In the final quarter of 2019, XTB, a Polish foreign exchange (forex) brokerage, reported solid revenues. In fact, the firm managed to double its revenues in Q4 year-on-year, with total operating revenues coming in at $23 million (PLN 89.59 million).
Recently, Finance Magnates sat down with Omar Arnaout, the Chief Executive Officer (CEO) at XTB. Namely, we wanted to know whether the broker’s Q4 2019 results were an indication that retail traders had now adjusted to the product intervention measures originally implemented by the European Securities and Markets Authority (ESMA).
“On one hand retail traders have adapted their strategies to the new trading conditions but on the other hand our significantly improved revenues are also the result of the very dynamic increase of our client base,” Arnaout said in the interview.
“After the product intervention the number of active clients trading on CFD’s decreased to approximately 13000 clients, while this number exceeded 24000 clients in January 2020 which is an increase by over 80% of our total client base in less than two years. This clearly shows that the strategy undertaken by XTB has proved effective and it is crucial that we don’t only continue this path but also empower it.”
XTB plans to gain market share
In the company’s preliminary financial report, XTB said that ESMA’s restrictions have given the broker a unique opportunity to gain market share. So how does the firm plan on achieving this?
“In general our strategy is based on becoming better in every aspect of our business whether we are talking about products, technology, sales, marketing or customer support. Every department and every branch is always challenged to do better and grow every single month,” Arnaout explained.
“What is crucial for us is that unlike most global brokers we are a fintech with over 100 developers in house. This gives us possibilities that are not available to most of our competitors and we put a lot of focus on how we can use this to our advantage.”
However, it is worth noting that the situation in Poland, in terms of leverage restrictions, is a lot more relaxed than in fellow EU-member states. As Finance Magnates reported, the Polish Financial Supervision Authority, the KNF, decided to go against ESMA’s wishes and decided to allow 100:1 leverage for certain assets.
Speaking on this decision, XTB’s CEO outlined: “We are very happy that the KNF is conscious of the problem of clients migrating to non EU jurisdictions, which are often also not regulated seeking higher leverage. The introduction of the experienced client category has strongly limited client migration which is very good news for the whole Polish industry and not only XTB.”
Geographical expansion of XTB
With the broker closing 2019 on solid footing, XTB has some big plans for 2020. Among those plans is the broker returning to its roots and continuing to expand its operations across the world.
Although XTB’s CEO was not willing to say exactly which countries the broker will be expanding into for the whole year, he did mention that the firm hopes to start its activity in South Africa in the next few months.
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“As to foreign expansion then in the last few years we put a lot of focus on optimizing our activities in the EU and Latin America and even though we always want to improve, we firmly believe that we have built a very solid ground in those area’s, where in each country we are either the biggest broker or one of the biggest. Currently we have over 10 offices around the world and have accounts with clients from over 150 countries,” Arnaout commented.
“The time has now come to move forward and come back to geographical expansion. We are highly optimistic that within the next few months we will be able to start our activity in the Republic of South Africa. This will be the first step in terms of expansion and we are awaiting the issuing of another license and hopefully by the end of 2020 we will have offices on four continents.”
Migration from broker to fintech
According to XTB’s CEO, the brokers increasing involvement in technology, and its transformation from not just being a broker but also a fintech, has played a large role in the company’s growth.
“Becoming a fintech has immensely influenced the growth of XTB from every perspective. If I was to provide every single advantage then this interview would probably take us a few days,” he said.
“One of these advantages include making full use of everything that comes from our data warehouse and artificial intelligence team, which strongly influences every decision we make in the company. In the past many decisions were based on assumptions and feelings while now whether we are creating a marketing campaign or designing our trading platform then nearly all decisions are based on reports and facts, so we are able to make better and more calculated decisions.”
Through its technology capabilities, XTB was able to develop its own trading platform, xStation 5 many years ago, as well as launch the mobile version of the platform.
“Thanks to them being our own platforms we are able to not optimize and improve both platforms to suit the growing needs of our clients but also year after year improve the execution speed of all transactions.”
“Concluding there is a multitude of advantages that we have over brokers who do not have an in house technological department and it is crucial that we make the most of this factor.”
Is it too late for brokers to make the change?
According to the Polish broker’s CEO, becoming a fintech is one of the reasons why XTB has been able to manage the product intervention measures. So, should other brokers follow suit?
“After the product intervention there are many obstacles ahead of the brokerage industry where it is becoming especially hard for small and medium sized brokers,” Arnaout explained.
“In their case I am not sure whether becoming a fintech is the way to go because it could possibly be too late. On the other hand the worlds biggest brokers I am sure are aware of this and I believe that it is only a question of time before such factors as being a fintech separate the good from the best.”