Business intelligence in FX: How well do you actually know your business? Live conversation in Cyprus

Running a modern FX brokerage in today’s environment of rapid development in all aspects of the business is a fast-moving and interesting enterprise, however with the constant drive among so many to gain innovative methods of attracting customers, providing new features and staying ahead in this competitive industry, how many really know their business?

Today, at the iFXEXPO in Limassol, Cyprus, the second day of industry discussion among the world’s most highly regarded senior executives in the FX business has centered on operational efficiency through use of intelligent technology.

Speaking today with Chris Rowe, Business Development Manager at Gold-i, FinanceFeeds CEO Andrew Saks-McLeod was interested to look at an aspect that can sometimes be overlooked, yet is critical to the growth and sustainability of every brokerage.

Mr. Rowe said “One aspect that is vital to the brokerage business today is risk.”

Concurring that the subject of risk today should be viewed through a technological mind rather than the connotations of grey-suited bureaucrats in insurance companies and accountancy firms that this often conjures up.

“In terms of risk, what I am referring to is that quite often, clients don’t think about the cost of the risk until they actually have a problem and it costs a lot of money” explained Mr. Rowe.

“Our business intelligence system, Visual Edge costs £3000 for example, however occasionally we are asked why a broker would pay for this product” explained Mr. Rowe

“An incisive response to this would be, why would something that can make you £50,000 extra a month by being more efficient, hypotehtically, depending on how the operations work and how big the firm is, therefore it is a good investment!” enthused Mr. Rowe.

Hot topics

During the technology panel yesteday here at iFXEXPO, there was a great deal of discussion surrunding understanding the business, reducing margins, and how to manage business risk, so they are quite clearly the key areas that are being looked at by brokers, liquidity providers and technology vendors alike.

“It is interesting what we are doing because we were the first to market with this paritcular product but this year two to three other solutions have become available, so the market is moving” said Mr. Rowe.

“I think in 5 years time we will look back we will wonder how we got by without a business intelligence solution. In 2006, we were happy without smartphones but nowadays life is inoperable with out them. This will end up the same way, and every sensible broker in 5 years time will have this type of technology” – Chris Rowe, Business Development Manager, Gold-i.

Mr. Rowe took a close look at the risk aspect that necessitates good quality business intelligence “The risk aspect is critical because if you dont understand exposure, how in control of the business are you? What happens if we have another large currency move, how prepared would you be?”

“What we are seeing now is that in terms of how brokers want to operate, they want to b book then when they reach a certain exposure, they want to hedge. You could have exposure due to geopolticial events, and this needs to be borne in mind” – Chris Rowe, Business Development Manager, Gold-i

“Without this sort of business intelligence, how would you know what your positions are and how exposed you are?” asked Mr. Rowe.

“You would have to drill down through trades, take reports from your prime of prime or liquidity provider, and produce a report from the MetaTrader 4, put it in an XLS sheet, and by the time you’ve done it its obsolete so youre then working on invalid data” – Chris Rowe, Business Development Manager, Gold-i

“We believe that the first thing to do is ot get a good understanding of the full position of a business and make a qualified decision on future moves rather than taking a finger in the air approach” said Mr. Rowe.

“It is impossible to operate a business without knowing what the real P&L is, however we realize P&L and there is not an easy way of getting unrealized P&L out of MT4.

“As an example, nobody would run an engineering business without knowing what the profit model was, whereas often in retail FX, traditionally nobody paid attention as they made money, clients were trading so complacency sometimes set in” explained Mr. Rowe.

Business Intelligence – How to avoid the squeeze

Mr. Rowe explained that “The real point is that once again, as explained in the technology panel yesterday, there was a lot of discussion about pressure on pricing from providers of liquidity to technology vendors. Money made by brokers by screwing down their liquidity providers on price could be much more if they understood the business with full information and maximized profit internally. In summary, it is better to look internally rather than externally to increase profitability.”

“There is not much scope for technology costs to come down much more. Its been great over the last 18 months as they have made considerable gains in technology contracts, however in the next 18 months they won’t be able to make the smae gains because there isnt the margin anymore, therefore looking internally has to be the way forward for a well educated, sensible broker” said Mr. Rowe.

“The Swiss National Bank’s removal of the 1.20 peg on the EURCHF pair affected the wrong people, therefore it is even more important for those doing the right thing to have full business intelligence. Unfortunately an attitude ensued in which many b book firms were glad that they operated by internalizing all trades, and those who were providing a live market environment were exposed” he said.

Many firms are now looking at an alternative risk book, often referred to as a c-book. This is where manual hedging is applied, and is a good solution as liquidity providers often give a better deal if a broker sends all of the trades through.

Opinions vary on the definition of a c-book model, however it is effectively a b-book process with post trade covering in the market. This, along with good business intelligence can be one way to secure the future of a retail firm against risk, whilst still providing a good quality trading environment to customers.

Featured image: Gold-i executives Tom Higgins and Chris Rowe talk leading edge technology at iFXEXPO International, Cyprus