OANDA is one of the oldest brokerages in the industry, and as such it has committed to proprietary technology the earliest. The company has managed to implement innovative solutions early on that permitted it to become one of the few brokerages that are not heavily reliant on third party technology.
After moving its headquarters from Toronto to California, the company further underlined that its main goal is to commit to developing its own technology. As part of its 20th anniversary in September, OANDA launched a new execution engine which the firm states is almost 4 times faster than its previous one.
According to Finance Magnates Business Intelligence, the company is transacting close to $118 billion monthly, making the company one of the biggest players in the industry not only in the US but worldwide.
The company’s CEO Ed Eger has agreed to answer some questions in relation to the company’s new execution engine, the firm’s growth plans and the upcoming technological developments.
What is the v20 execution engine and how is it improving trading execution for clients? What are the speeds which you have recorded in your tests and is it an in-house development?
Our business strategy has always been to focus our company around technology and engineering. As part of this strategy, we have completely reengineered our trading engine to give traders what we believe is the fastest execution engine available to retail traders. Our v20 system, named to celebrate OANDA’s 20th anniversary as a company, executes trades at a stunning 1.3 milliseconds. To put that in perspective, not only is that four times faster than our legacy trading engine, it is only 1/200th of the blink of an eye. Just to be clear, what we are talking about here is the median round trip speed from receipt on our servers to the response, based on our market order fills from June 1st to September 1st of this year. What this does is brings institutional quality execution speeds to retail traders, further levelling the playing field in trading FX, indices, commodities, and metals on OANDA’s platform.
Market volatility occurs in microseconds, so lightning fast execution speeds help traders get closer to the price they’ve requested, with greater accuracy.
It would be great if we get some insight into v20 and its development…
We believe v20 is the fastest trading engine available to retail traders and invite our competitors to make their execution rates as transparent as we do today. In a market that moves as fast as FX, all traders should understand execution speeds, since latency created by slow execution is a huge cost of trading on many retail trading platforms.
The engineering team has applied modern software engineering and system design patterns to build a distributed, highly available, and horizontally scalable transaction processing engine. To shoulder such a large undertaking with a small focussed team, we leveraged a lot of open source technology, Silicon Valley agile methodologies, and where it really counted for speed, we’ve built our own foundational technologies. To really land the speed problem, the team had to include some unusually diverse skill sets for a financial engineering team. Having experience with low level operating system development, embedded high speed telecommunications systems, and cutting edge video game engines turns out to be highly valuable when your engineers are talking about shaving 20 millionths of a second off of the transaction pipeline.
Finally, we built v20 in close consultation with our trading team so we now can offer important features such as depth of market, new order types and options, and single account hedging. And speed.
Have you guys considered going public and where do you see the main opportunities for growth at the moment?
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Always an interesting question for a private company. We have the luxury, as a well-capitalized, profitable private company of deciding how and when we make such a decision. Rather than focus on a public event as an end point, the team at OANDA is always looking for ways to maximize the value of the firm for our shareholders. Our trading business has seen strong growth over the last three years. We’ve significantly increased our active client base, added new products, and grown our presence into new markets, such as Australia. That being said, we will continue to solidify our brand across a much wider range of asset classes including indices, bonds, commodities and precious metals. We believe we can better serve a wider range of clients by being this multi-asset trading platform around the world.
In addition to our trading business, we’ve also invested in our B2B businesses – our FX Solutions for Business unit. By providing the most accurate data as well as cross-border payment solutions for small and mid-market corporates, we believe that we will bring our disruptive approach to an underserved market segment. These exciting new businesses will continue to evolve OANDA into a broader company serving an ever-increasing group of clients.
What is the current state of market making at OANDA – do you mostly internalize trade flows or you have some flows that are also transferred onto the broader market?
Yes, we proudly act as a market maker. And as I think was demonstrated back during the Swiss National Bank event last year, the market making model, combined with our strong risk technology and risk management, enabled us to work through this difficult period quite effectively. The reason why we came through the Swiss Event so well was because we were able to make a market for our clients—honoring all pricing and trades we quoted to our clients—and then we used our leading technology to hedge out our positions to our liquidity providers during the event. This combination of a client-first business approach combined with great risk management and technology enabled us to exit the Swiss event in a very strong position.
And as to internalizing trades, because we allow trades of all sizes on our platform we do internalize some of our volumes. But since our model is to be a market maker and not a prop trading house it certainly is less than half our volumes. But most importantly, we never trade against our clients—you can see that in that we don’t reject or re-quote trades, even if the transaction goes against us. Instead, we honor what we say, and work each day to provide the best pricing and products we can to our clients. We did that on the day of the Swiss Event, but we did it the days before and all the days since then—it’s what our brand stands for—bringing a fair, transparent marketplace for traders around the world.
Does the new ‘depth of market’ feature mean that you will enable partial fills for some large orders?
Yes. Support for partial fills is indeed built into the new system, and we’re working to make that order configuration option available through all of our front end trading platforms.
What has allowed you to increase the maximum order size for majors (up to 20 million USD)?
That’s a direct result of the simulated Depth of Market feature. The cost of doing business in the interbank market is not one size fits all as doing trades of different sizes results in different prices. Since we have to manage our risk in this market, we had to limit customer trade sizes in order to maintain profitability. Now Depth of Market effectively gives our customers a window into that variable cost of doing business, allowing us to give them access and let them decide if they want to do business.
What was OANDA’s financial performance for the first half of 2016 when compared to last year?
As a private company, we don’t release financial results to the public. What I will say is that over the past three years, we have seen significant growth in our client base and our revenue, all through organic growth. I believe that by serving traders well, providing them the fastest, most reliable platform, and the broadest set of relevant asset classes, we will continue to experience our strong organic growth in market. And you are seeing those results in the market. We are now the largest FX broker in Singapore1 and second largest broker in the US2. We made the unprecedented decision to side with our clients during the Swiss Event in 2015, a decision which helped to fuel client acquisition and 2016 is forecasted to be our strongest year ever.
1 By primary market share. Results from Investment Trends 2015 Singapore CFD & FX Report, based on an online survey of 11,327 investors/traders. 2 Results from Investment Trends 2016 US FX Report, based on an online survey of 8823 traders.