Open X Hub on how technology is shaping the trading environment
The Forex and the CFD brokerage industry is constantly evolving, with new technologies playing an important role in its development. Jakub Zablocki from X Open Hub, a leading technology provider for financial markets, talks about the benefits of open trading platforms
Forex Report: Jakub, how are the new regulations affecting the marketplace?
Jakub Zablocki: A lot which is changing at the moment as for regulations, especially in the US. There are several regulations. The Dodd Frank act has been implemented in the US, so, more and more OTC derivative products have to be somehow cleared, or go through central counter-parties.
In Europe it’s a bit better, but still from this year nearly all trades have to be reported to central repositories, and also the central clearing counter-parties, so for sure it affects technology. So we have to always catch up after the regulators, to make it compliant.
Forex Report: Well X Open Hub offers a fully open trading environment, so how does this differ from the traditional trading environment, and what challenges did you face in its implementation.
X Open Hub is a truly open trading platform
Jakub Zablocki: X Open Hub is a truly open trading platform. It’s like Android systems. So on one side it is a complete A to Z solution which allows brokers and banks to offer forex to their retail clients. From the front end, cloud platform, back end and integrated with the liquidity providers. But what differentiates us is that the broker bank can add or replace any part of the system to make the unique solutions.
Challenges? There’s only to convince the banks and brokers to the new concept. I think the rest is pretty much straightforward.
Forex Report: You created X-Risk to deal with problems with scalpers and large clients. So how does this work exactly?
Jakub Zablocki: X-Risk is a system mainly for companies – the banks and brokers – which internalise a lot of the flow. The problem that these companies have is with high-frequency traders, which are also called scalpers. So you have to write technology not to allow scalpers to take advantage of you. So, this is how the system helps: controlling everything, even the smallest trade, which is passing through the system.
I come from the banking industry: I know how banks are managing their risks. So, they take part of the risk on them, the rest, which is too big for them, they send to other market participants, other liquidity providers. X-Risk automatically follows the rules of the system, and takes only the part of the risk the brokers want. The rest goes automatically, without any dealer intervention to the liquidity providers. This is how it works.
Forex Report: Well toxic flow has been a topic of debate in the development of technology, but what is this, and why is it controversial?
Jakub Zablocki: For me, every flow is the same. The only problem is if you have the right technology to cope with this flow. This is connected with these high-frequency traders and scalpers. So, if they have faster computers, better data sources, better features, so they can take advantage of the providers of liquidity. So liquidity providers call them toxic flow. But from my perspective it is just normal flow, but much more sophisticated; or the market participants are better than the liquidity providers!
Forex Report: What are the major problems brokers now face, and how does X Open Hub now address these?
X Open Hub works better than other platforms because it is open
Jakub Zablocki: Most of them use the same trading platform, so the problem is that they cannot differentiate on the market to attract new clients for their offer. So how do they compete? They simply narrow their spreads. They’re simply giving up a lot of their profits, and they cannot do this forever.
So how X Open Hub can help them, is give them the new tools, the new platform to differentiate. And why it works better than other platforms is because it is open. So we created something like xStore, which is our trading apps marketplace, based on our open API that every third party software provider can build their own application on it. Brokers can pick and choose the front ends, the add ons to the platform, to attract new clients, to be different. And in this way they do not have to compete only with the spread.
Forex Report: Well finally, FX dealings have been in the spotlight of late, with authorities investigating whether some of the large banks have been rigging the FX market. And this has obviously raised concerns that regulatory probes might bring up practices that are similar to those of the Libor scandal. So how do you see this playing out?
Jakub Zablocki: The market is not mature now. Probably we will have some bigger or smaller scandals on the market. The problem is that a lot of flow from forex is being internalised by the big banks and liquidity providers. So it always raises some concerns. But on the other hand the competition on the market is growing, so I think participants which behave not properly are naturally eliminated. But of course we cannot avoid such situations like with the Libor scandal we had this year. But I do not expect such a big scandal to have a place in the forex space.
Forex Report: Jakub, thank you
Jakub Zablocki: Thank you.