Price war arrives with DeGiro
This is not an advertorial. We have a new retail discount broker in town and their fees open up a whole range of possibilities. Difficult not to get enthusiast about DeGiro‘s fees in the option market of 85 cent per contract, where market leader Binck charges EUR 1.95.
Suddenly, trading the Dutch option market is getting serious. Getting active in low priced options isn’t a waste of money anymore. That’s good news for the retail investors, the market as a whole and for Euronext. That’s good news for everyone except for Binck and other former discount brokers.
Binck positions as luxury hotel
A spokesman of Binck made a remark that the contender DeGiro is a kind of bed & breakfast compared to Binck’s 4 star hotel. That’s interesting. The former discount broker is apparently competing on additional service instead of price these days. That’s a radical shift in strategy. I don’t want the service and analysis, only in it for the execution. Will do my own homework, don’t need a broker for that.
Wouldn’t know why anyone would still remain at Binck and Alex for the trading business.
Former AOT
The founders of DeGiro used to work for Binck, so I’ve read. That’s true, but as far as I know they have been working at the arbitrage desk, a leftover from the old AOT part. The guys behind DeGiro are known for their hedge fund HIQ invest. Inhouse matching against HIQ could be a part of the story.
From marketing perspective, I understand their story as “former Binck” staff. Saves you from a lot of explanations.
DeGiro is still in a launch phase. It’s not yet possible to enter strategy orders (straddles, strangles etc) and wasn’t able to find the daily and weekly options. There has been no negotiations with TOM yet. Connection to Eurex will follow soon.
all these prop/firms like getco, optiver, hiq getting into pure fiduciary/agency/brokerage/sell side business; a retail wouldn’t mind lower fees and possibly lower execution quality, but an institutional wouldn’t wanna risk being front run by prop traders ?
institutional wouldn’t wanna risk being front run by prop traders ?
That has been the sell side business model for Ibanks for the past god knows how many years.
Institutional clients call up the Banks. Banks make wider markets. Get on the trade. Banks scalp out with MM’s. ‘Client Trade’ gets crossed on Eurex after 17:30. MM’s cry
Now the world post 2008 and 2011. Individual traders some good, most who got lucky by just sticking around long enough have moolah in the bank and are going to go the Bink’s, DeGiro.
Jezz. Almost everyone who trades for himself has an IB account
yes was gonna say IB is a reference
just checked and seem to be 1.50/lot
I am not so enthusiastic…
1) They give only cheap prices for Dutch options, the rest is much more expensive (Lynx is better).
2) We know nothing about the execution. Low prices but bad execution is not preferable.
3) Degiro lends shares of their customers and collects the payment, but if the borrowers fail to give the shares back then the owner has to bear the risk and loses his money.
Lynx cheaper? Is nothing more than a reseller of IB.
1. Have you checked the fees? Stock trading is cheaper at DeGiro compared with others ; makes a big difference.
2. Execution? It’s a retail market. Orders reach the market and fast (I’ve checked it).
3. A counterparty to lend shares needs to deposit a collateral. If the counterparty can’t return the shares, the collateral is there to cover. If collateral is not enough, counterparty has to pay or goes bankrupt. Then the capital of DeGiro is first to cover for losses. If also DeGiro goes bankrupt, THEN there is some marginal risk for stock owners.
Those HIQ guys, they’ve been in a rut with their “hedge fund” for 6 years now. From that perspective it is only natural that they try something new.
If (percentage wise) many retail investors are worried about their transaction costs, most existing brokerage firms could close their shop tomorrow. What does that prove? And those who are actively trading and concerned about their costs will think twice before doing business with a tiny newcomer such as DeGiro. Gijs and Niels will be happy to have a look at what other people are doing.
Ultimately DeGiro is merely offering their market access via ABN to third parties with a premium. A business model that is quite easy to replicate if you ask me. Incredibly DeGiro isn’t a member of a single exchange that they offer access to. If for whatever reasons there is a problem on ABN’s side, DeGiro will have plenty of explaining to do to their customers. And if ABN were to cancel their market access (or threaten to raise their fees), DeGiro is really screwed. They have placed their fate in ABN’s hands.
BTW I’d like to buy some put options on DeGiro. Do they offer those?
> Then the capital of DeGiro is first to cover for losses.
That doesn’t really help. Equity within the HIQ group is less than 1 million euros. Fortunately there is a bit more over at ABN.
De 5 miljoen transacties met een tegenwaarde van 10 miljard euro die DEGIRO nu al uitvoert voor “zakelijke klanten”, dat is naar ik aanneem hun eigen omzet (HiQ Market Neutral fonds). En ordertje voor 2.000 euro gemiddeld voldoet nu eenmaal niet aan mijn definitie van een zakelijke klant in de effectenhandel.
Altijd goed om te beginnen met wat misleidende reclame voor jezelf. Dat schept vertrouwen.
I don’t care when they use ABN’s market access network. I think it is a smart move. You don’t want to make connections yourself to all exchanges. A nightmare with all exchange updates.
ABN is reliable. Fine.
DeGiro dependent on ABN? Not my problem.
just because IB front runs, doesn’t mean it’s gone unnoticed, that’s why you can’t expect prop traders to come and give execution service because their prop arm is all about extracting liquidity alpha, on that dimension IB these days have atleast almost extinct prop
in any case, buy side has become savvy abt electronic anonymity and large amount of brokers/pure agency still exist just to save on front running and extract most liquidity out of providers
to clarify, IB here was Investment Bank, not Interactive Brokers
how do you mean they have been in rut with hedge fund HiQ, their performance numbers look okay? obviously they can’t scale much of funds under arb biz, so they can look at other opportunities in slow market?
their aum is going nowhere. it’s been at 10% of what they keep predicting. so much for scaling their business. as for the performance, their market “neutral fund” is consistently massively long the stock market, that’s why they’ve made some money in periods like 2009. factor out those gains and there is no profit/performance left to speak of. why pay 2+25 (!!) when you can buy etfs on broad indices for a fraction of the cost?
Their aum is going nowhere? Their aum doubles every year! I checked and currently they have 75 million in that market neutral fund.
if that fund is really massively long in the stock market, that fund is even more impressive. according to their scorecard the stx50 went down 30%, while they went up 120%. So if what you say is true, their trackrecord will go sky high in a bull market!
with an etf in the stx50 i would have lost 30%, while investing there would give me +120%. If that sounds the same for you I predict you are a crap investor/trader.
AUM of 75 mio isn’t much. 2% fee is 1.5 mio for your operations and salary, okay but hardly profitable.
But this is about the broker DeGiro. Using ABN platform sounds reasonbable and safe.
true, 75 mio isn’t that much. but it is growing consistently. I read that besides ABN also Morgan Stanley’s platform is used.
pure arb business can’t be scaled as you wish, don’t confuse liquidity alpha with quantitative/systematic alpha
also don’t confuse correlation between arb returns and stock returns as causation
if you don’t get it, either ask or by all means, just go buy your beta etf
well 75 mio might be growing consistently, but where do you see it can go, say in 5 years?
“according to their scorecard the stx50 went down 30%, while they went up 120%.”
Bear in mind that most of the 120% was generated when their AUM was far far lower than the present level (think 10 million or less). Any money they made with arb (not scalable) then had an unrealistic percentage wise effect on their return. If you would look at the numbers from let’s say 2011 onwards, you will see a different picture and quite frankly a shitty performance. But of course you’re so gullible that you’d rather buy into their PR about their returns point blank.
“If that sounds the same for you I predict you are a crap investor/trader.”
Actually I am both. But that’s not the reason why I won’t be investing with them.
so you are both crap and investor/trader? like some frank self-assessment in an industry full of self-convinced genuises
as for arb profits, yes, a better way to look at that business is cash pnl rather than returns on aum, actual capital required for arb or for that matter systematic is much less and returns are really dependent on market conditions and competition
returns sharpe ratios can be very high and very misleading if you shrink the aum in right conditions
2012 +27%.
“2012 +27%.”
And your point is what? Please provide the returns of HiQ versus those of EuroStoxx and AEX in 2011, 2012 and 2013 so we can compare the benefit of their active investment (if any).
AEX 2011 -12.6% HiQ -3%
AEX 2012 +13% HiQ +27%
a lot of benefit if you ask me. Fact of the matter is, and if you like it or not, there are almost no funds that did better then them since they started. So you can criticize them, but as far as I see no one beats them.
If you are so amazing yourself, start your fund and show that you are better.
“there are almost no funds that did better then them since they started”
Yet still they can’t break the 100 million AUM an practically no one has heard of them!
Let’s face it, they’ve more or less wisely kept their mouths shut for a good number of years about how good they supposedly are after almost blowing themselves up in September 2008 (losing a third of their market “neutral” fund in a single day!!). As a consequence of that event they (still) have a concept of “high watermark” that is truely unique in this industry: every year they can simply “reset” the high watermark to the present level (as they did in 2009) thereby effectively eliminating the need for the managers to recover losses before pocketing a performance fee. Professional investors cut through such bullshit. Which is why they’ve been building their AUM 2.500 euros at a time. That’s right: minimum entry is 2.500 euros as they are targeting the Dutch retail market.
Oh and by the way, you forgot to add the dividend to the AEX return numbers that you used. The oldest trick in the book: comparing a non-reinvesting index with your reinvesting strategy to give you a couple of percentage points of a head-start.
What are the numbers so far for 2013 Niels? You left them out so it’s a safe bet that they underperformed the EuroStoxx. As the AUM grows, their performance comes more in line with large indices as the effect of their true alpha (some arbitrage profits) is being diluted.
If I were to invest in HIQ, I would be giving up 2+25 of profits when the general market goes up. What I gain versus a cheap ETF is a diminishing share in their arbitrage profits that weren’t spectacular really to begin with. As an investor, that’s not an attractive business proposition. For that reason, I won’t be investing with them. I’m out.
“Yet still they can’t break the 100 million AUM and practically no one has heard of them!”
Is that relevant for their performance? HiQ is one of the only hedgefunds in NL that is growing rapidly. It is not relevant why the AUM is still not 100 million AUM. Besides, I read an article from Mark Baak lately, saying HiQ will probably beat the 100 million AUM in december this year.
From the people I know, Hiq is highly respected in the scene and an example that it is still possible to start a hf and let it grow. The reason institutionals will wait with investing is typically size. There were many articles that funds stopped because institutionals won;t invest in them. For example the ex-ABN guys that stopped last year with their fund.
“supposedly are after almost blowing themselves up in September 2008 (losing a third of their market “neutral” fund in a single day!!)”
Even with that loss, performance is still 120% net of fees. They lost 26% looking at their scorecard, that is 1/4th of their NAV. In their DDQ can be read it is about VW short squeeze + Lehman collapse (forbid to go short on financials). 2008: -12% , I have seen trackers going -50% that year, so still a massive outperformance by hiq.
I don’t know the fund so well, but it looks like you have some personal issues with them. This year their retail class is up 8%. Other classes I can;t find on the website. Eurostoxx is up over 11%. So what? if the market doubles in 2 years, the market will definitively outperform the market neutral fund.
Since last 6 years there are many range bound markets, many funds (including cta’s) perform shit and hiq with their unique way the fund operates beats all of them by a street length.
“Which is why they’ve been building their AUM 2.500 euros at a time. That’s right: minimum entry is 2.500 euros as they are targeting the Dutch retail market. ”
if it is true what you say, they have 30.000 clients!! A hell of an achievement to get 30.000 clients after 2008 in a hedgefund!
Well for someone who “doesn’t know the fund so well” you have certainly familiarized yourself well. You have an irritating way of polishing up and looking over the ugly bits. If the score card indicates a slightly smaller loss (only because it is taken over a month), you use that number (“26%”). In an earlier version of the DDQ they explicitly mentioned that on their worst day they lost 30%. My bad for writing “a third” and congratulations for tweaking it to 26%. Yes I think you could say that I have a personal issue with people who do such things. And it’s certainly a pity that you declined to comment on their “high watermark” practices and comparisons against non-reinvesting indices.
You’re making them sound like a rousing success. In reality they have to cut corners like with the high watermark, the increased charging of costs to the fund that were borne by the fund management previously (in a sense, the investors are now paying for the infrastructure that will be used for DeGiro!), layoffs and raising the management/performance fees (going from 2+20 to 3+30!) etcetera, to keep their fund management company from going under. After 6 years, I’d be hesitant to consider that a success. But maybe by Dutch standards it is, I couldn’t tell.
As for their alleged “outperformance” in 2008 that you speak, you still don’t seem to get it do you? At that point in time their AUM had fallen to 5-10 million. At the same time, they should still have made a killing with their arbitrage biz (for which you don’t need a lot of capital), as most prop trading firms did that year. Even if they only made 2 million with arb (I would consider that a poor result in 2008), that already accounts for 25% of “outperformance” on a let’s say 8 million fund. But against a fund with 100 million AUM it becomes negligible. By the end of 2009 they were at 12, not surprisingly their arb business had a large impact on their outperformance then as well.
In my eyes their fund is built upon non-scalable and limited alpha (in absolute terms) and beta. That’s not something I would pay 2+30 for to invest in as the fund grows, and I wouldn’t pass it off as a “market neutral” fund either. It’s no wonder the outperformance was substantial in the early years and is vanishing and even turning into underperformance.
mate, you sound like their ex-headhunter investory relation clueless fella, so let me make your life easy, you don’t need to sell or defend your fund on this forum, everyone here is your competitor in reality, also on quoting the bloodsucking middle man Mark Baak, have you ever heard of a businessman not peddling his ‘growing business’?
on the subject of benchmarks, why are the returns of HiQ being benchmarked to the Broad Market Index, shouldn’t its benchmark be relative to other similar small sized market neutral systematic funds or maybe on absolute terms compared to euribor + spread, generally speaking
also, does somebody have the absolute numbers for money earned by investors and the fees paid out to the fund. Due to high percentage returns being done on smaller aum in the initial stages lead to 50%/50% cut for investors/fund if you look at long time horizon for 2/20 biz model, read first few pages of ‘Hedge Fund Mirage’ on Amazon
Legalized fraud. In/out 2%. Man fee 2%, fixed costs 1%, variable costs unspecified 1.5/2%? Could be more if you see the list. Then a monthly perf fee of 25% based on high watermark that is not published but explicitly mentioned to be reset on own initiative. And then comparing performance against not reinvesting indices to mislead investors.
After the 2008 VW fuck up they reset the high level watermark. However the fund performed exceptionally directly after. They returned the watermark, thanked investors for their confidence and paid the difference in perfomance back to their investors. They actually gave the money back! Clearly these guys are in it for the long run and treat their clients fair. Not a common practice if you ask me.
So they first screwed their clients, and then decided to unscrew them. Indeed not a common practice. Most people don’t screw their clients to start with.
Remember this was 2008. Funds were locking their assets. Compare the 2008 performance with peers. Afterwards they made 120%+ for their investors.
you have to give it to them to returning the money they ‘borrowed’ through reset high water mark
so do they reset water mark every year or is it applicable over its lifecycle,
also can you provide the breakdown of how much money your investors have earned and how much you guys have retained through variable, fixed, incentive fees over the lifecycle,
don’t throw back the 120% broad number pls
I heard that it isn’t possible to short naked options…
This broker is worthless.
I’m short some naked options at DeGiro. Works fine.
So where did you hear it?
“In an earlier version of the DDQ they explicitly mentioned that on their worst day they lost 30%.”
that 30% is sept 2008 + oct 2008 26,5% + 3,5% , so in 2 months, not 1 day. A drawdown is always calculated until a fund goes up.
“on the subject of benchmarks, why are the returns of HiQ being benchmarked to the Broad Market Index, shouldn’t its benchmark be relative to other similar small sized market neutral systematic funds or maybe on absolute terms compared to euribor + spread, generally speaking”
an absolute return fund doesn’t have a benchmark. they can also put aex or whatever, it is not relevant.
i don’t think you quite got the gist of the statement, so let me requote the originial question
“shouldn’t its benchmark be relative to other similar small sized market neutral systematic funds or maybe on absolute terms compared to euribor + spread, generally speaking”
let me know if you don’t quite understand the point of the above question
why is everyone here talking about their fund, I am more interested or people have already some feedback how that giro works
we can talk about both DeGiro as well as Market neutral fund? you are not from trading desk? ever heard multi-tasking?
“that 30% is sept 2008 + oct 2008 26,5% + 3,5% , so in 2 months, not 1 day.”
Congratulations on another attempt at re-writing history.
They lost 24.6% in a single week in mid-September 2008 (actually, in less than a week). This caused them to drop an email to their investors and announce a huge loss (September 22 2008). Three weeks later they announced the resetting of the high watermark for otherwise the fund manager would run out of money sometime in 2009. Talk about panic!
They got killed by their short position in Volkswagen, whose shares had gone up from 200 to 300 within a week and they had gotten a margin call from Fortis Clearing. What is interesting is that in their October 14th explanation letter to their investors, they continued to defend their VW shorts. Two weeks later VW would be trading above 1.000 euros! If Fortis Clearing hadn’t pulled the plug on their VW position in September, the superhuman traders at hiq would have bankrupted their fund the next month. The VW incident had actually SAVED them, but to this day they don’t seem to comprehend that as they continue to blame the demise of Lehman Brothers and what have you not for what was in essence reckless gambling and lack of risk management in a (supposedly) market neutral fund. This is where you come in and reply that some obscure etf once lost 40% in a week, so hiq still “outperformed” and they’re the world’s best, right?
source (just google for hiq and volkswagen):
http://translate.google.com/translate?sl=auto&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&u=http%3A%2F%2Fwww.hiqinvest.nl%2Fpublicaties%2FBriefProspectusWijziging.pdf
Let’s see if hiq takes down the link soon!
just because you said it, hiq wouldn’t take the link down, it’ll really look bad on their part now
how abt you download the pdf and forward it to jack@amsterdamtrader.com, he can post it here
and as for how hiq traders don’t understand trading and their investor relation guy is defending the fund, it’s their business to defend and sell their fund, expect nothing less, you wouldn’t expect them to say we are shite traders and our performance is subpar?
Apparently the management of this company is already budgetting future performance fees to pay salaries (or: spending money they don’t have), knowning that they can always steal from the fund.
budgeting and planning doesn’t mean actual stealing, it’s an obvious risk which investors need to keep in mind while negotiating terms of investment, if the management could forcibly ‘borrow’ from the investors, but you can’t charge them guilty now for future possible crime
By replying you only make it worse, mister PR man.
have you ever stopped for a second to think that none of the above comments might be from an hiq insider, it’s only the outsiders wanking themselves to sleep with these discussions?
Mr. sharpe ratio,
“had gotten a margin call from Fortis Clearing. What is interesting is that in their October 14th explanation letter to their investors, they continued to defend their VW shorts. Two weeks later VW would be trading above 1.000 euros!”
And a couple of weeks later it was trading at normal levels again. Everyone knows that the Porsche ex HF-managers pulled a trick that lead to unrealistic prices in VW that time. I worked for a propdesk that time and we also were hit by that squeeze.
I don’t think hiq will take down that link. they’re very open about what happened (why otherwise send the letter in the first place?), and looking at the graph I think they regularly get questions about what happened 2008.
they were defending the short on overvalued stock, but unfortunately valuation has got nothing to do with price action during short squeeze, they wouldn have learnt this from that mistake?
who are these porsche ex hf-managers, they did really well, didnt they
here’s another eg of how the game is played between investors and fund managers
http://www.bloomberg.com/news/2013-10-07/how-investors-lose-89-percent-of-gains-from-futures-funds.html
I don’t get it. It sounds like they earned their commissions from the bull run leading up to the GFC and then investors took the hit. Is there a problem with that?
no actually that’s how real world works, heads i win, tails you lose, just another eg
http://www.z24.nl/ondernemen/rabo-geeft-tip-aan-binckbank-begin-een-goedkoper-alternatief-389829
de giro is not a member of any exchange, but hiq is a dma member of several… le front run a la carte.
like it’s mentioned above –
‘you can’t expect prop traders to come and give execution service because their prop arm is all about extracting liquidity alpha, on that dimension Investment Bank these days have atleast almost extinct prop; in any case, buy side has become savvy abt electronic anonymity and large amount of brokers/pure agency still exist just to save on front running and extract most liquidity out of providers’
retail ofcourse don’t mind little bit front running because their footprint is so small, and on the other side the smaller fixed cost is an ‘obvious visible’ saving
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