Focusing on customer satisfaction

With, Greg Michalowski, Vice President Chief Currency and Market Analyst at FXDD, a privately held New York based Forex broker capitalized in excess of all regulatory requirements. Founded in 2002, FXDD is partly owned by Tradition, the largest inter dealer broker in Continental Europe and the third largest worldwide.

First Published: e-Forex Magazine 33 / e-Forex Interview / October, 2008

Greg MichalowskiGreg, can you give us some background on the current products FXDD offers?

FXDD supports a wide range of retail platforms including our own proprietary trading platform, as well as the popular MetaTrader interface which allows automated trading. Mobile dealing is also supported via MetaTrader 4 Mobile for connection to smartphones and PDA's. For multi client/multi account solutions Meta Trader Multi Terminal is supported. Our money managers' software provides managers with an array of trading and administrative solutions. Money managers are given the ability to trade multiple accounts with a one-click instant execution. Percentage allocation and other administrative functionality are provided in the application. For clients with accounts above an initial $50,000 deposit, we now also offer our Power Trader Platform, which allows direct access to ECNs.

What impact will the new NFA Capital Requirements have on the Retail FX industry (i.e. consolidation of industry) and in particular on FXDD? 

The new regulations have already had a consolidating effect on the retail FX industry.  It seems as though most people have focused on the net capital requirements, which are substantial, and have not given a greater emphasis on the registration requirements.  

Going from an unregulated industry to a regulated industry has effectively shut out many small players, some reputable and some disreputable, who for one reason or another could not or would not go through the registration process.  The effects of registration will, I believe, enhance the reputation of the industry because of the imprimatur of legitimacy it confers on those who work under the gaze of the regulatory authorities.

 

Are the new regulations necessary or correct in their current proposed format? 

The new regulations which require registration of all participants, with permitted exemptions, are necessary for the consistent growth of the industry within the context of disclosure and transparency.  As other jurisdictions create similar regulatory structures the lessons learned from the early Wild West days of the retail FX business will be instructive.  The net capital requirements are excessive.  When fully implemented, a firm will have to have net capital of $20 million in order to have a single customer with a $500 account.  A customer liability (payable) standard would have been more reasonable and would have achieved the same result.

Several major banks have moved into the retail FX space recently. What impact will banks moving into the Retail FX margin trading space have?

I have worked at banks for fourteen years, and now at FXDD for eight.  The dynamics of working for a bank and working for a company like FXDD are totally different.   It requires a different type of customer focus.  It requires an attention to the smallest of detail.  It requires an ability to assimilate retail clients of differing skills, knowledge and trading ability and make them feel comfortable each trading day of the year.   

The day you don’t perform.  The day the customer feels you are putting your firm ahead of them, is the day you lose their trust and that customer.  Every day at FXDD we strive to make sure that does not happen.  Customer satisfaction in all we do is our focus. 

Has recent credit market turbulence had any material impact on the retail FX space?

We have seen a definite increase in activity on a per customer basis and also in the number of new customer’s opening accounts.

Focusing on customer satisfaction

How important will institutional grade technology and e-tools become for Retail FX traders  (i.e for improving execution, risk management, position monitoring etc)?

The current technology available to retail clients is very good on just about all levels.  The gradation in client account size at FXDD, dictates the type of technology that is made available to them.  For the most part our clients are very happy with the execution and reliability of our respective platforms.  We seem to provide the right mix for each customer segment.

Having said that, sometimes less is more when dealing with retail traders and technology overkill will neither enhance their trading knowledge or their ability to accurately trade the markets.  

What is the main strength or attraction of FXDD to the retail client?  

FXDD has a significant advantage over many firms because of our high level of service in multiple languages, our dedication to client education, and our overall approach of working with clients to resolve issues in the context of furthering the client's knowledge so mistakes are not repeated.  We not only want to help our clients, but teach them. 

All of this translates into a more meaningful experience for the client.  When your clients know that you stand behind your pronouncements, they come to understand your perspective and appreciate your efforts. 

We noticed you have a wide range of platforms including several that can be used from mobile devices. How important is this facility to your clients?

Choice is important, but not as important as robust, reliable platforms.  FXDD is on the leading edge of product development for our clients. We are very sensitive to the needs and trends that characterize our clients in a particular region or country and we make every attempt to reach out and fill the void.  Needless to say, some “new” technologies are unproven and we do not attempt to make every new innovation available without first  significant beta testing and determining whether the technology will enhance the client experience.

Will automated/algo based FX trading become more prevalent as a percentage of total client turnover?

Algorithms and other math/quantitative driven systems have occupied prominent place in our retail offerings for some time now.  Our research has demonstrated that the concepts behind these market approaches is gaining strength all the time.  Whether the algorithms or, in the case of MetaTrader, expert advisors function as advertised is altogether another question.  Retail clients should be thoroughly familiar with the underlying technology on which the math/algorithm will sit and be very familiar with the support capabilities of their FX dealer before jumping into these approaches.

Do you provide any programming services to clients?

FXDD does not offer an “in-house” programming service per se.  However, we work with many clients to provide them with specific programming if the programming is not intrusive into our intellectual property and from a cost benefit analysis it makes sense.  This is the case with third party vendors as well.  There are many such “expert advisor” programmers available on the web.

Does automated trading increase the life cycle of the average client?

The life cycle of the client who uses an automated trading system is dependent on the quality of the system they are using.   Of course some clients prefer to rely on a third party system rather than on their own ability to read the markets because of time constraints or other external factors.  Once clients understand that a system/algorithm is just a set of rules for trading, they have a better decision making perspective on whether to put their trust in a third party or to take the time to learn to trade on their own using all the tools we make available to them.

Metatrader

Metatrader

Does automated trading attract larger client in general or is there no correlation?

There does not appear to be any correlation.

You have two trading platforms that support automated trading, MetaTrader and FXDDAuto. What are the differences?

The FXDD Metatrader platform allows traders to program their own systematic trading strategies using the “Expert Advisor” programming language embedded in the Metatrader software.   Users need knowledge of the language, but they have the control over what they specifically want to do including entry orders, and stop and limit orders.  For those who may not be expert programmers, there is an active internet group of traders/programmers who share their expert advisor strategies – some for a fee, some for free.  

FXDDAuto, on the other hand, allows customers to pick and choose from a collection of third party systematic trading strategies.  Once chosen, entry orders are executed automatically, with exit levels likewise done for the customer, 24 hours a day.  The customer has control over certain aspects of the trading - for example the trade size but it is predominantly a turnkey solution. 

Customers who utilized the FXDDAuto platform are generally less knowledgeable about programming systematic strategies themselves, but they want to be involved in the market over a 24 hour period using a systematic approach.  However, customers need to understand the risks of trading black boxes – especially when they are not their own.  Past performance does not guarantee future performance and most work well in a trending market or range trading market, but rarely in both.  

How do you manage the cross hedging risk across the different incoming server platforms or do you hedge each one individually?

It was an essential technical requirement of our risk managers that we had the various FXDD systems consolidate positions into one centralized “Risk Manager Interface”.  By doing this, we are able to manage the net position of our entire customer base - not just the risk on each of the various trading platforms we offer our clients.   Quite frankly there is no other way to manage the business.


FXDD Power trader

FXDD Power trader


Which regions and markets do you believe are driving the future growth of Retail FX ?

We source a lot of business from China, Japan, the Middle East and are quickly gaining more clients from Latin America and Spanish speaking countries. 

As a result of the globalization of our client base, we maintain separate websites in over seven different languages, and have support and sales personnel who can converse with most customers in their native language 24 hours a day.  Of course we are doing well domestically in the US as well. 

Your PowerTrader platform offers direct ECN acsess for your larger clients. What liquidity platform/s do you access and how popular is this platform compared to others?

The PowerTrader is a relatively new offering for FXDD. It utilizes a multi-bank liquidity stream which in most cases, will narrow the spread to the client for a small commission.  We are happy with the progress from a customer standpoint, but we do not really look at it as “one platform is better than the other”.  Instead we look at it as giving our customers a choice and does it make sense for them and for us. 

Each platform we offer has their own advantages and disadvantages, but from a purely numbers standpoint most of our customers still prefer the commission free pricing.  However, we do feel that more customers will transition toward this model. 

Is market growth slowing now?

No.  We are seeing a definite increase in customer account growth on a month on month basis.  We do not publicly publish our growth rates but let’s just say we are experiencing record absolute increases in new customer accounts and deposited margin.

FXDD Trader

FXDD Trader

You state that FXDD’s trading platforms are fully redundant. Can you go into a little more detail about that?

The FXDD Trading Systems are optimized for high availability by employing load balancing and fail over at all levels of the system.  The FXDD hosting facility utilizes multiple HVAC, back up power, and generator systems so if there are any mechanical or power problems the system isn't affected.  Redundant and diverse Internet connections are in place so if one Internet service provider has a problem the system seamlessly fails over to the other.  All network equipment is redundant so each server connects to two physical switches utilizing bonding so if one fails the other takes over with no interruption.  The core FXDD system is designed in a cluster using a minimum of 3 servers with load balanced among all of them.  Capacity can easily be increased by adding servers to the cluster.

Every component of the FXDD Trading System is built in duplicate and triplicate so when problems do occur customers are not impacted.

Do you feel that the idea of charging commission acting as a clearing house and passing through trades rather than wrapping the commission into the spread is preferable for clients?

It depends on the client.  Sometimes the PowerTrader price is the same or worse than the price on our FXDD Metatrader platform.   The reason is we try to maintain consistent spreads in all markets on the FXDD MetraTrader platform.  On the PowerTrader platform, we do not have control over the spread we offer.  As a result, there are times when the spreads on PowerTrader are wider then the price of the commission free platforms we offer.  This generally happens immediately before and after key economic releases but tends to be for a very short period of time. So the verdict is still out on how customers will prefer to trade.

The key point is it is their choice.  We provide the tools for our clients to trade.  If they need to use a hammer instead of a saw, they are the carpenter and know what tool they need.

What changes are due to take place at FXDD in the near future?

The thing about the retail space is you cannot sit still. We are constantly listening to clients and looking for new ways to make trading easier and provide value added services. One new derivative platform we are offering is what we call FXDD MTXtreme. This is another commission based platform that utilizes a narrower price feed, but uses the MetaTrader platform. This will allow our clients to use their MetaTrader Expert Advisor trading programs on ECN type prices.

We will also be looking to add other currency pairs that make sense to FXDD and to our client base.  For example, we recently added Turkish Lira against the US dollar.  This is a currency pair that gets a lot of trading and carry trade interest.

We will also be launching a new versions of our FXDD Forex Commentary webpage which has been a very beneficial value added offering to our customer (http://forex.fxdd.com). Finally, we are looking to introduce a premium internet based Forex news channel called FXDD On Demand.  The application will provide video, and other premium forex data and news. The site will incorporate a channel type interface that will be easy to use and all encompassing for the serious forex trader. 

Other technology advancements and customer support improvements are always being planned.