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Welcome back to another issue of the C-Suite, a once a month interview where we speak to senior executives from the retail trading industry.
This time we’re talking to Otakar Suffner, Co-Founder and CEO of prop trading company FTMO. Otakar started FTMO as a student over a decade ago and the company has taken off in the past couple of years. This is also a sector that has boomed in popularity over the last 12 months. So who better to speak to about it?
DK: It’s been a crazy couple of months for the prop space. Are things stressful? Can you talk about what has happened, why you stopped taking US clients and so on?
Well it’s not been the most stressful period since we started the business, so we’re doing ok. As you can understand, at this time, we cannot provide any more details in this respect. This situation was caused by a number of variables related to the US market.
So what I would say is that yes, we have stopped taking clients in the US and did so very quickly earlier this year. When you are a new kind of business like us there can be uncertainty. To keep important relationships in place you have to keep things compliant and that’s what we did.
One point I’d make is that, yes, the US was a big market for us. But looking at FTMO as a whole, it’s not that big, and not worth the risk that it poses to our business.
DK: Ok so taking a step back, I still don’t think a lot of people in the broker space appreciate how big FTMO is. Can you give some background on yourself, how you came up with the company and so on?
It’s funny you say that because we were at the iFX Expo in Dubai in January and there were still people coming up to us, saying, ‘who are you? What do you do?’
But if I compare it to say 2015 through to 2019, no one knew who we were or what we did. This time a lot of people knew us and so things are changing.
We came up with the concept for FTMO when we were students back in 2013. We were trading futures with one company using a kind of similar model, but it was on a much, much smaller scale. And the problem was always that we didn’t have the capital to trade at a meaningful size. So the idea was just that, to give people who are good at trading access to more capital.
So we set up the company and the first two years it was just [FTMO Co-Founder] Marek and myself. Marek was doing all the coding and I was doing everything else, so operations, compliance, marketing, customer relations.
We launched in 2015 just in the Czech Republic and Slovakia. And we got good feedback from them. Honestly, we were quite worried about the service because about 90 percent of people fail the FTMO Challenge, so they might get angry afterwards. So since the beginning, we decided to create a lot of additional value to our clients.
They have statistical apps, they have account analysis, and so on. At the beginning a lot of this was manual. So we had a few clients and I would have to manually type up a report, which took about 90 minutes, telling them where they could improve and so on.
The upside is that I think it gave us a good base to start with. You know, I’m Czech so I’m not afraid to say it, but I think this is a very difficult market to succeed in. People can be blunt, they are quick to complain about things when they don’t work. So it gave us a good start to make a great product and then expand abroad.
DK: So have you ever had outside investors? I haven’t looked too deeply into it, but my understanding is you and Marek still have all the equity in the company.
We had one investor in 2016 and that was it, but there was no equity involved in that case. It was more similar to a profit share. They invested $20,000 in 2016 and got $5m in 2020. That was it in terms of outside investment.
DK: So a pretty good investment for them. Anyway, what happened after you expanded?
Our original name was Funded Forex Trader but when we wanted to translate everything into English and expand abroad, we got a cease and desist letter from one US company which owned that trademark. And they told us that we need to change our name or they are going to sue us. So we decided, ‘ok, time to change our name’.
Basically we were just looking for a domain and we found FTMO. It was for $3,000. It was the biggest investment we had ever done at that point. So we bought FTMO, we translated everything, and in September 2017 we started providing our services to a global audience.
The hardest part at the beginning was just explaining what we did because it was really a new thing at the time. There weren’t other companies like ours. So that was very, very difficult.
DK: So how did you manage that?
I think the good and bad thing about trading is that it’s not really a mass market product. It’s kind of a niche interest. So it takes time to build trust, for us it was years, but once you make a name among those specialist websites, like Forex Factory or on certain YouTube channels, you start to build traction. So it took us a couple of years to build that trust but since 2018 we’ve been growing massively.
DK: When people read something like this it’s easy to gloss over and make it seem like things happened very quickly. Clearly that wasn’t the case from when you first started in 2013. So was there ever a point where you thought, ‘no, this isn’t going to work’ or just thought about packing it in?
For the first five years, it was very difficult because even though we were growing, we were growing slowly. I had a university degree, Marek as well. Your friends in the same position graduate, they get good positions, a steady salary. And you are there struggling to survive and just live normally.
And like you say, when you live it out, five years is a long time. It doesn’t go quickly. We loved what we were doing and we still love what we are doing, but psychologically it was very difficult. You have the comparison with your friends, the fear it may not go anywhere. There is also pressure from, you know, your family, your parents, your girlfriend, to quit and do something ‘proper’ with your life.
DK: Yea I imagine trying to explain FTMO to my parents would be a difficult one. Ok, to take a different track, I know there are some people in the broker space, who will just say the prop industry is a scam, no real trades are placed and so on. How would you respond to that?
I think it’s easy to say stuff like that about another company. But we’ve been doing this for over a decade now, we have built a good reputation and we’re proud of that.
We’re the 17th most valuable Czech company today. We’ve won the best entrepreneur award from EY in the technology category. Again, we’re really proud of that.
I would also say about us, we never say that trading is an easy or simple thing. We don’t hide the statistics or anything about performance. As I said to you, only about 10% of people that take the FTMO Challenge will pass it.
So we tell clients, trading is very difficult. If you want to use our services, first take the free trial. Train your skills, improve your performance and so on. When you are ready, then take the challenge.
Many broker seminars are the opposite way, or it at least used to be like that. The training is easy. Okay, now it’s done, open an account, deposit some money and you’ll be rich quickly. So that’s absolutely what we don’t like and we will never take that approach.
And as a final point, there is this view that trading is unique in its failure rate. Look at start ups or new businesses. The failure rate over a five-year period is very similar. Look at the stats on these broker websites. Are they substantially better than FTMO’s? Not really.
DK: Can you say anything about regulation? Do you see any signs this is going to come into play for this industry or similar?
We have worked a lot on our compliance over the last couple of years but it is difficult because there is no concrete framework for us to operate in. So it’s almost a never ending job. We have spent millions on this to make sure we are as compliant as possible at this point.
If I look at some other players, their attitude seems to be, ‘ok, we buy an off the shelf product and we just market it’. They haven’t invested any money in making sure they are compliant.
DK: On that point, you were basically the first player in this industry. You could argue there are similarities with futures arcades or copy trading, but this is really its own thing. Are you worried at all about the huge numbers of companies starting up that are competing with you? Do you also think it’s going to lead to regulation?
I’m not worried about it. I don’t like it when people just copy 100% of what we do. We release something, and then sometimes literally a few hours later, they will do the same. We were the first to call it a ‘challenge’, for example, and now everyone does that.
But at this point, you know, at the Dubai event about 10 prop owners came up to me, asking for a selfie and so on. And they admit we’re competitors, but also thanked us for coming up with this concept and effectively giving them an opportunity to start a business.
On the compliance point, I am not a regulatory expert and, from my experience, you need really specialised knowledge to actually get an opinion that’s valid in this area. All I would say is I think, if it happens, it won’t be quickly because these things take time and you also have country specific regulations. So there is no one approach that will apply to every country.
This also has a knock-on effect to other services. So if you look at banking, we are in a good position in this regard. But if you are not doing compliance properly, the bank is going to be almost more extreme than the regulator because they want to pre-empt any problems.
DK: Do you envision FTMO entering the broker space?
Absolutely. I mean, if you look at the industry, we can offer something new, something innovative. We have apps that could be used easily by a broker but which no one is really offering. Plus we already have strong brand awareness and a good reputation, so I think we could do well. Having said that, this is likely to take years, it’s not going to happen tomorrow.
DK: One question I have about the way props work is whether there is almost a ceiling on revenue. So if you look at IG Group’s accounts, you can see revenue per client in some regions is over £5k. Clearly if you are capped at paying £500 for a challenge, that’s not going to happen with a prop, unless they also make a lot of money trading for you. Is that a real thing?
To an extent but that doesn’t mean we aren’t doing well or aren’t seeing growth still. We have looked to branch out into other areas, so we acquired a 30-team quant trading company last year.
These are super smart guys. It’s one of those companies where 1,000 people apply and one person gets the job. So they are working a lot with our own trading data and have their own trading strategies. That’s a new line of revenue for us.
DK: Can you explain functionally how the actual trading part works because this is an area that can get very murky.
When we started we were giving real money accounts to traders but it caused a lot of problems, for various reasons, so we stopped doing it.
Right now we have more than 10,000 people trading with FTMO on demo accounts and with virtual capital, so you can imagine that things can get complicated. This is not a small prop firm where there is a unified strategy. So we have had to develop a lot of risk management functions as a result.
It’s complicated because how we trade depends on the exposure we have in each individual instrument. When you have 100 people going long, 100 people going short, your net exposure is flat or even losing money because of trading costs. So it’s complicated but we have the systems in place to manage those risks.
DK: One point I have heard made is that demo accounts cannot properly mimic ‘real’ trading conditions. Is that the case?
Again, it is complicated because if you look at trading futures, then there is more clarity on trade execution and so on. So if we were doing purely futures with our offering then it would be easier to test that claim.
When you are trading OTC then it becomes much harder to do that. What I would say is the potential problems are more due to how OTC trades execute, not the fact people are trading demo accounts. Different LPs provide different conditions as well, so that makes it more complicated to compare trading conditions.
There is almost no latency between the demo and real account, things run smoothly. What we tend to see is things getting trickier if a trader makes a large order or if they are trading around news. But that is more due to the conditions that an LP is offering you. Every LP has different liquidity and large orders executed during lower liquidity periods, like macro events, means worse fills.
DK: On a kind of related note, we’ve alluded to the news with MetaQuotes earlier. Do you see them losing ground in the prop space because of what’s happened?
Honestly, no. They are extremely good at what they do and I can understand why they are being cautious about this industry.
DK: Ok, to finish off, any other expansion plans or new products coming out that people should be aware of, besides going into the brokerage space?
Yea, so it always takes time but we have acquired some other companies. So the quant trading company was one. We also acquired a digital marketing agency to help us in that area. At the moment we’re in talks to acquire some other businesses that would make us stronger in other areas too.
I would say in general that we also continue to invest a lot in compliance. So when we are entering into a new market, for example, there is a strategy behind it but the most important is that it’s also got solid legal backing.
One other point I’d make is that you asked about other players entering this space. Some companies I’ve spoken to will have two or three people working on it. So that doesn’t make me afraid because I also know how tough this business is.
And so if I think about expanding into the broker space, it’s with that in mind. We always want to have the best product possible, so I’m not going to give it as a side project to a couple of people and make it like a small add on to our business. We have to do it properly.