UK investors may have noticed a series of adverts recently in the financial press such as Investors Chronicle for a new foreign exchange trading service called MahiFX, which features an intriguing question on its website.
And the question is: How long does it take John Paulson to earn your annual income?No doubt the comparison with Paulson, a hugely successful hedge fund manager, is designed to stimulate the imagination as to what is possible in terms of making money in the fast paced world of trading.
But there's another parallel to draw from the comparison, which is directly relevant to retail traders. A trader like Paulson, who manages billions of dollars in assets, expects access to the very best in trading platforms and that's in effect what MahiFX is looking to deliver to the small trader from February 2012.
“Building a low cost robust system is technically demanding and requires expertise across a number of disciplines” said David Cooney, one of the co-founders of MahiFX. Cooney added that the MahiFX platform will be powered by a number of unique technologies that they have developed in-house.
Indeed, currency trading is becoming increasingly popular in the UK and elsewhere, which is naturally driving an evolution towards more competitive trading platforms and MahiFX is looking to ratchet that up by a few notches. An article published in FX Week back in September noted that theBank of England’s foreign exchange joint standing committee recently recorded a staggering 23% increase in UK currency turnover in the six months to April 2011.
Explosive growth in FX trading
David Clark, who chairs the Wholesale Markets Brokers' Association, wrote in FX Week that the explosive growth in foreign exchange (FX) turnover was in part down to an increasing number of retail traders spurred on by regulatory reforms making it easier for them to open FX trading accounts and also down to market moving events such as the Eurozone crisis.
In a bid to tap into growing retail interest in currencies, MahiFX will offer trades on 200 currency pairs, such as the Euro versus the US dollar, but will do so with consistent bid and offer prices. “There won't be 'from' prices,” Cooney said. He explained that unless there's a sudden surge in volatility, spreads will be at particular levels during set times of the day, which makes for more predictable dealing costs for traders. Also, there is no commission on trades. Later on it intends to offer currency options.
But at the very heart of the MahiFX platform is automation, which translates into instant execution of trades. And this is where robustness comes in, which is another key selling point of the platform. One of the most aggravating and often costly annoyances day traders have to suffer is to see their trades 'hang' while awaiting execution and that can be expensive because by the time it goes through the market has moved. “We know how frustrating that is. Given we built the technology we can ensure it’s robustness,” said Cooney.
That's exactly the type of issue that got David Cooney and his wife Susan Cooney interested in currency platforms in the first place. Their background is working in investment banking and when David Cooney arrived at Barclays Capital as global co-head of currency options he had the opportunity to get involved in Barcap's push for domination in the FX trading markets – a feat the bank did actually achieve by becoming a leader in the field.
Back then Cooney described the e-fx markets as being riddled with inconsistent bid and offer prices and undermined by unstable trading platforms, all of which made institutional investors, such as insurance companies and big fund managers, very cautious towards trading foreign exchange electronically.
Cooney said the Barcap team he was part of built a strong currency trading platform, that was robust, reliable and able to offer precision pricing, exactly what these big institutions had been crying out for. The Barcap platform eventually became an industry leader, he said.
The idea behind MahiFX is to offer the attributes, now expected by institutional investors from trading platforms, to the little guy. And though automation increases the speed of execution of trades another factor that will play an important part is that MahiFX will act as a market maker, namely it will manufacture it’s own rates and absorb the risk into their portfolio rather than passing it on to another party.
Advantages of being a market maker
There are a number of advantages in acting as a 'market maker' explained Cooney. “We make our own rates so can ensure their quality,” he said, in other words be as competitive as possible. He explained that many FX platforms to a greater or lesser extent act as agents. They take the customer's order and then immediately try and pass it into the wholesale market capturing a mark up on the way through, which adds a layer of cost. The other issue is the broker doesn’t have primary control over the rates shown to their clients. “By engineering our own rates, we can ensure the client’s experience is consistent and there are no extra costs on top of the spreads we show.”
Beyond that Cooney said clients can expect more than just the normal trading tools, offered by most brokers these days, such as charting software. “We will offer tools to enable informed trading,” said Cooney. One particularly useful one he highlighted are various volume measures. This enables traders to figure out whether a move is 'real' because it has heavy volume behind it or if it might be a 'false' move because it occurred in thin trading. It will also give traders access to volatility data.
For aspiring traders who don't yet want to put their capital on the line there will be practice accounts said Cooney along with educational tools to help novices to learn how to trade.
And the really good news is that this platform will be available to even the smallest traders as there will be no minimum deposit requirement. Cooney explained that thanks to the high level of automation there isn't much difference in cost in servicing different size customers.
By Justin Pugsley