FM: You have five published patents. Are they all related to the trading business? Anything new in the works?
MS: There are a few pending patents in the works. One of them is related to trading and two of them are related to my university research that has nothing to do with trading; it has to do with operating systems for multi processors.
…At the university we are involved in state-of-the-art research and being able to pull some of that into the company gives us a certain advantage. You are on the pulse of what is happening in the computer industry and see five years ahead, so that means you can direct the company from a technology point of view in the right direction.
FM: What you and Richard Olsen have created seems different than any other trading enterprise. Was this by design?
MS: As an academic you are supposed to be a renegade and think outside of the box. If you really look at the financial systems in place and look under the covers, it is actually shocking how old fashioned and antiquated these systems are. As an example, e-mail is more reliable than a wire transfer with real money. If you send an e-mail the other person has it in [his or her] account within a second; if you send a wire it might get there in an hour or two, or it might get there in two to three days. To us that is astonishing. If you look at the cost of e-mail it is a fraction of a penny of the cost of sending a wire, which is nothing but an e-mail message if you will [as opposed] to a cost of $5 to $50. You have to wonder what the hell is going on there. We were sort of flabbergasted by the fact that these financial systems don't use technology to improve things. If you look at it from a business point of view, we are not focused on profitability in the next quarter, we have a long-term outlook. If you look at it from a long-term point of view, it really doesn't make sense to get into this business unless you are disruptive. We look at it more as an internet business; we are like an Amazon or a Google where we are disruptive. When we started, forex really was for large corporations and big fat cat individuals only. The minimum trading size was $1 million, you had to have a credit arrangement with one of the big banks and you had to call a bank to make a trade. It was extremely antiquated. In this internet age you can design things differently and be disruptive. So we started with a clean sheet and thought, 'How can you apply modern technology to the problem?' and then we found out that it was relatively easy to change the rules. So we said you can trade for $1, you don't need a million dollars to trade; we did continuous interest instead of this complicated painful rollover swaps at the end of the day; we had immediate settlement. When you close a trade why does it take two days to get your profit or loss credited to your account? That was a process that was designed 50 years ago when paper had to be shuffled from one administrator to another and it took two days to do, but today everything is computerized so why hasn't the financial industry caught up?
FM: In an earlier interview with Futures you discuss how your platform can execute many more trades than some large institutions despite less resources. How have you been able to compete with the big boys on a smaller budget?
MS: It is not very hard, in fact it is easy. Oanda is primarily a technology company that happens to operate in the financial services space, so more than half of our employees are engineers and computer scientists. Most everybody else in this business are primarily marketing companies. Banks also are marketing companies and they tend to outsource technology or buy [it] to make it work. There are some with the best-of-breed approach where they find the best pricing engine, buy that; then they find the best risk management system, buy that; then they find the best transaction system, buy that. You stick them together and you have the best of everything. In practice it doesn't work out that way because you glue these systems together and you put all this glue and gunk in between. If you look at the bigger institutions and see what it takes to execute all these transactions, they go through something like 25 different servers as they go through different components in all these best-of-breed modules. Our approach is different. Our approach is to build a Ferrari engine where every component is finely tuned to the other component and everything works extremely efficiently and scales well. It is one tight-knit piece of technology that doesn't need 50 servers but can run on one.