Saxo Bank quells interest rate risk exposure on FX crosses

A clever approach to client retention by Saxo Bank as Forward Outrights of up to twelve months introduced

Saxo Bank released a series of forward outrights on 115 crosses on Friday last week.

With this addition, the company provides a trading environment which may well cater toward the more conservative trader who wishes to hedge exposure to interest rate risk.

In terms of functionality, it is a forward contract, rather than a spot transaction, upon which a value date in the future is selected by the trader, who then receives swap points and is fully aware of both components of the deal before the order is placed.

Should the trader wish to close the FX rate risk before the forward outright’s value date, the trade can be exited with the same value date which in turn would square the position.

According to Saxo Bank, FX with very low margin requirement can be traded, with forward outrights being offered across all platforms provided by the company, as well as for physical delivery via the Saxo Treasurer platform.

The trader can select this option from within the SaxoTrader platform by utilizing the standard FX trade ticket, and selecting any date as far in the future as one year, which in turn displays the corresponding swap points below the Bid and Ask prices.

An ingenious move by Saxo Bank, as it provides relatively low-risk trading facilities to retail clients, plus maintains customer life-time value without extensive client retention costs, at the same time allowing the bank to hold client funds for longer periods without exposure to loss, meaning that the bank can earn interest on the funds held on behalf of clients.

Among banks, interest earned by holding funds on behalf of clients is the property of the bank, therefore in this circumstance the interest could be traded for profit, as long as the client funds are maintained in a seperate account solely for the purpose of holding client monies.

Traditional banking methodology, therefore, can be a prudent and profitable source of income for FX firms, especially in these times of low spread and keen IB commission structures.


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