LeapRate Exclusive Interview… Our recent report that Copenhagen based retail forex and CFD broker Saxo Bank had launched a new FX and CFD order execution model targeting increased liquidity and transparency was met by a lot of questions from our readers.
What’s different about this execution model?
What exactly is an order driven execution model?
And mainly: Why should I care how my broker executes my trades?
So we decided to go to the source and speak with Kurt vom Scheidt, Global Head of Foreign Exchange at Saxo Bank, to get some answers. Here’s what he had to say.
[divide]
LR: Hi Kurt, and thanks for joining us today. I’d imagine that most FX traders don’t pay much attention to how their orders are executed. Can you explain why that is actually very important?
Kurt: Order execution is absolutely critical for investors and traders.
Our new model is the latest in a series of efforts that clearly demonstrate Saxo’s ongoing commitment to deliver best execution for its clients by empowering them to take control of their trading in order to enhance their profitability. The new order driven execution model will include further enhancements to clients’ ability to have greater control and transparency over their orders. These include user defined price tolerances, with the possibility of price improvement on every execution passed on to clients, while allowing for partial fills.
It is important to us that each client be able to execute in such a way that their individual dynamic preferences for priority of price level or fill ratio is expressed to us in order that we are enabled to reflect that preference in facilitation of each of their executions, thereby delivering fair outcomes in a transparent manner. Executing by Market orders can be beneficial to someone that wants the highest likelihood of a fill in the full amount of their request.
But, it is important that clients understand that they could potentially experience unexpectedly large slippage with that kind of an order type, if, for example, they placed it immediately before a news announcement that moved the market significantly against them as their order was in flight. Conversely, by using Limit orders to execute, clients can specify their maximum tolerance and then be sure they will not be executed on a price worse than they have requested.
Saxo will be collecting and publishing additional historical order fill statistics (beyond our Stop Order Fill Stats which we already publish quarterly on our websites) to be transparent with clients in this regard, as we feel that transparency is also important.
LR: Saxo Bank recently announced a new ‘order driven’ execution model for Spot FX, CFD and other products you offer. Can you explain what that means.
Kurt: An Order Driven Model provides an executable price provided to our clients that is based on Saxo’s own liquidity, in addition to liquidity available in the broader market through our connectivity network with numerous bank and non-bank liquidity providers as well as many so-called primary and secondary ECNs (EBS, Reuters, Hotspot, Currenex, etc.).
Crucially, our change from a quote driven execution model to an order driven execution model allows us to extend the breadth of FX liquidity available to clients since many of the venues only operate on an order driven, rather than quote driven, basis.
We this is an opportunity for Saxo to differentiate itself by increasing transparency around how we handle client orders, thus enhancing our best execution practices. Early adoption of regulatory requirements (MIFID II Best Execution Policy) and both Phases of the FX Global Code are the key drivers in defining ourselves as the most transparent and responsible FX and CFD trading provider.
LR: How is the new order execution model different from how you previously executed client orders, or how orders get executed at other market maker or STP brokers.
Kurt: One key difference is that we will now be able to offer clients the potential for price improvements on every trade.
Another is that we will be able to support partial fills, something that can be extremely helpful to clients to realize gains in markets where price levels may not yet exist for their full order amount, and may otherwise reverse in a way that could decrease the magnitude of a clients unrealized P&L before they had a chance to realize at least part of their gain. We are excited to be able to offer this additional transparency in our order handling to our clients and hope that the changes will allow our clients to be more profitable.
It is also important to us that our clients have a consistent way of executing orders across the multiple asset classes we offer on our platform so that they find it easy and intuitive to hold diversified cross-product portfolios, which allows clients to exercise discipline with appropriate risk-reward ratios.