See how the trading industry has evolved after 20 years

Find out how the drastic changes in the industry and the “democratisation of information” have helped Saxo Bank succeed.

Before Saxo Bank became a fully licensed and regulated European bank with specialisations in trading and investment, it was one of the first companies to explore the opportunities in the online trading platform back in 1992. Lars Seier Christensen, co-founder and CEO of Saxo Bank, recalls that it was very difficult being a small broker doing manual assistance to a relatively immature client base and all the complexities involved.

“Our wish was really just to do what other brokers were doing, but trying to do it with a better service level. But we were fortunate to stumble over the internet that time when it was very young and nobody believed it because we thought it offered us the possibility of becoming a market leader. Without the internet, we would never have prospered like we did,” he adds.

After more than 20 years, Saxo Bank’s platform has already evolved tremendously with a full suite of platforms utilising web and mobile technologies to meet the needs of traders and investors.

The role of technology

Christensen reckons there has been tremendous change in the industry over the years especially with all the technology that became available in what he calls the “democratisation of information.” And this made way for a huge difference in the industry compared to how it was in the 1990s. “Even relatively small investors can trade something as sophisticated as foreign exchange, so I think it’s a good example of one of the markets that have really moved in a very significant way over the years and have exploded in volume,” says Christensen.

Apart from technology, a very strong reduction in trading costs also lead to the explosion of volume as it opened up more sophisticated opportunities even for small investors. He also notes that Asia may be a little bit ahead of western Europe in terms of embracing these opportunities but adds that the development is pretty much the same across the world. “If you’re looking at the more sophisticated products like foreign exchange, derivatives, commodities, I think foreign exchange is more common here in Asia than it is in, for example, western Europe where there aren’t many private individuals involved in those types of markets.” Technology indeed was an overwhelming tool for the industry in that it justified giving out an efficient service even to relatively small accounts and still be able to make a profit on it. “If you had to deal with that manually like we used to do back then – with all the expensive systems to execute trades - realistically, you would not want accounts smaller than a million because it was not worth the hassle.”

Since technology has developed across the board, it has brought many people into the market. Consequently, the regulatory aspects have also grown bigger than 20 years ago. Christensen deems regulation as the leading issue in the industry today. For a global institution such as Saxo Bank, he notes that one has to constantly adapt to rapidly developing regulatory environment that are different from country to country. “It’s a major resource allocation to stay on top of regulatory changes around the world,” he adds.

Staying optimistic

Market activity was very subdued in 2012 but Christensen believes it will not stay like that this year. “This year will be better, in terms of volumes in general, so I’m pretty optimistic in the long run because I still think foreign exchange is under-utilised although it’s the world biggest market system,” he says while adding that the ever-growing interest in the private investors’ communities is also a positive.

Christensen reveals Saxo Bank got markets in Hong Kong, Singapore, Tokyo, and Sydney well covered and that they are now slowly establishing their presence in emerging markets like Turkey, South Africa, and Uruguay.

However, he notes that while foreign exchange is beneficial for investors’ portfolio composition, professional equity players that invest worldwide are still unaware about how big a part of their return profile actually comes from the currency moves. “If they’re not into foreign exchange trading, I like them to think closely about how big a part of their everyday activity foreign exchange is and appreciate how big a part of the international portfolio is foreign exchange-related in terms of their returns.

It’s a very under-utilised asset class that could have great benefit,” concludes Christensen.