When University of Toronto computer engineering professor Michael Stumm decided to launch an online currency trading platform for individual investors in 2001, he had no idea of the regulatory obligations involved. Nor did he have any experience in dealing with the powerful international banks that dominate foreign exchange—forex—the world’s largest, fastest and most liquid market, with a daily global trading volume of about $4 trillion (U.S.). Stumm spent a modest $250,000 to have four of his former students help him write the software.
Now, 12 years later, Oanda Corp.—the company he co-founded with a high school friend from Switzerland, financier Richard Olsen—is one of North America’s largest retail forex trading firms. Still privately owned, Oanda has offices in Toronto and six other cities around the world. Its computers handle up to 1.7 million trades a day, with a value that has reached $10 billion. Stumm, 59, is one of the most successful tech entrepreneurs in Canada, and has a stake in the firm that exceeds 10%—a slice that is likely worth close to $50 million.
He is also out of a job. Last May, Oanda’s board of directors—on which he still sits—asked him to step down as CEO. The qualities that made Stumm such a big success as the driving force behind a start-up—technical brilliance, vision and a fierce determination to barge through any
obstacles—had become a wild card for a maturing company. It’s one thing to put in long hours over pizza, writing computer code with a handful of fellow geeks; it’s quite another to deal professionally and patiently with employees, clients and investors. Even colleagues who still admired Stumm were fed up with being lectured and badgered as if they were lethargic undergrads.
Of course, many innovators—from Thomas Edison to Mike Lazaridis—have stumbled as their bootstrap operation swelled into a large corporation. Even Steve Jobs, who was fired as CEO of Apple in 1985 (and rejoined the company in 1996), eventually admitted that he was so arrogant that he deserved to be shown the door. As Stumm looks back at his rise and downfall, he shows signs of beginning to understand what happened. “I was at a pretty severe stress level the past few years,” he says. “I never had a plan to do anything. I just got sucked into it.”
Like a lot of game-changing entrepreneurs, Stumm and partner Olsen started by identifying a market need that was simple and obvious, yet somehow unaddressed: Why was it so expensive to change money from one currency to another? Almost every Canadian traveller has seen the forex booths at airports that sell U.S. dollars to departing passengers for, say, $1.01 apiece, but will only pay arriving passengers 93 cents for their greenbacks. Or maybe you’ve opened a credit card bill after a vacation and fumed over markups of 2% or so on foreign purchases.
Fat buy-sell spreads on forex should have evaporated in the 1990s, as they did on stocks as the Internet revolutionized trading. But large banks and currency dealers managed to maintain their spreads for retail customers, even as they squeezed the gap down one-100ths or two-100ths of a percentage point when trading with one another. That’s because then, as now, there were no central and transparent exchanges for currencies that retail investors could access—as there were for stocks—so individuals and small businesses got hosed.
Stumm’s original idea for Oanda in the mid-1990s was purely informational: Why not become the standard for
forex prices and provide interbank exchange rates online? That way, the hoi polloi could at least see reference points.
For help, Stumm turned to Olsen, his school friend from Zurich. Olsen has degrees in law and economics, and his family owned Bank Julius Baer, one of Switzerland’s largest private banks, founded in 1890. In 1995, Stumm developed an online currency converter that quoted daily spot prices for forex, as well as historical figures. Olsen subscribed to several online financial information services that quoted exchange rates, and the program gathered those rates and stored them. The company was incorporated the following year in Delaware. Oanda was short for Olsen and Associates, but the firm notes on its website that the name also translates as “just in time” in Turkish.