FX brokers need to obtain and keep the best clients. Now it's more important than ever - FinanceFeeds

FX brokers need to obtain and keep the best clients. Now it’s more important than ever

Andrew Saks

Multi asset FX brokerage is absolutely essential for survival and sustainability. We look in detail at how to get your brokerage into the high volume and lucrative markets aside from just spot FX, via a genuinely diversified platform aimed directly at FX brokerages.

For many years, FinanceFeeds has advocated the need for retail FX brokerages to cost-effectively elevate their business potential by offering an exchange-traded, multi-asset product range via their existing platforms, be they proprietary or off the shelf systems such as MetaTrader 5.

In developed regions with world-leading financial market economies such as Britain, very few non-domestic companies are anywhere to be seen with regard to market share, and the London-based CFD and spread betting giants dominate, knowing their customer well, garnering loyalty and ensuring a 30 year presence with a largely British customer base.

Astute investors in first tier jurisdictions, which form the client bases that retail brokers should be looking to onboard and retain, may well be conservative and prudent, but they are very technologically analytical and expect to be provided with proprietary trading systems that are developed, supported and continually evolved in the way that only London’s world-leading FinTech sector can provide.

Multi-asset trading environments, offering connectivity to massive asset bases is a pre-requisite in order to engage these good quality traders and investors, who are usually well-read, strategic and pragmatic.

Gone are the days in which any FX brokerage can cheaply and easily enter the already highly competitive market which is saturated with almost identical product ranges all provided by the same white label solution, all of which are aimed at relatively novice level first-time traders with low lifetime values and very little expertise, often in third tier jurisdictions, and think that this is a good enough basis for a business.

Today, the retail OTC derivatives business is at a level of maturity, along with its clients, that it requires far more mettle and far more thought and development than simply leasing a MetaTrader server and hoping for the best by buying leads, which is an ineffective, expensive and very limiting endeavor.

These days, this is not enough.

Over recent months, FinanceFeeds has taken serious note of the importance of developing a multi asset solution which is holistic, comprehensive and attracts a range of clients, corporate and individual, from hedge funds to professional traders who would ordinarily trade large portfolios on the listed derivatives exchanges of Chicago.

The factors that have thus far held this back are cost and fear.

Brokers who are astute and know the need for this direction can often be put off by the entry cost of heading down the Chicago derivatives exchange membership route. It can cost over $500,000 for exchange membership fees, and then there are the massive clearing costs, which are feared by brokers who are already used to operating within very small profit margins.

Brokers who do not understand the potential are often trapped in a cycle of lead recycling and affiliate marketing, neither of which should be part of the genuine electronic trading business.

These two extremes will continue to become more extreme however there is a method of getting into the market which will provide them with a range of good quality professional traders which require very little hand holding yet will have larger deposits and high lifetime values, along with hedge funds.

An effective means of achieving this is via a platform development and software engineering company whose product range is aimed squarely at resolving this issue, the company being TraderEvolution Global Ltd.

Incorporated in Ireland, the company provides its solution via a specific model, which is the only sustainable method of ethical platform provision without conflict of interest, that being the company deploying the platform individually for each broker.

The need for brokers to go multi-asset without having to go to the extent of alienating their existing customers yet being able to bring on board better quality customers and more sustainable business is vital.

In terms of its reach, TraderEvolution Global Ltd serves a global audience, and to demonstrate the value of this, FinanceFeeds spoke to its clients who provided candid opinions on the importance of going multi-asset via this solution.

Singaporean Broker-Dealer UOBKayHian recently integrated TraderEvolution Global’s platform, about which the company’s Associate Director Augustine Ng said “Clients are getting more sophisticated in this data driven digital age, We chose TraderEvolution to allow us to fulfil these needs and ensure the scalability of our offering. The software provided by the team enables us to deliver multi-asset trading through different channels within one account – something that is essential to our clients. In addition, we were highly impressed with Traderevolution ability to develop flexible solutions to enable us to build a wide range of institutional offering.”

Indeed clients are getting more sophisticated and require access to all assets. Most existing retail traders and prospective traders are wise to the affiliate marketing orientated MetaTrader model, and require genuine access to diversified markets.

Australian brokerage CTIN Financial has also expressed its view on this matter, the company’s Financial Services Director Ian McEwan having stated “TraderEvolution has been pivotal in providing CTIN with the advanced technical backup on which CTIN’s ambitious global project relies. TraderEvolution has allowed CTIN to differentiate itself from its competitors through a true global multi-asset platform including exchange-based equities under a custody model. CTIN’s commercial relationship with Trader Evolution is a strong alliance on which CTIN is proud to continue to rely.”

Specialist brokerages such as XSpot Markets utilize the TraderEvolution Global platform, thus emulating and in many ways usurping the newly established start ups with apps offering investment opportunities to tech-savvy investors. XSpot Markets has therefore empowered itself via good technology and industry expertise, without the cost of starting from scratch. Surely this is a more high end approach than offering MT4 via affiliate partnerships and therefore higher end clients would ensue.

As regulation ebbs toward limited leverage and looks to encourage brokerages to provide exchange-traded, less high risk investments, maintaining existing client bases on a familiar trading environment whilst extending the new product to them and in the process bringing on board equities and futures traders has to be a good move forward.

Quite simply, it is high time that the entire FX brokerage and OTC retail electronic trading business went multi asset, and by that, we mean properly multi-asset, providing derivatives exchange connectivity and access to futures, equities and stocks on Chicago and New York exchanges, on the same platform as spot FX – namely MetaTrader 5.

Many brokerages, especially those which do not wish to invest in their own trading infrastructure and then spend an equal amount of resources supporting it, are almost in a self-perpetuating rut, in which they are reduced to accept a limited appeal by highly experienced traders, accepting instead a high rate of churn, and a lot of service-heavy low end clients in third tier regions who have all been approached by literally hundreds of identical entities, offering the same spot products via the same sales-led method, including the same pitches, the only differentiating factor being the brand name on the platform.

This is a status quo, because many small to medium sized retail brokers do not wish to become involved in software development, or have the expense of maintaining a separate exchange trading platform along with membership fees and clearing charges, only to find that their existing clients have been conditioned by their brokerages to stick to off the shelf, inflexible platforms.

Using turnkey solutions for starting an FX brokerage with a regulated umbrella is commonplace in the retail FX sector, and has been for some time with specialist technology, law and corporation establishment companies very much part of the landscape in popular areas for large retail FX brokerage to establish.

Now, there are even turnkey hedge fund solutions – therefore what are you waiting for? It is time to embrace the multi asset platform wave and increase your remit.

Read this next

Industry News

OANDA plays an ace against Australian OTC trading restrictions, goes for pro traders with 1:100 leverage

OANDA Corporation’s Australian division has launched an account with higher leverage for professional traders. During the regulatory reforms by ASIC, many Australian brokers began an attempt to lobby the regulator to accept different leverage rates for different levels of trader.

Industry News

Are US equity markets in a bubble?

88.88 % of all S&P 500 stocks are trading above their 200-day moving average

Industry News

Brazils B3 exchange overtakes the CME in the number of contracts traded

B3’s mini dollar contract traded more than 692 million lots and saw its open interest explode by more than 940%, during 2020

Industry News

FSCS fees will jump by 48% in 2021/2022

The total bill for the compensation scheme will move beyond £1.0 billion, for the first time ever this year

Inside View

FX liquidity providers with STP regulatory licenses are still profit sharing. It’s a recipe for disaster

Some of the OTC B2B firms continue to do revenue sharing, despite the trail of destruction it has left in the past. We investigate this today, and gain perspective from within on how to build your broker and lead the entire industry toward proper long term business relationships with genuine multi asset providers and to lead the way away from the revenue share race to the bottom

Industry News

Green FX is here to stay. Retail brokers follow the banks lead

Retail FX brokerage CedarFX understands the importance of offering ecologically friendly FX trading accounts, especially when the new generation of traders are keen to ensure social and corporate responsibility when investing in capital markets. Here is why it should be taken seriously.

Industry News

BlackRock opens up to Bitcoin investment

The two eligible funds are no lightweights and they contain more than $40.0 billion of assets between them

Industry News

Citi launches a new suite of futures trading algos

Implementation shortfall algorithms are designed to keep or reduce that cost differential (slippage) to a minimum

Inside View

FX brokers are beginning to not just talk about becoming their own ECN or exchange, they are doing it!

FX brokers who do capitalize on the importance of offering a full range of venue-listed products via genuine live market liquidity will be left behind. The b-book OTC world has limited future, and the companies at the top are already working on its replacement. Here is our full analysis