What criteria do traders look for in a broker and how to develop a unique proposition

As often depicted by research conducted by FinanceFeeds, one of the key elements to a sustainable brokerage business is to provide an angle or range of services that differentiates it from the vast array of competitors.

One of the first criteria that became de rigeur among retail brokerages a few years ago was regulation, however nowadays the vast majority of established FX firms are regulated in good quality jurisdictions.

There are, however, still a number of legitimate unregulated businesses operating, but a client may find a hard time trusting such a company over the long run, having no possible recourse in case things go wrong.

In addition to the region in which the firm is registered and hosts its core operations, where it is regulated is of the utmost importance, given different requirements of each regulatory authority. Regions with very light oversight, such as New Zealand’s previous structure which simply involved placing a brokerage on a register back in 2010, were very attractive both to legitimate market entrants but also to hundreds of fraudulent operators that were eventually struck off the list when the New Zealand Financial Markets Authority (FMA) came into existance, elevating New Zealand’s structure to that of other Western jurisdictions.

Differentiation can be presented in the form of the range of trading platforms that a broker can offer and how it runs its business, through white label services, proprietary platforms, or the ability to allow developers to customize their trading environments with open API software to suit their own specific requirements.

MetaTrader 4 remains vital for clients that use Expert Advisors and has gained great popularity, especially in the Asia Pacific region where Expert Advisors (automated trading software) is widespread, however such a broker will have to compete against 1,230 firms that provide a very similar trading environment, and there are now several alternative choices in terms of software in the automated trading world.

Proprietary platforms don’t come cheap and aren’t as easy to onboard clients, but prove to be successful at retaining them as they appeal to traders who look for specific detail within a platform.

Other broker requirements can make an impact on whether a client will try you out: trading styles permitted, Islamic accounts, swap rates, withdrawal fees, and minimum deposit. This serves to prove that spread can’t be the one thing that sets your broker apart from the rest. Not ever since large brokers crushed it down to margins close to 0.1. New trading products and systems could build your unique preposition value case.

Broker comparison tables proliferate the internet by the dozen and especially novice traders rely on them however there is no means of verifying their accuracy.

Highest CPA or Revenue Share tend to be the main criteria among affiliate marketing companies. Despite typically high rates of client turnover, firms such as Plus500 -a company which pays among the highest rates to buy digital media and favors this over a high touch sales and retention model – are financially successful.

Plus500’s net profit in 2015 was of 35.03% and return on average equity was 84.67%. Its stock, LON:PLUS, trading 448.75% higher since its IPO in 2013, is coming close to retrieve all losses from the SNB peg removal crisis and the company has made significant progress since its mandatory account freeze in May last year which saw the company’s market capitalization decrease to half of its value from almost $1 billion in the early part of 2015. Currently, the year-on-year change is only down by -1.65%.

Bart Burggraaf, Partner at MediaGroup Worldwide explained today to FinanceFeeds’ Ricardo Esteves “Brokers competing solely or chiefly on price will soon find that there is always a broker willing to sacrifice revenue for volume and find themselves undercut. The only way for brokers to gain a longterm competitive advantage is to stake out a niche brand position and relentlessly executing against this niche in both marketing communications and product development.”

Photograph: CMC Markets’ $100 million ‘next generation’ proprietary trading platform on display at CMC Markets head office in London. Copyright FinanceFeeds.