outsourced trading solutions for financial institutions june 23 rd 2011

OUTSOURCED TRADING SOLUTIONS FOR FINANCIAL INSTITUTIONS

June 23rd 2011

Romania’s gateway to online trading

Brief introduction

The Online Trading Industry

Case study: Ava FX

Business opportunities

Agenda

Brief introduction

Established in 2006

Fastest growing broker in Europe

Trading volumes over $50B monthly

Operates in 150 countries

7 offices worldwide

Regulated in the EU by the Central Bank of Ireland

Winner of multiple awards

Mid-late 1990’s: Saxo Bank (EU) and FXCM (US) bring the spot FX market to the retail investors.

Broadband internet access in homes and workplaces

Internet access everywhere (Wi-Fi, mobile etc.)

Increasing confidence of customers making financial transactions online

Economic growth

How it started

Main Drivers:

Main drivers

Open 24h, as opposed as stock markets – trading in free time

Fairness of the market – huge liquidity, no market movers or inside info

Ability to generate gains in any market condition

High amount of leverage

Value proposition

Evolution

Increased regulatory scrutiny

Institutional customers become more comfortable with online firms

Online trading industry

2006: 5% of revenues from institutional customers2010: Over 10% of revenues from institutional customers (+100%)

20103.3

Growth

+20% ~

+48% ~

Growth

Relevance

90%+ of trading volumes consists of spot FX

Rapid growth of CFDs and FX options

BIS surveys pick up volumes through liquidity providers

BIS includes several online trading firms and non-bank dealers for the first time in 2010

CFDs: Contract For Difference

A contract for difference (or CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at contract time.

No physical exchange of asset, only difference in price

More liquidity – No need for matching order

No expiry – Rollover of positions on different underlying

Ability to short-sell all assets regardless of regulations

High leverage available

Geography – A truly global marketHealthy distribution worldwide for both trading

volumes and customer base

Key trendsUS caught up with the EU. Trend expected to reverse

due regulatory limitationsExpected reduction in volumes and customers migration to non-US firms

Growth of CFDs will shrink US pieCFDs not allowed in the US

“Rest-of-the-World” will grow in importanceDue to availability of market drivers

US Europe OtherJapan

Source: LeapRate

Geography – A truly global market

Revenue and revenue base

Estimated total annual revenues of the trading firms to be approximately $6.5 billion

Steady growth of CFD-related trading volume. Currently about 10% of total, 12% by 2012 and 15% by 2015

Steady expansion of products range traded through CFDs

Revenue and revenue base

Demand drivers

#1 Driver: Volatility

- Crude oil: Soared to $160/barrel in summer 2008 and dived to a quarter of that price in winter 2009. Trading on crude-oil CFDs skyrockets!

- As Gold’s volatility increased, trading volumes increased proportionally

Trading volumes on CFDs today: 10% of totalForecasted by mid decade: 15% of total

50%+ increase considering that CFDs are virtually absent from US market

Source: LeapRateFX Gold and Oil Other CFDs

Segmentation by product

Market trends

Increasing involvement of institutional customers10% of total volumes from nil in 2000, expected to reach 50% in the next

decade

Increased interest from customers of savings products

Through management of online accounts by professional money managers

Increased interest in technology by customersMirror trading platforms, automatic execution, signal providing, technology

bridges

Business models

Aggregation

Trading

Liquidity

Business models

Aggregation

Trading

Liquidity

• Mainly marketing driven firms• Usually working on revenue sharing deals with market makers• CPA deals• Rev. Share on spreads• White labels

• Variety of back-office solutions• In house• Outsourced (full white label)

Business models

Aggregation

Trading

Liquidity

• Responsible for:• Data feeds• Execution• Risk management

• Variety of revenue models:• Market making• Agent markup• Fee per trade

Business models

Aggregation

Trading

Liquidity

• Usually very large firms • Provide• Data feeds• Liquidity• Back-to-back trades• Clearing

Technology

Trading platforms

Auto trading

Mirror trading platforms

Social networks

Technology

Trading platforms

Auto trading

Social networks

• Multi-asset• Mono-currency• User-friendly• Open architecture• Market analysis• News• Calendars• Other

Technology

Trading platforms

Auto trading

Social networks

Technology

Trading platforms

Auto trading

Social networks

• APIs* on trading servers• Programmable trading platforms• Off-the-shelf robots• Bridges for signals• Other…

*Application Programming Interface

Technology

Trading platforms

Auto trading

Social networks

• Cheapness• Variety• Increasing quality of providers through certification process• Strictly volume based• Revenues depend on rebates

Technology

Trading platforms

Auto trading

Social networks

• Combine principles of traditional asset management with social networking• Stricter certification process• Traditional forms of revenue generation (performance fee etc.)

Case study: Ava FX

Ava’s success: key drivers

Accessibility

Service

Trading experience

Competitiveness

Security of funds

Case study: Ava FX

Accessibility

Service

Trading experience

Competitiveness

Security of funds

• Minimum deposit $100• Free demo account• Welcome bonuses• All payment methods accepted• Customer support in 12 languages• Easy margin and P/L calculation•Training and webinars

Accessibility

Service

Trading experience

Competitiveness

Security of funds

Case study: Ava FX

• 24h support• Multi-lingual assistance• Trading through dealing room• Technical support• Personalized service• Ava Select• Simplified processes

Accessibility

Service

Trading experience

Competitiveness

Security of funds

Case study: Ava FX

• 2 trading platforms• Trading from mobile• EUR/USD/GBP/JPY accounts• Free advanced trading tools and indicators• Mirror trading, auto-trading etc.• “Visual” trading

Accessibility

Service

Trading experience

Competitiveness

Security of funds

Case study: Ava FX

• Over 200 instruments• Fixed spreads• High leverage• State-of-the-art execution• No negative-balance margin calls

Accessibility

Service

Trading experience

Competitiveness

Security of funds

Case study: Ava FX

• MiFID compliant• Segregated accounts• Solid depository banks• No negative balance margin calls

Why banks stayed out

Industry dynamicsFast growth, fast change, sophisticated marketing and customer retention

techniques

Failure to recognize potentialIdentified as a low-margin segment banks largely underestimated volumes

Lack of skill sets and HREspecially online mass-marketing. Relatively low-barriers entrepreneurs and

talents prefer setting up their own firm or work for equity upsides in startups

High customer churnBanks are usually equipped for long-term investments and relationships with

customers

What it takes

MARKETINGMARKETING BACKOFFICEBACKOFFICE TRADING + RISK MGMT

TRADING + RISK MGMT

CUSTOMER SUPPORT

CUSTOMER RETENTIONCUSTOMER RETENTION

Banks – Core expertise

TRADING + RISK MGMT

CUSTOMER SUPPORT

• Established brand• Ability to cross-sell

TRADING + RISK MGMT

CUSTOMER SUPPORT

• Different back-office management• Different payment methods

TRADING + RISK MGMT

CUSTOMER SUPPORT

• Different trading platforms• Trading on CFDs

TRADING + RISK MGMT

CUSTOMER SUPPORT

• Assistance needed for customer base

• Highly labor intensive• Demanding training process

TRADING + RISK MGMT

CUSTOMER SUPPORT

• High customer churn• Very different marketing techniques

TRADING + RISK MGMT

CUSTOMER SUPPORT

#1 # 3 # 2

FUNCTIONAL

RELATIONAL

Population Internet Users Penetration User

Growth( 2009 Est. ) Latest Data (% Population) (2009 vs. 2000)

Romania 22,215,421 7,430,000 33.40% 828.80%European

Union 489,601,562 319,895,346 65.30% 238.90%

Internet trends in Romania

Source: www.internetworldstats.com

On days when you use the Internet, how long do you use it on an average day?

CDC Stud

InSites Co

nsultin

How many days do you use the internet in an average week?

CDC Stud

InSites Co

nsultin

Do you have an internet connection at home?

CDC Stud

InSites Co

nsultin

Proportion of respondents who perform named activity at least weekly

CDC Stud

InSites Co

nsultin

TRADING + RISK MGMT

CUSTOMER SUPPORT

#1 # 3 # 2

FUNCTIONAL

RELATIONAL

The solutions

TRADING + RISK MGMT

CUSTOMER SUPPORT

Omnibus Account

AVA FX MASTER

ACCOUNT

CUST. ACCT.

The solutions

TRADING + RISK MGMT

CUSTOMER SUPPORT

Omnibus Account

• Branded trading platform• Full control on trading conditions• Full control on back-office and customer relationship

The solutions

TRADING + RISK MGMT

CUSTOMER SUPPORT

Partial White Label

The solutions - Partial White Label

The solutions

TRADING + RISK MGMT

CUSTOMER SUPPORT

Partial White Label

CUST. ACCT.

SHARED CRM SYSTEM

The solutions

TRADING + RISK MGMT

CUSTOMER SUPPORT

Partial White Label

• Fully branded customer experience (website + platform)• Fully outsourced back-office solutions including quick payment methods• Full control on customer relationship

The solutions

TRADING + RISK MGMT

CUSTOMER SUPPORT

Full White Label

• Fully branded customer experience (website + platform + emails)• Advanced customer tracking and data mining• Fully outsourced back-office solutions

Advantages

Quick time-to-market

Minimal investment

State-of-the-art technology

Best skills set in the industry (Marketing, anti-fraud etc.)

Thank you for your attention

Questions are welcome

Gabriele ManasseDirector – Italy

g.manasse@avafx.com

“dbFX has been a strongly performing business for Deutsche Bank but has reached a point where in order to reach its full potential it requires significant investment in specific resources which are not consistent with Deutsche Bank’s current strategic initiatives.”- Deutsche Bank press release

Another good reason would be that by June this year dbFX would probably be required to become an RFED due to its foreign bank status which would require major restructuring and additional compliance – which probably wasn’t worth it for Deutsche Bank. - Forex Magnates 21/4/2011

outsourced trading solutions for financial institutions june 23 rd 2011

online trading industry

online trading source

online trading cfds

online trading firms

online trading evolution

online trading open

romanias gateway

europe trading volumes

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