remain the most efficient in the industry even as trading systems become faster and more intricate.
“Technology is in everything, from the way you execute trades, to the way you accept clients and how you monitor their behaviour,” he says.
This is reflected in the fact that 70 of the firm’s 200 employees are technologists, helping to keep the firm ahead of the game, including removing latency in its systems that could have a direct effect on its bottom line as FX prices change by the millisecond.
“The only way to keep up is through technology and people. You have to keep on investing, and be able to react when issues arise,” he says. “You cannot relax and say that you have the best technology, because every day technology is changing and somebody has become faster. You have to keep up to date.”
FxPro’s focus on technology means that it eschews the large sales teams favoured by other brokers. The firm, says Psimolophitis, is not in the business of cold calling potential customers in order to encourage them to trade. Instead, he says it relies on its strong brand name, and the way it behaves as a company, to attract clients.
“People choose to come to FxPro by themselves,” says Psimolophitis.
That, he says, is why – to use a football analogy – he expects the firm to be among the “Champions League” of the top three global retail FX brokers and why not become the biggest FX broker in the coming years.
“I believe we can do it, because we have the people, we have the technology, and we have the vision,” says Psimolophitis. “But it takes time to develop things. Everything has to be done in the right way, instead of rushing into things in any way.”
FX-MM editor Peter Garnham, 4th January 2016