Equiti Capital at iFX EXPO Asia 2023: Mohammed Isbeer on all things liquidity for brokers

This years’ iFX EXPO Asia took place at the Centara Grand & Bangkok Convention Centre at CentralWorld.

From 20 to 22 June, the arena hosted 3,000 attendees, exhibitors and sponsors which included successful start-ups, leading international brands, and industry giants.

Equiti Capital bringing bespoke liquidity to brokers in Asia

Among the leading FX brands present at iFX EXPO Asia 2023 was Equiti, the renowned multi-asset broker with local offices in Europe, the UK, the Middle East, Africa, and the Asia Pacific region, and entities regulated by the UK Financial Conduct Authority, UAE’s SCA, Jordan’s JSC, Kenya’s CMA, Seychelles’ FSA, the Central Bank of Armenia, and CySEC from Cyprus.

Equiti Capital attended the Bangkok expo to remind FX brokers in Asia and elsewhere of the importance of bespoke liquidity in today’s markets.

FinanceFeeds Editor-in-Chief Nikolai Isayev had the opportunity to schedule an interview with Mohammed Isbeer, Global Head of Brokerage Sales at Equiti, to discuss some of the most pertinent topics for FX brokers, namely managing multiple liquidity providers, the changing landscape of liquidity provision, and how FX brokers choose LPs.

Mohammed Isbeer also addressed the somewhat risky trend of retail brokers pivoting to the institutional side, risk management, getting rid of the b-book mentality, and saying “no” to retail brokers.

How to choose LPs and how to manage liquidity

“I think it’s quite risky to have only one [Liquidity Provider]. You need multiple, but sometimes people go overboard. Size is very important here. If a broker is doing 3 to 5 yards (1 yard = $1 billion) per month, maybe you need a main one and a backup LP to make sure you always have a plan B in place. You don’t need aggregation if the flow is small.

“When a retail broker is doing 20-30 yards a month, maybe start looking at aggregation of different LPs, assigning certain instruments to certain LPs as long as there’s enough flow to send to multiple LPs and keep them happy. But having 2-3 yards and dividing them through many LPs…1) you don’t need that, it’s an added cost on the broker; 2) LPs won’t be happy because they need at least a minimum threshold of volume to cover their cost as well. I think volume decides how many LPs you need.”

Liquidity provision has changed significantly over the last ten years, Equiti’s Isbeer argues, noting that the rise of smarter clients and advanced technology has deemed the “one size fits all” approach inadequate. “It doesn’t work anymore”, he said, noting that clients trading large clip sizes need a specific feed in order to better deal with fake latency and fake arbitrage.

“Latency traders, EAs, algo traders…each of them has a different approach to market orders and how LPs react. Bespoke liquidity and different liquidity pools are very helpful to cater to different flow types.”
Equiti’s Global Head of Brokerage Sales also advised FX brokers to be more on the safe side when choosing Liquidity Providers, especially new brokers who follow commercials over safety.

“There are a lot of questionable players in the market”, he warned about the many unreliable LPs that simply slap a “Prime” next to their name in order to be perceived as serious institutions. “It takes much more than that”, Isbeer continued as he advised retail brokers choosing an LP to make sure it has proper prime brokerage functionality, underlying tier-1 LPs and not others piggy backing on top of everyone else. When speaking to an LP, brokers need to know who’s their PB, their underlying LPs, their capital, regulatory authorizations, etc. “First see if you’re dealing with someone that’s legitimate…then, commercials. Be reasonable.”

Some retail brokers want to go B2B, but it’s not that easy

For the second leg of the interview, Mohammed Isbeer explained why the somewhat risky trend of retail brokers pivoting to the institutional side has been taking shape in the last few years. “With retail you have to spend a lot in marketing or deal with Introducing Brokers (IBs) to bring X amount of volume, while in B2B, you get one broker that gives 10 yards a month, maybe in a profit-sharing model but it’s quicker, easier, and you only have to deal with one person instead of a thousand”.

Moving from B2C to B2B is, however, not as seamless as it looks because “when you go after retail you spend on marketing, but you get the end client, while when you do B2B you usually get the remaining they want to send to the streets, not the creamy stuff. You get the end of the trade”.

The Equiti executive noted that this shift stems from brokers wanting something quick, which does B2B deliver but way greater risk, he warned, because setting up such an institution is very complicated and requires experience and cost.

In regard to risk, Isbeer discussed risk management in this unstable macro environment. “Since October, volatility has subdued and all brokers that relied on that have been suffering, which increases demand for risk management systems, auto hedge systems, something institutional brokers already have in place.

The idea now is to stabilize revenue and squeeze maybe extra 20-30 dollars per million on the STP flow instead of going through the traditional b-book”, he suggested, while noting there’s a tradeoff. “You’ll never make as much money as you would on b-books in volatile markets. At one point, that volatility will come back, and you’ll lose that wave”. Ultimately, when retail brokers choose between a-book and b-book, they’re really deciding how much stability they want versus potential profit/loss. Anyway, if the subdued volatility continues, then everyone will go a-book out of necessity, he added.

If brokers want to survive, b-book mentality has got to go

In an assertive tone, Mohammed Isbeer commented about today’s challenges within the FX industry as he expects a lot of consolidation in the brokerage space, with some M&As and others going out of business.
Brokers that want such a crowded industry amid high interest rates must lose the b-book mentality and adopt the risk management system, he stated. “With the right systems in place you can pivot and survive.
“Having no other option than to sit and wait, that’s a mentality that needs to change in B2B or retail space. We have to be prepared for these events. The pandemic gave a false sense of security. You need to be prepared for the reality of the market. Risk management software is not that expensive and can be bought off the shelf”, Mohammed Isbeer said to conclude the interview with FinanceFeeds at iFX EXPO Asia 2023.