Equiti Group’s Mohammad Isbeer explains why retail brokers are pivoting to institutional side

As part of our coverage for the influential financial Expo, we spoke with Mohammad Isbeer, Global Head of Brokerage Sales at Equiti Group. In this interview, Isbeer talks about a wide variety of topics. Among others, he shared some thoughts on the hot topic of cryptocurrencies, and his perspective on the non-fungible tokens, or NFT, space.

With the return to face-to-face events, we asked Mohammad about his impression of the iFX EXPO Dubai 2022.

“I think the event has been a great success. I mean, from an organizational perspective, they’ve done an amazing job. I think the participation level was amazing this time as well. COVID restrictions are going away right now, which makes us more comfortable talking to each other.”

An interesting topic we discussed with Mr. Isbeer was why we see an increasing number of retail brokers are pivoting to the institutional side of the $6 trillion-a-day FX market. The expansion into the B2B market also comes at a time when institutional and professional traders are experiencing challenges accessing the wholesale‎‎ price matching community via a prime brokerage model‎. 

‎Some argue that despite the recent decent growth, the army of at-home, first-time investors may have really materialized. But Mohammed thinks we need to go at this from a different angle. In today’s environment, institutional brokers are navigating constantly shifting talent, rising growth expectations, and in many cases, shifts from legacy business models. 

“In my opinion, there’s a huge responsibility nowadays on institutional brokers because retail brokers are going out there. And they’re investing a lot of time, money and effort in their technology and marketing engines. On top of that, we’ve seen a big influx of new traders coming into the market, including through different investment and asset classes like Cryptos.” 

There is a catch, though, notes Mohammed Isbeer, who spent the bulk of his two-decade career within the FX industry, having worked with big names such as ADS Securities, ICN Financial, and Noor Capital, amongst others. Specifically, he points out that institutional brokers have to respond to these challenges with rebuilding their functions from the ground up‎, which is typically capital intensive. ‎

“Now, the role of institutional brokers is to be able to match that demand in terms of liquidity in line. So you need bigger balance sheets, bigger lines of liquidity, better and relationships with the tier-one liquidity providers. We’re seeing the gap already, and there is still a bit of a shortage on the institutional side,” he adds. 

Not only that, Isbeer continues, but also from a risk management perspective, institutional players must be able to offer different solutions for retail brokers to manage the big waves of flow that has been coming through, especially in the last two years. 

“We used to be talking about FX and CFDs only, and now, it’s a wide spectrum of products, equities, cryptos, and these became the kind of tools for you to survive nowadays. It’s not just an auxiliary service, but it’s pretty much the necessity to be able to survive in this industry.” 

Crypto is obviously a hot topic these days. When questioned about the sort of integration or intersection of cryptocurrencies and NFTs, Mohammed expressed that despite some turbulence with specific projects, the digital assets market shines more brightly than ever. He also drew perspectives on the difference between the NFT industry’s dogma of offering an alternative way to sell artworks and the abstract space carved out for speculative investments.

“The NFTs have been very eye-catching in 2021, but it’s very hard to understand or to predict how and when it will evolve and integrate with different industries. But what we see today is a lot of ideas being put forward from FX companies. For example, we have a separate project that works on NFT and crypto. And once we have this up and running, then we’ll try and seek some integration points. I was speaking on the panel yesterday, and I had this idea about trading personas that have a self-modifying design.”

He also notes that as the world grapples with geopolitical uncertainty, brokers are increasingly adopting multi-asset strategies and looking to offer access to the full range of investment products. Supporting a rich array of trading products enables investors to trade at ease with multi-asset connectivity and execution capabilities. However, a lack of liquidity for some asset classes has a very real cost to the end-users, and Isbeer  identifies where these costs may outweigh the benefits of new market developments.

“I think there is a bit of shortage in liquidity when it comes to certain products. For example, there’s a major lack of liquidity on gold, because it’s one of the most traded instruments in the industry now.”

Isbeer also explained how the disruption of the supply chain of the physical gold had cut its spot volumes on many occasions over the last two years. The bullion liquidity was thinner due to logistics issues as the coronavirus has decimated supply chains across the world. This has led to much wider spreads than usual while margin requirements increased; as a result, trading volume took a hit.

“So there’s huge demand while the supply is a bit scarce. If you’re talking about CFDs, there are only a few proper venues that you can go to and hedge your CFD exposure. On the future side, you can go to an exchange and offload some of your risk, but then the margin gap becomes too big. On the FX side, I think the liquidity is there. But now, we talk about all these new instruments as well.”

Despite price volatility, Mohammed also highlighted how the cryptocurrency space is maturing in a similar way to the $6 trillion foreign exchange market. He mentioned many crypto exchanges that have completed API integration with conventional FX bridge and liquidity providers such as PrimeXM, Gold-i’s Matrix NETwork and oneZero.

“We have seen the crypto world is trying to move into our space, it’s not just the other way around. So now it’s becoming kind of an easy integration for a broker to get access to liquidity directly from the exchanges and not through a third party. I think within the next six to 12 months, it should be an easy integration for everyone to be able to trade Cryptos.”

We last interviewed Mohammed Isbeer in 2021. Speaking on the key industry trends since then, he outlined new regulatory licenses acquired by many brokers to protect their business in the post-Brexit era as examples of activities evolving the landscape. And finally, commenting on the industry growth away from the rapid emergence of the crypto space, Isbeer shared some insight into the need for a clearly defined growth strategy and a review of commercial fundamentals.

“Brexit is happening in the UK, a lot of people are going back to Europe, Cyprus and Germany, while others are trying to get new licenses in the Middle East and set up shops here. So I would say marketing and regulations are the two main elements of 2021. Aside from that, as well as the crypto and NFT waves, to be honest, 2021 was not a big, eventful year for our industry.”