Royal: Execution and liquidity are most important in forex today

We've invested heavily to offer the best latency and execution for our forex traders, says Royal's Andrew Taylor

January 8, 2016

The forex industry has changed dramatically over the past few decades, with technology now pushing the boundaries even further. Andrew Taylor, CEO of Royal Financial Trading, discusses the evolution of liquidity in forex, and explains how Royal has invested heavily to ensure best latency and execution for forex traders.

World Finance: The forex industry has changed dramatically over the past few decades – with technology now pushing the boundaries even further.

With me to discuss how the industry has evolved is Andrew Taylor, CEO of Royal Financial Trading Australia.

Well Andrew, forex trading in Australia: what’s the market like there?

Andrew Taylor: Australia is seen as quite a well-regarded market. And we actually put that down to a strong regulation and quite a sound financial banking system.

What this has actually done over the time is given confidence to the Australian market. And it’s also really put Australia as a financial centre, a hub that has given confidence to the market. So we find a lot of businesses feel comfortable bringing their business to companies in Australia. And for someone like myself and Royal, we see that quite constantly. And I’ve seen quite an increase – or a steady increase, I should say – over the years that doesn’t look like it’s receding.

World Finance: So talk me through the evolution of liquidity, and the current dynamics between banks, traders, and brokers.

Andrew Taylor: It’s been very interesting. I remember 20, 25 years ago when an aggressive price in the market was something like five pips, or points in the market. And the evolution of that – the spreads, the prices are now just razor thin.

And that’s an evolution as far as the pricing goes. But when you look behind that, what’s really important is more about the execution, and the real liquidity behind those prices.

It’s one thing to have tight spreads, but if you can’t actually execute on those prices, it’s a concern.

So the prices are derived from one market, the interbank market, and it’s fed down through the market. So you’ll find that everybody is trying to, in essence, hit the same pricing.

So the real trick, and the real key to longevity and making your clients happy is being able to optimise the liquidity that comes through. And what this actually does is, not just recycling like the rest of the market, where everybody’s trying to hit the same pricing in volatile times; but actually optimising your own liquidity, so you’re providing an environment that has better execution for your clients to trade on.

So that’s really important, and you can see how the evolution of liquidity has come to this point.

World Finance: Technology is of course changing the trading landscape – what innovations do people need to be aware of?

Andrew Taylor: It comes down to a big piece of what this market is all about. There was a time when it was about the individual, and how quickly a phone transaction could occur. And then it jumped online.

The evolution of that part is, as you see now, we actually deal in microseconds. It’s technology that’s brought that on. But what’s also key is the latency. How long a price takes to receive electronically, and how long it takes to actually execute on that trade. So the longer that distance is, the wider the latency, and the less likely you’re going to be hitting the prices you’re wanting.

So the premium brokers, the premium players in the market, invest heavily in technology, to cut down the latency and provide that better execution.

What we’ve done at Royal is exactly that. We’ve invested heavily; we have servers in NY4 and LD4 in London and New York. And we’ve gone even further, to place what’s called a cross-connect. So it’s literally the best you can get from the liquidity provider. For us, it’s our focus on the client and what they need. It’s an expense we’re willing to pay to make sure we have that long-term relationship.

World Finance: And what would you say are the key characteristics of navigating a successful brokerage?

Andrew Taylor: First and foremost, I think everything that you do – if you’re in a client business, you’ve got to have the client in mind. If you build your business strategies around this notion, I believe you’re halfway there.

Understand the market that you’re in, what it is that other people are doing; the more knowledge you have, the more power you have in your decisions.

And the other one that really stands out for me is purpose. So the purpose that you have: why are we here, why are we doing this? Understanding that as a company is really important; it gives you the direction you’re headed, knowing what you’re about.

And last I suppose is to invest. Investing is not just about capital outlay, but really investing in your people. Richard Branson said take care of your clients and your staff, and they’ll take care of your business. And it’s just logical sense, it’s something I really believe in.

World Finance: Well of course keeping clients happy is a priority; how do you approach this?

Andrew Taylor: In essence, you do need to have a good product. There’s a product that’s reliable and sellable, and people can rely on it. And that’s where the investment in those areas come in.

I think the human element comes into that as well. Your engagement with the client, letting them know that they’re a part of your focus; letting them know that they’re supported, if there’s glitches, we’re there for them. I think it’s something that’s said a lot but not actually acted on.

And it’s one of those things that you can tell everybody a million times, but when it’s actually in action, that’s when it really counts.

I believe that if it costs extra resource to have more staff so there’s more time to be able to spend with the client, to interact with and understand them: so be it. To me, that’s a good investment.

World Finance: Finally, how do you see the forex market evolving in the coming years?

Andrew Taylor: I do believe that regulation is always welcome. I do think that there is a strong part that the regulators need to play. Within certain guidelines – they still need to be business-friendly, and we’ve seen in some regions it hasn’t obviously been that, it’s been a different environment altogether.

But for me it’s also seeing these partner businesses that do now sit in between the broker and the client who really do add value to the client’s experience and knowledge. And for me I see that really taking off as well – particularly in the emerging markets that don’t have this quite set up, they’re learning about the markets and building. For me, that’s quite exciting times.