Why digital bond trading is the future
The launch of Saxo Bank’s digital bond trading solution in late 2016 set out to change this and was motivated by our recognition that the bond market was ripe for digital innovation and democratisation. How can it be that one of the most established forms of financial investments is still stuck in the dark ages of manual processing when there is technology which can be applied in different ways to make fixed income trading more accessible for all investors (and not just professional traders), but also cheaper?
By combining technological capabilities in the form of robotics and relationships with the largest liquidity providers in the bond markets, we are now able to offer both retail and institutional clients the world’s first fully digital fixed income solution providing more transparency, sharper prices, and more efficient access to fixed income trading opportunities.
Why has it taken so long to digitise bond trading? One of the main factors is that the bond market is far more fragmented than, say, the equity market. There is no single execution venue for bond trading, and price formation is over-the-counter with an opaque cocktail of indication pricing and very different liquidity profiles and trading behaviors across different bonds and markets.
Likewise, the scale of the bond market is vast compared to the equity market. There are approximately 43,000 stocks in the world and millions of bonds. A company may have one stock, but they issue dozens of bonds, with different maturities and unique legal frameworks. Each of these bonds will have varying liquidity and some are more challenging to trade.
Despite the complexities of trading bonds, the days of fixed income trading being solely the preserve of a select few large funds, banks, and investors are now over. By combining robotic technology and connectivity we are democratising the bond trading offering and levelling the playing field between institutions and retail investors wanting to access this market.
It was an ambitious project for us but the results speak for themselves. We now see more than 50% of all bond trades executed via our digital platform, with that figure growing every single month since the launch. This change is happening progressively as clients are also changing their habits and feeling the power of the democratisation, but the change is happening.
I think investors recognize that our digital platform offers huge advantages for them both in price improvement and speed of execution, which has been reflected in the fast adoption of the technology. Our data shows that almost half of the trades made by our clients to date see a 0.10% price improvement in comparison to the average price in the market, with others seeing even more significant price advantages. Coupled with our competitive pricing on commission and currency conversions, this is undoubtedly an enormous advantage for our investors.
In addition to our own clients, where we see some of our biggest success as measured by actions is from many of our partner banks who are very excited about the digital bond technology, as they see a great opportunity to reduce cost and complexity and add very concrete value to their end clients.
As Saxo we are strategically focused on becoming the preferred provider of trading and investing infrastructure to big banks and financial institutions. This is a journey which we started back in 2001 when we made our first white label deal and it is a vision we are constantly expanding, most recently with the release of our “banking as a service” product.
Our partner companies can see that it will take a lot of time and investment to create a trading platform with the advanced functionality that we offer. Rather than starting from scratch themselves, they can see the value in partnering with us instead to stay ahead of the competition.
These innovations are all possible through the use and clever application of technology and robotics. Where once trading and investments was for only elite investors, we have now been able to democratise bond trading so there is no longer any barrier to entry. Now is the time to let technology do its job.
For a brief tutorial on how to trade bonds in SaxoTraderGO, click here.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)