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We’re back with another edition of the C-Suite.
This month we speak to XTB’s Head of Trading and Board Member Filip Kaczmarzyk.
TradeInformer was in a snowy Warsaw at the start of this month and we caught up with Filip just days after XTB had its busiest day in history.
XTB has undergone a big shift to equities trading over the last five years. Can you give any updates on what is going on there?
I don’t have the latest numbers to hand, but last time I checked, our customers had 400,000 open positions on CFDs compared to 12m in stocks.
People want to trade equities, and we want to cater to that demand. XTB’s goal is to be a place where our clients’ money can work, regardless of the product they want. If you want low-risk investment plans, riskier equities, or higher-risk leverage products, we have all those available for you.
Now we’re also offering payment products and a debit card with attractive exchange rates. Some of our competitors started with payments and now expanded into investment products. We started with leveraged products and are now about to enter payments.
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Can you give any numbers on what the conversion rate is for people who place a first trade in stocks and then move into CFDs?
I can’t give specific numbers, but it takes time. A lot of people who sign up to trade stocks are more risk-averse and actually may just have no desire to understand leveraged products or trade them.
A proportion of clients will either have that knowledge or acquire it over time. That means down the line, they will understand, ‘ok, this is more of a short-term opportunity’ and use leverage to take advantage of it.
There has been a lot of volatility in markets over the last couple of weeks. Has that made things more difficult for you on the trading desk?
I would not use the word difficult because we have been managing risk for over 20 years now, and we know how to handle it.
Our risk management systems are automated. It’s not like we are looking at markets or exposure to clients, then deciding whether to hedge or not. The basic principle is that we internalise as much as possible. So we tend to do around 60% spread, 20% commissions, and 20% market making.
Last week was a bit more complicated because of higher volatility, but it was not something we couldn’t handle. Also in terms of our technology, we had, on average, 3x times more active customers, and we managed to offer them the same high quality investment experience.
Can you give any information on how you did business wise? I get the impression a lot of firms have had their best days of business ever.
On April 4th, we had a record number of clients online, and then on Monday, we had 30% above that amount just before the US open.
To your previous question, we obviously had to manage funds with our US brokers, but the thing that was more surprising was the Warsaw Stock Exchange shutting down for an hour, because they were getting so many orders that they were worried their systems would not be able to handle it.
On that point, most of your client base is in Poland, so are they trading local stocks a lot or is it mainly US equities?
About 40% to 50% of Polish clients trade on the Warsaw Stock Exchange, so the number is significant. If you compare it to other markets XTB is a top three broker in, like the Czech Republic, the numbers there are much lower. There just aren’t that many companies to invest in locally, and a lot of stocks have low liquidity.
If you look over the last decade, the P&L per lot of CFD products has, with some ups and downs, trended upwards for XTB. Is that a function of size? It does seem like bigger brokers can hit a kind of critical mass where they can then end up being able to match orders internally a lot more.
I would agree with the critical mass point because if you are a smaller company, you see a smaller number of trades, and you end up watching the market move up and down because that’s all of your exposure.
That being said, I would not draw any conclusions from those numbers, it’s just down to how volatile markets have been during that time. You had a long period of range-bound markets before Covid.
At the moment you are seeing quite a few companies, whether it’s Whitebeard or Mahi, come to market with a product that is kind of like ‘mini XTX Markets in a box’. Some now say they make use of AI. The general idea is they give you a more advanced trading system that purports to improve the P&L of your trading activity. Do you have any views on that or do you use something like that internally?
I don’t buy that, to be honest. If you are doing active trading, then probably there is an added value to AI. But in this business, it’s all about offsetting the trades, collecting the spread, and collecting overnight financing, and so on. It’s not really that complicated.
When you dig into it, you find that a lot of these companies ultimately just want your flow because it’s easy to manage for that reason.
It’s a different story if you are a smaller broker. If you can get some kind of guaranteed revenue, rather than watching the market move up and down all day, that makes more sense to me.
Obviously equities have become a big part of your business. Trading 212, who has a similar model, has built some kind of market making system for cash equities. Is that something you would do?
We are always thinking about ways to improve our revenue. Right now, most companies do something like that for fractional shares, so it would make sense if you expanded on that.
You are focusing a lot on stocks but obviously your bread and butter is still CFDs. If I look at companies like 26 Degrees or ATFX Connect, they are adding some very interesting products. Do you have any plans to add those sorts of products or innovate internally?
The general ethos of XTB is to make things very simple. Clients want an intuitive mobile application, simple to use, and straightforward to make trades. So we work on the products that are simple and easy to access.
Right now, we are focused on adding ‘real’ crypto and also OTC options. I am excited for those and think they’ll be very successful because they fit within that goal of making simple, accessible products.
Last time I spoke to someone at XTB the big ‘next steps’ was more to do with geographical expansion. So Chile, Brazil, Indonesia. Any updates on what’s going on there?
Sure, so Indonesia should be live within a few weeks. In Chile, we already got the new license. Brazil is a bit more complicated, but we are working to make it happen. The product range is not unified yet, but ultimately, we’ll be in a position where the XTB app in Poland is the same, product-wise, as it is in Chile or Indonesia.
How is the branch doing in Chile?
Very well. We have a big institutional partner in Chile, and we are getting some traction from having the new license there too. On a high level, XTB is doing well there and with the planned investments in marketing and our brand, it will get even better over time.
To finish off, you’ve been doing this for about two decades now. Has it changed meaningfully for you on the dealing team in that time? Did you envisage the industry getting to the size it is now?
When I first joined XTB, I was the fifth person in the dealing team. We covered the whole week, including nights, and we were only using MT4 at that time. We were quoting prices by hand and there was almost no automation involved. You know, you had a source quote and you then had to price your clients with that, who would be waiting for the price to appear. You’d have to reject orders quite often because of changes to prices in the underlying market.
It’s a different world now. Everything is just so much more automated. You have signals for if something is going wrong or if there is abuse, but the level of manual intervention is tiny in comparison to the old days. Plus, there are now 40 of us in the trading department, so the team is much larger.
More recently, I think that COVID changed everything. It made people much more interested in having a broker account, in trading the markets, and that hasn’t gone away since.
