The C-Suite is back.
This is a once a month interview where we speak to senior execs in the online trading industry.
This time we caught up with Tom Fawcett, Head of Dealing at Onyx Markets.
Onyx, which is owned by oil market making group Onyx Capital Group, is based in the UK and went live at the start of this year.
We spoke just after Liberation Day, so if any timings seem odd, you know why!
Onyx Markets launched in January – how is it going so far?
We had an initial flurry of clients when we signed up and the last week has helped that too, but it’s still early days.
When we started out, the idea was to be a more broad based broker, with a specialisation in more niche oil products. Now that we’ve got over the line and launched, it’s made us sit back a bit and realise we do actually have time to think more about how we market and structure the business.
I would say we are actually quite unusual because of our background in oil trading. So we have unique products there and great expertise. And the result is that we have some more professional clients, who want to trade global oil with Onyx Markets, via smaller contracts and on an OTC basis. You have another subset who are looking to hedge their exposure to fuel products. And then you have the more ‘classic’ retail business.
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Those are three quite distinct groups and it’s working out how to cater to them. At the same time, I think we’ve realised we don’t want to be the 101st FX/CFD broker on the market. We’d rather be known for what we’re good at which is oil trading and not try to be all things to all clients competing with the bigger players on advertising spend in areas where we’re less strong.
When I first saw Onyx enter the market, I thought it was kind of random to be honest. You have this large market making arm that’s very much in the institutional world. Can you explain what the thinking was behind the decision to launch a retail arm?
You are half right but if you look at a lot of players, across asset classes, in the market making space, they have all been eager to get more market share from retail. It’s just that they mostly do that via liquidity relationships, not going direct to the end client.
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For Onyx, the driver was more that the company has become a victim of its own success. If you look at its market share in some products, it can be around 40%. When you reach that sort of level, you start looking for more avenues to grow. Entering the retail market was one way to do that.
The other push factor was just looking at the opportunity. Oil products are niche but there is demand for them. Since launching, the corporate uptake of the business has been good and that’s because people like the CFD wrapper and structure of the products we’re offering. We’re also going to launch an oil ETC and the demand is there for a similar reason – people want exposure to oil but not necessarily via the contracts that exist at the moment.
I would also say it fits with the ethos of the founders too. Onyx is not an old company. In less than a decade, they have grown into a huge business. So I think part of it was also just the challenge of taking on a new market, like they did with oil swaps when they started the company, and pushing for growth.
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You were on the equities dealing team at IG. Has it been hard to switch over to oil and FX, which is what Onyx offers at the moment?
It has definitely been a steep learning curve. The positive is that Onyx has a really flat corporate structure, so the guys on the trading team here have been extremely easy to learn from and have helped a lot in getting us set up with the business.
To your point though, it wouldn’t matter if you were trading FX, futures, or something else at a CFD broker before moving here. If you are at most CFD brokers, you’ll be offering a few products in commodities and that’s it. So there is no one else out there that has the sort of knowledge or expertise that Onyx does for the products we specialise in.
It’s been a really stimulating challenge too, taking highly complex contracts that exist in the cleared market, and repackaging them in a way that is accessible for trading as a CFD.
As an aside, something I see more and more in the market are more sophisticated hedging tools. Do you have any thoughts on those?
I think it’s very hard to say unless you know what the underlying business is like.
If you are at a large retail broker, you will have so much flow coming in, that you are able to just naturally offset clients and capture spread. That means your hedging activity can be passive, you aren’t looking to really categorise clients and offset the toxic guys.
If you are an FX market maker taking on really sharp hedge fund clients, it makes more sense to have these different buckets that you can put clients into.
If you look at the retail space, it seems like there is – and probably always has been – a lot of competition for higher net worth, professional category clients, particularly since 2018. Given Onyx has this market making arm and, without wanting to brown nose you too much, some sense of pedigree as a result of that, has that helped you bring in those types of clients?
The products we offer now and specialise in do probably lend themselves to a higher value customer. We’re not trying to be on the side of a bus, we’re saying, ‘we’ve got these great products and you can’t trade them anywhere else’. So that does seem to lend itself towards attracting higher value clients that have an interest in oil trading.
On the corporate side it is a wide spectrum though. So as an example, if you run a small logistics company and are consuming a lot of diesel, you might look at our hedging solution and find it more cost effective and simpler than whatever you’re using at the moment.
Onyx has been good at producing media in-house, which is something a lot of other brands have moved towards doing over the last five years or so. Has that been useful in attracting clients?
It has been actually, yes. So we have a TV studio in house and a team of analysts, who sometimes say some fun things, calling out bad practises in the industry and so on. But that is a real asset. All of the analyst team have so much experience in the industry, which is again something other firms will just not be able to compete on.
To be honest, one of the things that I thought when I looked at Onyx was that you would go down the mass marketing route, because the company does actually have the balance sheet to do it. So can we expect some ad money for TradeInformer soon?
Oh absolutely [Editor’s note: this was not sarcasm] but I think we need to work out where we want to spend money to get bang for our buck. Because you know, the company does generate a lot of cash but actually they work quite hard for that and it’s easy to just end up blowing a lot of money on ads if you aren’t careful.
We’ve all heard horror stories where companies will take out a massive campaign, spend millions, and then get zero leads from doing it. Plus I think that kind of activity can lead to a model of churn. You are just spending to outbid for a client that ends up churning out very quickly. That doesn’t really fit with what we’re doing for a lot of corporate clients.
So it’s not to say we won’t do marketing, it’s just we want to think carefully about how we do it. The ethos of the company is ‘by traders, for traders’ because ultimately the company was founded by a group of traders and we want our clients to do well and succeed. Marketing has to reflect that too.
You’ll probably always have this oil niche and specialism, but do you think you’ll expand to offer other products too?
I would say so. You look at markets at the moment and it just makes sense to cater to demand for things like index products, for example. For now though it makes more sense to focus on oil and energy products. That’s where we have our niche and where we can provide something different, plus our existing network means we don’t have to spend a lot to onboard clients who want to trade those products.
One other point I’d make is that we really pushed to go live and now that we’ve done that, we’ve realised, actually we can take things a bit more slowly and see what works and what doesn’t. So we will definitely expand our offering over time, but we’re not in a rush to do it.