Finance Magnates interviews Akash Gharu, the previous CTO at Football Index and now the Chief of Product and Operations at AllStars Trader. We asked, if football-based CFDs, which are the talk of the brokerage world, are a winner or an own goal?
Brokers that are stuck trading EURUSD at 0.1 pip up or down, are desperate for new and dynamic products. Even though, they all watched the meteoric rise and then dramatic crash of Football Index. So, will AllStars Trader football player CFDs be the answer they are looking for? Here are the thoughts of Gharu.
The first thing we need to know is what went wrong at Football Index?
Football Index (FI) was a ground-breaking concept; however, it was based on an unsustainable business model. It was marketed as the football ‘stock-market’, but there was a major gap between what the product aspired to be, and what it actually was. At its heart, Football Index was a gambling product offering three-year bets on each share. As soon as the pandemic hit, that’s when the market sustained continuous downward pressure and pushed FI into a tactical tailspin. Eventually, there was no underlying liquidity in the market and with the NASDAQ project shelved, there was no hope of this happening. FI ended up with liabilities in payouts outstripping revenues. On the technology side, we had built an exceptional team, delivering trading technology better than most Fintechs, but when the tech growth projects were stopped, I knew it was time to move on. After I had left the company, the board eventually made the decision to cut trader dividends by 80% to get back into profit. It was sudden, dramatic and badly handled. When this happened, the writing was on the wall and led to the inevitable collapse. I lost money as well as thousands of traders, and it was devastating to see the unfortunate events unfold.
Shouldn’t you have stayed at FI and tried to save the business?
The FI founders led the show. I was not a shareholder or a director, so I couldn’t influence the major decisions. So, when the tech projects were put into hibernation, I left. This was before the real problems hit the company and ahead of the board decisions which eventually led to the collapse. When FI failed, all I could do was look on and read the media reports as the company fell apart.
How did you get involved with AllStars Trader?
I had been the Head of data at CMC Markets and the CTO at FXCM Securities, so I already had a network in the derivatives world. I had a social catch-up with an ex-colleague from CMC Markets, Marc Aspinall, who was working on ‘Investable Human Indices’. When he explained the concept behind AllStars, it clicked that we had a lot of similar ideas. The FI concept was an amazing idea, was a betting product disguised as a financial product. Going back to the derivatives world and being given the role to shape sports CFD as a true financial product was an opportunity not to be missed. It is exciting to be offering an alternative solution alongside industry experts and eminent investors with a sustainable model. It was an unmissable chance to get things right. To be honest, I thought this would be the competitive challenge that FI should have been against today.
So, what is different about AllStars Trader?
There are significant differences between the two products. The first is that AllStars Trader sports stocks are CFDs. This is an established basis for a tradable asset. As CFDs, AllStars Trader football player stocks can be traded alongside traditional FX, Commodities, Crypto or stock-based CFDs. Secondly, AST is a Liquidity Provider for this asset class. Every football player contract is liquid. Therefore, AST always has a sell price on offer. We’re providing spreads around the 1% mark, and 0.5% for the higher-priced players with backend order book exchange execution on Metaquotes technology. CFDs are margin products. They are not suitable for everyone. Traders need to be aware of the risks. This doesn’t mean this is bad value. On the contrary, existing FX traders that know their football are much more successful with Harry Kane than EURGBP. As such, we have a different target audience. Existing FX Traders get it. We’re finding that it’s just as appealing to an intuitive trader as it is to a strategy nerd.
How are the CFDs priced? Can traders be confident that you are not just manipulating the market to drive profits?
AllStars Trader football player CFDs are derivatives on an underlying Adrix™ player index. Adrix is a real-time data processing engine that ingests millions of data points simultaneously across players, matches and leagues, and crunches this data using sophisticated statistical processing and machine learning. Each player is created as an individual index which allows them to be benchmarked against their peer group to get a relative measure of value. Since Adrix indices are based on formulaic rules, this methodology falls within the scope of European Benchmark Regulation. Basically, Adrix’s fundamental formula is cast in stone. For AST to price the market, our algorithmic liquidity provision tracks Adrix offering prices positively or negatively depending on player performance and supplies volume on our exchange. We do this for 4000 Football players without intervention. We timeline player performance data versus Adrix index reaction, and we publish this for transparency.
Who are you targeting this product towards?
The beauty of this product is that a CFD on an index sits alongside the existing offerings of all the FX brokerages. The first five brokers we have integrated have an accessible trader base of over one million clients. Brokerages are telling us that sports stocks are a differentiator in attracting clients and reactivating dormant clients. They also offer weekend and out of hours trading when many brokers are seeing low or no volumes. With this accelerated growth, we will soon see natural liquidity complimenting market-making, and we’ll have a functioning market alongside other traditional and alt-assets.
You are an unregulated product which is a red flag to many traders, so how do you get around this?
We will move to become more robustly regulated over time, but like cryptocurrencies, we are offering a new and dynamic product, we will naturally get early adopters, and we will do our utmost to excel in their expectations. We have already started the process to get European Benchmark Regulation (BMR) and will look for main market regulation for the business. We are some way away from having a European product as we are licensed in St. Vincent and targeting emerging markets; Asia, LATAM and Africa. The reception to the footballer CFDs has been remarkable and as we increase our trading volumes the community feedback has been fantastic allowing us to keep developing the product. We want to make AllStars the leading alt-asset provider, so we endeavour to follow best practices for regulation and transparency.
Will AllStars last longer than Football Index?
Football Index had only one product which was flawed at the core, and it was a gambling solution so could not be integrated by brokers with their financial products. At AST we are creating a new class of assets, which are recognised financial products, based on the ability to interrogate an athlete’s digital footprint and put a numerical value on performance. This means that football player indices are just the starting point. We are already pricing cricketers, and the product works really well for sports that are steeped in data such as American Football and Basketball. We are still in a learning phase but the potential for CFDs, Fantasy Products and Crypto products based on Adrix data is huge. This is only the beginning, so watch this space!
