The future looks bleak for FX engagement tools

To unearth some alarming figures, accountants and auditors of FX firms do not necessarily need to delve too deep into their exposure to risk when transferring trades to their liquidity provider, nor do they necessarily need to analyze the amount of trading volumes that are required in today’s low-leverage world to turn a profit at a spread of 0.3 pips.

Well before even getting to those numbers, brokerages often need to look no further than the average cost of client acquisition and the average length of time that said client remains a trader.

It currently costs between $1300 and $18oo depending on type of brokerage and market segment to obtain a client, the average lifetime value is six months, and outside the United States, the average deposit per client is $3800.

Not the most inspiring of mathematical exercises but one that occupies the mind of most executives in the retail FX industry continually.

During the past few years, several ancillary services have been built, largely around the MetaTrader 4-based standard retail brokerage, aimed at ensuring that clients stay with their brokerages longer and trade with greater verve and vigor, largely as a direct result of brokerages attempting to generate a much more significant return on their investment.

Quite contrary to such services rocketing in popularity, the absolute opposite seems to be the case.

The latest casualty of this example of an occurrance of the reverse of the expected is Daticks, a company which provides real time portfolio analysis based on trading data that is designed to boost trading performance.

Based in what has become an FX industry technology and brokerage sub-center, Grand Rapids, Michigan and operated by seasoned FX industry executive Steve Nauta, Daticks had all of the right credentials to make it the darling of the brokerages wishing to elevate their status as the preserve of the analytical and experienced trader whilst creating longer lifetime values and, just as importantly, higher volumes.

Mr. Nauta is no beard-growing Millennial dreamer. Quite the opposite, he has absolute pedigree in the FX industry, with senior executive tenures at GFT behind him as well as at NFA and CFTC regulated spot FX brokerages GreenTrust Capital Management and GloCap Markets where he was Managing Principal.

Daticks, therefore should be the antidote to client attrition and apathy for retail brokerages, however it has vanished, just under two years after establishment.

Retention automation solutions and various online educational tools are available and have been for some time, however the array of competition which has driven the margins down, as well as the increasing knowledge of the structure of the retail FX business among retail customers means that they drive a hard bargain these days and the matter remains that initial deposits, compared to the lifetime value and cost of acquisition are a major concern.

Optimove, founded in Tel Aviv just over three years ago was aiming itself directly at the electronic trading sector at inception. The company, which produces automated customer retention solutions, positioned itself at the very fingertips of retail FX brokerages, however today its CEO, Pini Yakuel, has relocated to New York and the company’s target audience is e-commerce, gaming, FinTech as well as application developers.

Similarly, CPattern, which is an FX industry-specific retention automation and management solutions provider, lost two if its major sales team just recently, and has remained a boutique and very small business since its establishment.

It is clear that social trading has not only gone past its first bloom of youth but has become absolutely pensionable these days.

Tradency, which was established in 2004 and and was a pioneer of the Mirror Trading methodology recently made its most recent round of redundancies, this time involving the vast majority of the firm’s staff and included many senior executives across sales, marketing and product development divisions.

This is a great shame to see, as Tradency is a stalwart in this type of retail FX technology and had done its utmost to engage with brokerages, switching to a licensing model and away from the old-school ZuluTrade-style volume commission model which involved in many cases adding a pip to the trading account spreads. Imagine that these days? No trader would ever pay 1 pip.

Tradency maintained the same Mirror Trader product for 12 years until it launched RoboX last year, which took the data collected over the period since Mirror Trader’s 2004 launch and automatically selected more appropriate strategies led by lead traders in order to engage clients.

It is apparent that the market share among firms offering this type of copy trading is no longer based in nations with developed financial markets economies.

Gaming-inspired methods of engaging traders are even less able to rouse interest. Tradimo, which came straight from the online gambling world, was invested in by CFH Group in December 2014, when CFH Group acquired 50% of the firm from its original owner, Etruvian Group’s PokerStrategy.com.

What on earth poker has to do with electronic financial markets is a mystery, however the 50% stake in Tradimo saw it become an integral part of the group and a service that could be offered to retail brokers who are customers of CFH Group.

Tradimo Play was intended to attract new traders to the retail FX industry, however here we are, over two years on, and silence remains. Traders do not want gimmicks or gambling-orientated competitions, or cartoon-inspired graphics. They want real, decent platform technology, user friendliness and proper charting and news/analytics feeds.

Self-directed trading has absolutely taken over from these ‘calls to action’ and electronic encouragements, hence recent decisions by FXCM to drop its entire affiliate program and allow retail traders to sign up for live accounts and trade under their own will, and Plus500 which has absolutely no contact whatsoever with its customers, are heading along the right lines and understand that, aside from FXCM’s extensive IB network in China and other critical regions, self-directed retail traders are the mainstay of the business.

n China, vast portfolio management companies exist, which use fully automated professionally designed software to assess the markets and risk profiles, and in many cases 90,000 lots per month are being traded on behalf of regional clients of introducing brokers via in-house developed trading systems, with IBs themselves having businesses worth several hundred thousand dollars. Not a social trading platform in sight. Nor an unusual beard, for that matter.

In Japan, which is home to 35% of the world’s entire retail FX order flow, almost all customers trade only with domestic firms, and there is absolutely no reliance on EAs, social trading or automation because Japanese clients often trade manually, and always have done, hence MetaTrader 4 being unpopular there as there has never been a need to standardize a platform to accommodate EAs.

Today, companies such as Spotware Systems can build a bespoke trading platform for brokerages, with algorithmic capability and automated trading systems built into the platform, and firms such as SkyDesks can provide a fully integrated web trader with built in EA capability and a latency-reducing VPS. These firms are operated by longstanding technological and development professionals, committed to understanding how market connectivity operates, how to integrate their traders with price feeds and conduct risk management, how to structure algorithms and where to place the trader’s connection to the live market.

By contrast, social trading platforms in their own right were spinoffs from the affiliate marketing and gaming industry, which is, as FinanceFeeds continues to maintain, completely incompatible with the FX industry in any shape or form. Many of them took the gaming and affiliate model, mixed it with social media because that was the buzzword of the time, and proceeded on that basis.

Nowadays, traders want to see full charting facilities, be able to execute trades via algorithms just as proprietary traders in large firms in Chicago and New York would do. Traders are able to understand the methodology behind retail platforms, and in some cases are becoming equal.