Why has social trading gained such popularity amongst the retail investor community and what are the main reasons people are happy to share trading information?
Social trading is gaining popularity amongst retail investors because trust has broken down across the financial industry participants including investors, clients and service providers. The only answer to the distrust is transparency and that’s what social trading is bringing to the market. We have in recent years seen isolated parts of what Saxo Bank has launched but TradingFloor.com is a trading solution for the social media age. It lets investors shine. All traders have an online public profile, there is complete transparency around their investment picks and performance, and users take advice from, and share ideas with, peers rather than paid professionals..
Does social trading appeal to all types of trader and does it exhibit any significant geographical variations in demand, for example across regions like Asia?
TradingFloor have a very broad appeal geographically and we see visitors coming from all over the world. As the current main language is English we therefore see many visitors from English speaking countries. From our user studies we don’t find huge variations among visitors neither in the most popular content or in the interests. We see language versions as the most critical obstacle for significant global reach.
Saxo Bank launched TradingFloor.com earlier this year to offer multi-asset social trading. In what ways does having access to more asset classes in a social investing environment offer traders more opportunities?
If you watch Bloomberg or CNBC, you realise that investing is not just about currencies but also about stocks, CFDs, Contract Options, Futures, ETFs and much more. They are just as likely to be in the spotlight. Saxo Bank has a multi-asset heritage and TradingFloor builds on a unique combination of social trading features in multiple assets classes, tied in to internal and external content and TV production from inside the industry as well as from external sources going forward. All of this is integrated with our flagship trading platform SaxoTrader, and made available to the public transparently. Having the broadest market coverage means a lot to our clients, and to us, but even more important, it’s becoming a prerequisite for social traders. That’s why we keep our ear to the ground and add new products and markets regularly.
How much feedback have you had from clients regarding your social trading platform and how is that guiding the way you intend to further develop it?
Saxo Bank has had an extremely positive response from clients so far, and the community is growing rapidly. Since our beta launch at the end of January we have had more than 1600 individual traders linking their accounts to TradingFloor and 750 of those are sharing their trades. After our initial launch we have set aside a significant part of our development bandwidth to cater for user feedback that we see as vital information to the development going forward. We are collecting the feedback in various ways via fast escalation channels such as mails and chats but we are also running qualitative user tests with daily users familiar with TradingFloor.com and investors that haven’t made themselves familiar with the product yet. All this information goes into our feedback sequence where we scope and prioritise changes and enhancements. Normally we deploy changes into production one a week. So, we think of ourselves as quite agile.
It’s very important in social trading that investors can have complete confidence in the performance data they are basing their trading activities upon. How difficult is it to introduce full transparency and verification into the whole process and what steps have you taken to achieve this?
Saxo Bank was built on transparency and is a core virtue in what we on a daily basis want to bring to the market. As such, we had many of the basic components in the Banks infrastructure in place when we set out to build the new TradingFloor.com – we just had to tweak and restructure the use of these core components. The rest is data contracts to obtain the rights to display and use quality price information.
Do you expect to see increasing interest in social trading from a wider variety of institutional trading firms and if so, is that going to be mainly driven by demand for white labelled platforms or could they find value in undertaking their own investment or risk management strategies linked to retail social investing activities and trade flows?
We have received an overwhelming amount of interest from institutional clients who are interested in white labelling the platform. This is definitely a service we will provide to our institutional clients and we are planning to run the first tests during Q3.
What sort of toolsets and access to news, information and digital content do you expect to see being added to social trading platforms that will assist traders to further improve their skillsets in this type of investing and which can help them to undertake more complex, sophisticated and successful strategies?
First of all, later this year we will add copy-auto trading. A phased development approach has given our users desired new features as quickly as possible while at the same time providing us with valuable user feedback very early in the development process but copy-auto trading is essential to any social trading platform and will assist traders to further improve their skillsets in this type of investing.
Secondly, we know that today’s investors are becoming savvier about diversifying across asset types and international markets, and, as I mentioned before, I think soon multi-asset capabilities will be a prerequisite for social traders.
Do you welcome more regulatory oversight of social trading, particularly with respect to auto trading, and in what ways could this benefit the whole industry and shape the way that it evolves?
Combining a social community and trading undoubtedly increases the level of compliance requirements. With copy trading, the client needs to be fully made aware of the risks involved in social trading, but trade execution is a decision that he or she makes independently when entering trades manually. But with auto trading, when clients allocate funds to automatically copy trades executed by selected Trade Leaders using an automated process, the compliance issue becomes more complicated because trade execution becomes Saxo’s responsibility rather than the clients’ and this means we have to ensure that the client fulfils suitability requirements.
Auto trading is not an explicitly regulated activity at the moment, but we understand from indications from ESMA and local regulators that auto trading is likely considered an indirect form of portfolio management and thereby a regulated activity. As a regulated bank, Saxo Bank is already licenced to offer portfolio management, and Saxo Bank has structured its auto trading offering in accordance with the anticipated legislative requirements.
In what ways are platforms like TradingFloor.com likely to change the fund management industry?
We think there is a need for a new advisory model as a lot of people have lost confidence in financial institutions after the crisis. We’re ultimately trying to facilitate the process of investment advice, rather than selling products. We believe that Saxo Bank can’t know everything about the market and all instruments at the same time, but our clients collectively can.
The world of big data is not going away and understanding other traders’ sentiments and giving people tools to interpret that data is the best way to leverage all the market-relevant information our clients have. By digitalising the investment management space, the market will become more transparent and more efficient as the advisory role shifts from sales people to a crowd sourcing model.
Some commentators believe that the future of online trading lies in making it a much more social experience. Do you agree with them and if so why?
Traders value the opportunity to connect with peers from around the world with whom they would otherwise have no access or dialogue. Until now, trading has been a solitary activity; now, traders can benefit from the exchange of ideas, inspiration and strategies. Saxo Bank will soon launch two additional language sites, with more to follow throughout 2014.