Our first principle is to be transparent to our clients. We are a collective of our clients, employees and shareholders.
As a collective, it’s important that all members have an idea of how we thrive, prosper and move forward into the future, creating value for all our members.
Muhammad Rasoul, CEO
This document, amana’s transparency statement, is the foundational work for our collective. It lays out how amana treats each financial product in its system for pricing, risk management and revenue generation.
- Exchange-traded stocks
- Crypto/digital assets
amana offers a variety of exchange-traded stocks. These stocks are traded on an organized exchange, an approved alternative trading venue, or directly with specialists or market makers with an inventory of those stocks to buy and sell. The price of each transaction must meet certain regulatory requirements. These requirements tend to differ by country. In the US, for example, there’s always a nationally recognized best bid and offer. This is sometimes referred to as the NBBO. Because of this, it would then be a violation for any broker to execute a trade at a price worse than the NBBO. And a broker who executed such a transaction would be guilty of a crime, according to US law. All amana exchange-traded stocks are executed in a fully compliant manner determined by each country's best execution rules.
For many years, brokers who executed stocks in the US stock market would charge commissions to execute their clients’ orders—a fee for the service they provided. In addition to these commissions, they’d generally structure deals to loan out their clients’ stocks to others, who wanted to short stocks and earn extra money on their clients’ portfolios. Most interestingly, they’d structure execution arrangements directly with specialists/market makers on the exchange floor, or off the floor, to send their clients’ orders directly to those market makers. In return, the brokers would receive a payment for their order flow (PFOF) from the market makers, and the client would benefit from a small price improvement at times, and never be filled worse than on the NBBO price. Recently, some companies started to do away with the commissions and just make their money on the payments they receive. There was no need to charge more commission on top as that seemed like a double dip, so why not make it cheaper?
The industry groaned; many traditional companies couldn’t afford to cut their commissions or, more likely, didn’t want to since it cut their profit margins. Today, however, clients have succeeded in a net-net cheaper investment experience, not to mention that this has enabled our fractionalized investment environment to open up access to a much larger base of customers. We love this. PFOF is a hot topic, but amana believes that while the regulations regarding this practice should evolve, the retail customers are getting a better experience. So, at this time, this is how we do things: when you give us your stock order, we send it to a specialist/market maker. They execute your order at a better price, or at the NBBO, and give us a small payment for doing that. We take that payment, and we use it to pay for the technology, the people, and everything that you know as amana today. We also generate additional money to pay for our collective’s expenses by loaning out stock from our portfolio.
amana hails from the MENA region. Our collective is for the region and by the region. How could we offer stocks without offering regional stocks? When we looked into the regional space, we were very surprised by what we saw. Let’s just say it’s very expensive and needs to modernize. Basically, the rates to execute a trade are all about the same, but with volume, you can get some breaks. The rates all start out high for individuals, though, and that’s not fair. So, we decided that trading regional shares is going to be on us. We don’t make any money on this at all, and this is in writing. We take the cost that we’re charged by our clearing brokers, and we only charge you that. It’s that simple: our cost is your cost. We want to build our collective in the region, and this is a symbol of that. And when we grow, these rate costs will go down even more. Then, maybe the other brokers in the space and the exchanges will get the point and make lowered rates more accessible to all.
“We take the cost that we are charged by our clearing brokers, and we only charge you that. It’s that simple: our cost is your cost.”
This is the fun stuff. Risky but also, we think, the future. Before we talk about how we trade crypto, we want to make sure that we outline our views on crypto assets and blockchain in general. We believe that blockchain is the future. We believe that digital assets are the future of all things with a measurable or intangible value placed on them by people. We believe they’re absolutely the best evolution in finance over the last century and that the future of all financial markets is a decentralized, tokenized financial marketplace.
Now, for where we are today:
Today cryptos/digital assets are all over the place. You have blue chip coins like Bitcoin and Ethereum, up-and-coming coins like Polkadot, Solana and Avalanche, and then you have crazy social altcoins like Doge or Shiba Inu. It’s all over the place and, to be frank, risky. These assets tend to move around in 5% moves quite often, and some cycles lead to huge sell-offs and rallies. For example, when the value of Terra dropped by 99% within a few weeks in 2022. We want our clients to be careful.
Here are some of the crypto assets we offer:
Blue chip coins
In the short term, while things evolve and mature, that kind of volatility is likely to continue. When new things like this occur, and the evolution of markets kicks off—usually in the early days—some companies will take advantage of the volatility by saying things are easier than they are, or at minimum, implying it under a “FOMO” type of marketing ploy. Don’t be fooled! As much as we believe in the future of DeFi, blockchain and the digitization of things, we are concerned that investors don’t understand the risks of this new space, and those risks are sometimes minimized for profit. At amana, we’ll always be transparent in how we work and make sure you understand when something is risky or when we think the hype is dangerous.
How do we make money? We’re working through centralized exchanges (CEXs), decentralized exchanges (DEXs), and direct-to-market makers, who make pricing inside the CEX and DEX world to get the best price possible for our collective. We make our money on the difference (markup) between the spread that we charge and the spread that we must pay when we execute. Think of it as a shop (amana) that buys in bulk at a wholesale price but then sells it to the customer (you) at the retail-listed price. That difference in price between wholesale and retail is how we make our money.
Sometimes we get charged a fee by CEXs, which we pay out of our spread revenue. We pay it—we don’t pass it on to you additionally. It’s an all-in price when you trade with us. Every crypto trade goes outside of amana to the CEX/DEX or market maker. This is our model. We’re pretty good if you compare our prices. And the more of us there are, the better our price will become.
Before we move on to derivatives, let’s talk about how we structure our crypto products. We don’t offer you a crypto wallet. We are a regulated financial firm across many regulatory jurisdictions. We have Anti-Money Laundering (AML) and Know Your Customer (KYC) rules that we must follow, so we hold all the coins in an institutional wallet with our custody providers or with the CEXs directly. You send us fiat currency, which you want to buy a digital asset with; we then buy the digital asset and hold it in our institutional wallet; when you want to sell, we sell it for you. Similarly, when you want your fiat currency back, we send it back. By the way, there are no fees for all that magic outside of the way we make money, as outlined above. We think it’s the best way for the masses to invest or trade crypto through regulated financial companies right now.
Ah, derivatives – what in the heck are these things? Derivatives are financial products that track another underlying thing. Generally, they use leverage so you don’t have to put up the full value of the thing you want to buy or sell, and then that amplifies the loss or gain due to that leverage used. You can trade derivatives on the S&P 500, gold, shares of stock like Tesla, foreign exchange like the EUR vs. the USD, etc. There are derivatives on almost everything, and you can trade them all from a single account and choose to use leverage or not. When using leverage to make a profit, also keep in mind that it’ll amplify any losses. Derivatives are one of the most dangerous financial products out there. In fact, 80% of people that trade derivatives will lose money. Be careful! In our system, we put a big lightning bolt symbol on these products to make it clear to you that they are “electric.”
So, how does amana treat these things, and why do we even have them? Well, let’s start with why we have them. We have them because they’re popular, and people ask to trade them. And to be able to trade the largest array of “stuff” easily, in a single account, they’re quite useful. Our never-ending job will be to educate people about leverage and the dangers of derivatives.However, if you want to trade stocks from every global exchange in a single account, along with gold, EUR/USD, oil and Bitcoin, you can do it all and more with a derivative. When using derivatives, take it slow. Don’t use a lot of leverage, or you’ll quickly become a part of the 80%.
So, what do we do? How do we make our money? For derivatives, we make our money on:
1. The spread.
2. The management of the risk on the transactions.
3. The financing for providing the leverage.
1. The spread
We take in pricing from really good market makers like hedge funds, regulated financial institutions and banks, and then we use those prices to create the best price for our collective. So, we don’t control the price, and that’s a big difference for us because many companies do. If we controlled the price, then we'd have a potential conflict of interest in what that price should be. We depend on those “others” to figure out where the prices are, make them compete against each other, and then we take the best and send it to our clients. We add our revenues on that best price. We price these markets like we would price for our family because, remember, this is about you, our collective. If you compare our pricing on derivatives, you will be hard-pressed to find anyone better, and we will never add smoke and mirrors around our offers. Elsewhere, almost all offers like that are essentially the same, but with some marketing wizard trying to fool you into thinking one is fundamentally different and just right for you. Chances are it’s not. So, the above is about spread, and it comes down to the spread we get from our market makers vs. what amana clients trade with and see. This markup is our spread revenue and any costs we have come out of that for the derivatives product.
Sometimes you might hear this being referred to as an ECN model. There’s a bunch of pricing competition, and the best price for the client is seen, and then you trade.
2. Management of the risk on transactions
What happens after a trade occurs is the next important thing. Our experience has shown us that taking all our clients’ trades and sending them directly to the market maker isn’t the best execution experience for clients. We track fill ratios, rejections, turnaround times, and a variety of other stats. And what works best for most of our collective is different, so what we do is act as the first stop or counterparty for everything and then, once the net trading exposure of all our customers combined gets to a certain amount, we send it out to a market maker that best serves our collective’s purposes at that time. This creates risk for us, and we’re all over it. There’s a certain maximum exposure we have on every product—and sometimes on individual clients—before we get rid of the net risk. It can also be an area in which we make money, and we do.
To summarize, we don’t control our price. Our ECN network does. We make money on spreads and also on managing of the risk on our net positions after we match client trades.
3. The financing for providing the leverage
The last point we should mention is around financing. You can think of financing revenue as interest on money that’s being borrowed (similar to any loan that you have). When you use leverage, you are basically borrowing money from amana. This fee is charged each day that you use leverage to hold a position.
Trading a leveraged derivative on Bitcoin, the Nasdaq 100, Tesla, EUR/USD, gold, or even oil can give you the ability to amplify your gains, but it’ll also increase your chances of losing. So be careful, don’t believe the hype, watch for the marketing shell game, and trust your instincts.