In today’s Executive Interview, Forex Magnates spoke to Yaacov Heidingsfeld, CEO & Co-Founder of TraderTools. TraderTools provides liquidity aggregation services for banks and brokers, enabling them to optimize their relationship-based pricing. One of the debates among liquidity takers is whether to go down the simpler route of sourcing pricing from multi-dealer platforms (MDP) such as from primer brokers and ECNs, or partnering directly with dealers using single dealer platforms (SDP). While MDPs offer a single connection source and consolidated reporting, firms can typically source tighter pricing when working directly with banks. In this interview, Heidingsfeld explains to us where the idea to create TraderTools came from and how firms are using their services to optimize their relationship based pricing.
Please tell us a little about your background and what led you to co-found TraderTools
I started TraderTools with my co-founder, Martin Fawer. I was a successful Hedge Fund manager who traded primarily FX and FX options. Although I loved the fast pace of the business and quick decision making, I was very frustrated by the tools available to traders. At that time (early 90’s) there was a lack of tools for real time prices, with spreadsheets among trading desks just starting out. As a hedge fund manager I saw the difficulties banks and market makers had in providing liquidity to clients like myself.
I thought I could do better and formed TraderTools to do just that.
I leveraged my contacts at large banks to build tools like NDF, forwards and swap calculators and finally a global FX order management system. We built them all with ease of use for traders in mind and to be fast to keep up with electronic markets.
We became experts in the FX technology business and provided professional consulting services for many large banks. With our fingers on the pulse of the industry, we anticipated the move towards electronic trading and designed our products accordingly.
TraderTools provides liquidity aggregation services, what does this entail?
At the same time that we started to provide FX tools to the industry, ECNs, such as Currenex, Hotspot and FXall, quickly established public markets for electronic trading. These networks were easy to plug into and offered great liquidity but were primarily anonymous dark pools with wide spreads. Although all of the large banks had single-bank platforms, they contributed to these liquidity pools despite the fact that they were unable to leverage their personal relationships with their customers. We thought that the potential to turbocharge Relationship Pricing – while coexisting with ECNs – was enormous. Here was a real opportunity to help traders make money.
To do this, in 2008 we set out to build a new platform for FX trading totally dependent on the idea of relationship pricing. We define “relationship pricing” as enabling liquidity makers to quote spreads on specific currency pairs/sizes for each individual “liquidity redistributor”, or, what we refer to as, “relationship bank”. There are no multi-tenant liquidity streams for our clients, allowing for true 1-to-1 relationship pricing. That, combined with no transaction costs for liquidity makers and detailed reporting for both liquidity making banks and redistributors, makes our SaaS solution unique.
Who are your target customers, and what do they benefit by using your services instead of sourcing from and ECN?
2020 Global Market Outlook: How the “Known Unknowns” Can Affect CurrenciesGo to article >>
Our target audience is “relationship banks”, as described earlier, with real order flow and customers. We target relationship banks that lack one or more of the resources required to provide a full-service technology solution for FX trading desks: IT staff, technology, infrastructure and/or capital. With our cloud-based service, none of these resources are required. LightFX features out-of-the-box integration with STP providers, like RTNS, MarkitSERV and Traiana, and is hosted at NY4 and LD4, with cross-connections to all liquidity sources. We handle everything from the hardware, the software and the connectivity issues. All a customer needs to provide is a VPN or Internet-based connection.
For firms looking to launch FX trading for customers, does TraderTools offer end to end solutions that include end-user platforms to back office administration?
In early 2012 we created a cloud-based service for our 2nd-generation aggregation capabilities called LightFX. We liked the term “light” because it differentiated us from “dark” pools. Unlike dark pools, LightFX provides total transparency to liquidity providers. We work together with LPs to customize liquidity for their relationship customers using a transaction-pricing model that requires no minimums and can be up and running in a matter of weeks.
In early 2013, we integrated our market-leading order management solution with the cloud offering.
Showing both top-of-the-book as well as full depth-of-market, our customizable SOR (Smart Order Routing) goes out to the market to achieve much better executions than any single- or multiple-platform ECN. Assured by full visibility, our non-predatory SOR generates business intelligence based on accumulated trading statistics for in-depth analysis of a customer’s trading habits and behavior.
We can provide banks with a front-end GUI to deliver customized pricing to their customers. Alternatively, rates from our FX pricing engine can also be published to ubiquitous customer-facing front ends like FXall, 360T and Bloomberg. In terms of the customer’s back end, LightFX features out-of-the-box integration with STP providers – such as RTNS, MarkitSERV and Traiana – and is hosted at NY4 and LD4, with cross-connections to all liquidity sources.
Among your broker and bank clients using your products, what are the A vs B book breakdowns?
We don’t know exact figures, but based on conversation with clients, we estimate that around two thirds of order flow is sent to the market
Do you provide coverage for CFDs?
LightFX supports Spot, NDFs, Metals and Synthetic Crosses.
What are TraderTools plans for the future?
We intend to continue to add instrument coverage as regulatory changes allow and to make core functionality of our Liquidity Management Platform (e.g. pricing, auto-hedging) available in the SaaS model as well.