As Global Head of Trading at Saxo Bank, Claus Nielsen manages a team of 55 professionals operating out of their Copenhagen and Singapore offices. The team handles the risk and flow in all the different asset classes, including FX, interest rate products, stocks and commodities. The team at Copenhagen covers the European and US trading session, and the team out of Singapore monitors the Asian session. They are also responsible for new product development such as access to a new exchange, a new currency pair or even binary options (Saxo is planning on launching binary options soon). Claus answered some questions about the markets and the latest developments from Saxo Bank. We appreciate his patience and thank him on behalf of our readers. We will bring you more interviews with executives at other firms as they make themselves available to us.
Saxo is well known for it’s Danish origin and the Nordic regional support. Can you tell us about the FX client demographics in the region?
The Nordic region consists of Denmark, Norway and Sweden and to a certain extent Finland. The countries are very different. In Denmark, there is less speculative business because most of the available funds are in pension schemes. In Norway, there is wealth from oil, and Norwegians are generally more speculative than the Danes. Norway is probably the best speculative market. Sweden is a little ahead of Denmark when it comes to speculative trading. That’s why why our business is, even though we’re based in Copenhagen, a bit more focused towards Norway because of the net wealth.
The deposits of our clients average $50,000 and those of Norwegian clients would be around $100,000. Saxo Bank is well known for catering to high net worth clients because of our services.
Saxo launched a new website ForexTrading.com. Tell us a little bit more about it. Is Saxo looking to expand to traders in emerging economies with lower minimums?
The underlying platform is still the web trader called the SaxoTrader. We are not using the Saxo name but the functionality is more or less the same. The difference is in the product range. We’re trying to offer the products that are most popular and the most traded. This way we are catering to a broader audience that are self-driven and price sensitive. For example we are able to offer the EUR/USD as low as 0.8 pip. We source our liquidity from the top 12-13 Tier-1 banks in addition to EBS and Reuters. Our strengths are competitive spreads and good liquidity, depending on the time of the hour that you trade. We have been building a relationship with our liquidity providers over many years. When I started in 2003 we had a handful of banks, now we have 12-13 banks.
There is a client segment out there that is self-driven and fund with lower amounts. They are also more price sensitive. If you are only trading, let’s say USD/JPY and EUSD/USD, and you’re not really using other services like a Portuguese version of the platform, why would you pay for that? There are quite a few clients that actually end up not using our strong liquidity and go to another broker or bank. Why not use Saxo Bank’s liquidity? We’ve been one of the pioneers.
I think if you look at the 10 biggest FX retail providers—I’m not talking about Tier-1 banks now, but I’m talking about OANDA, CMC, FXCM and Saxo, they probably have around 60% of the market. The rest of the market share is taken by a long tail of competitors that are smaller shops operating out of Cyprus or Malta. They are gaining business. That business could actually be ending up with us now, because we have the offering where we can cater for that segment. We will be not only be competing with brokers like OANDA with our tighter spreads, but also the other smaller brokers out there. If you look at institutional FX markets, the 10 biggest Tier-1 banks in the world probably represent or hold around 85% to 90% of the daily FX turnover. That’s not the case if you look at the 10 biggest retail providers. We want to gain more market share and this new platform will give us the edge.
Saxo recently launched Brazilian Futures online trading for non Brazilian clients. How has the response been so far from your clients?
It has been moderate. In all fairness, we launched the service on 27th of April. We expect trading volume to increase as we reach out to more clients. We offer the Brazilian BOVESPA, the stock index and the US Dollar Brazilian Real futures contract. Brazil is an area we are focusing more and more, because of our white label business. We have a strategy where we would like to focus more on the BRIC economies, like Russia and India and China.
We just opened up an office two months ago in Hong Kong, so we’re close to mainland China. China is difficult because regulation is not well defined. We want to do things the right way. We are a firm believer in that you cannot really go to those markets if you don’t have the local currency and the local stock indices. It’s not a secret that we have a small team now working on coming up with access to the BRIC exchanges. I would say further, that it does not stop at the BRIC economies.
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Can you give us an idea of the retail Forex OTC options volume?
When you look at FX options volume in the world, it’s mainly from the professional and eligible counter party segment. That means investment banks, central banks, hedge funds, pension funds and insurance companies, etc. If you look at the BIS Report, it shows Forex OTC options at more than 5% of the overall market, but that’s because it includes professionals that understand options and derivatives.
The professional segments generates option business in my opinion. Retail clients are late adopters here. They are not really moving into plain vanilla options. We have been doing options since 2003 and business is okay, but it’s not really moving. If we look at the percentages in terms of how much options volume we have compared to FX spot volume, it’s in the range of 5% and it’s kind of steady. I think plain vanilla options strategies are more difficult for retail clients to trade. We are planning on launching binary options in the future, which will be much simpler.
Saxo has several white labels with CitiFX Pro, Barclays and Microsoft and TD Waterhouse. What are some of reasons these firms chose Saxo Bank as their partner?
We are a fully EU regulated bank with a strong brand and reputation. We’ve been in this market for quite some years and have a broad offering. If you take for example MSN and TD Waterhouse, they have chosen us because of our broad offering. At the end of the day, stock traders far outnumber the number of forex traders whether you are in New York, London or Copenhagen. This is an important consideration for white label partners. Let’s say, they choose to expand into India with the Saxo Trader. We are working on offering access to the local Nifty Fifty. Even though some of our bigger white label clients have not taken the full range of products from day one, they know that they have the opportunity to ramp up their product offering. The can offer the listed products and also the OTC products. We have more than 14,000 stocks across 35 different exchanges in the world, and we believe our multi asset offering gives us an edge over our competitors.
Saxo was recently censured by the Dubai FSA for failure to comply with rules regarding the onboarding of clients. What has Saxo Bank learned from this experience?
Without commenting on the specifics, I can say we worked closely with the DFSA to rectify the shortcomings. The experience has been valuable to Saxo. We now have a new process in place, which ensures that the bank fully meets local demands, which by the way is one of the world’s strictest.
Clients in the U.S. are able to open an account with your white label, CitiFX Pro, but the minimums are $10,000 and there are strict net worth requirements. What are your plans for the U.S. markets?
We don’t really have any plans for the U.S. markets. It’s also one of the reasons why we have a white label client like CitiFX Pro.
You are one of the last brokers without MetaTrader. Do you have any plans for the MetaTrader platform given its popularity?
Metatrader is a very simple platform from client’s point of view and the ability to use expert advisors makes it an interesting tool. We’re definitely looking into it and monitoring it closely, but we have no specific time frame.