Insight: The long-established Asia Pacific FX brokers are gradually pulling away from MetaTrader
Do you want to be subservient to a fully closed system which dictates who processes trades, or do you want to have full access to derivatives exchanges and global markets when entering the multi-asset space and therefore be master of your own destiny in a world of massively high output, experienced traders?
Japan led the way back in the middle of last decade, whereby the last few brokers which offered the MetaTrader platform alongside their proprietary ones to domestic market retail traders discontinued all use of MetaTrader.
Since then, the world’s largest retail FX market by trading volume has stuck closely to Japanese firms with their own trading infrastructure, many of which are conducting over a trillion dollars per month in volume per company.
This is purely because in Japan, the majority of traders are self-directed and trade their own accounts, which is a total contrast to the dynamic in other parts of the world, and in particular other parts of the all important Asia Pacific region.
Perhaps the main reason why MetaTrader, a platform which is over 16 years old, is still in widespread use among retail brokers is because of the ability to move clients from one broker (or white label of MetaQuotes) to another with ease and because of its compatibility with trading robots, often known as Expert Advisors (EAs) which are in widespread use across China and South East Asia, often in conjunction with managed accounts.
Thus, trading several accounts via MetaTrader’s MAM system with an in-house developed EA attached is a revenue generator for many white labels and b-book brokerages, in which introducting broker commission is split between the broker and introducer.
Therefore, the whole structure represents an affiliate style product which is very similar to multi-level marketing, which is huge in China, but frowned upon and in some cases illegal in Western countries.
Surely, therefore, to be able to consider every firm in the industry to be a genuine financial services and capital markets participant, that model has to go.
An obvious indication of this need was the report by Taiwan Futures Exchange in January this year that it had achieved a new record volume of 341,393,346 contracts in 2020, a 30.9% increase compared to 2019. Average daily volume (ADV) for the full-year also reached an all-time record at 1,393,442 contracts.
This result is yet another indicator that the retail trading sector, especially in South East Asia which is an epicenter of high volume market activity conducted largely by individual traders as a part time endeavor and via introducing brokers and money managers, is very much operating on a multi-asset basis, with exchange traded futures and equities at the very heart of the trading world.
Thus, it is clear that going down the multi-asset route is a long overdue natural progression for retail OTC derivatives brokerages if they want to onboard a new and large client base which has a longer lifetime value and requires a diversified product range.
Therefore, brokers in the FX and CFD industry should be considering embracing multi-asset platform capability to keep a foothold in the increasingly complex and sophisticated Asia Pacific region.
Let’s face it, that is where the majority of retail traders reside, and is considered bread and butter business by many FX firms.
FinanceFeeds today poke in detail with a Product Manager at a Singapore financial institution on this matter. The company is far more than a broker dealer, accessing global markets and professional services.
“Our business extends globally. We have offices in Hong Kong, Malaysia, Indonesia and Thailand, as well as offices in China, the United Kingdom and the United States” he said.
“The products and service that are offered center around dealing in securities as well as OTC derivative instruments, and we also provide capital market services including listing and corporate finance activity” said the Singaporean brokerage executive.
“We use the TraderEvolution Global platform for OTC derivative products, namely CFDs and FX”. “We also have MetaTrader, however we saw an important need to be able to bring in a multi-asset platform which can offer much more flexibility and scalability, hence we onboarded TraderEvolution Global” he explained.
“The key reason that we wanted to use TraderEvolution Global was that we offer a transparent straight through processing (STP) business model. Most of the CFDs and stocks we operate with are eventually sent through directly to the liquidity provider and live market”.
“This particular platform has a breadth of functions that cater toward listed derivative products, and because there are listed derivatives there are various underlying products on listed instruments, therefore in terms of scalability it makes sense for us. We cover listed derivatives across global markets, therefore being able to execute on Asian and American exchanges via one integrated solution is vital”.
“We went live in 2020, with a considerable client take up. We see a standardisation of regulations globally such as ASIC latest tightening of leverage on CFDs products which is putting pressure on the OTC brokerages to expand their product offering and not simply offer spot FX via an off the shelf platform” he explained
There are now more information globally across various media channels on different types of business models, for example what a b-book is, and what type of brokers exist. These information are readily available for retail traders these days. In England, for example, the FCA requires publishing the percentage of clients that lose money, so there is more transparency available not only via market information but also via the regulators globally.
“Thus, using an off the shelf affiliate-style spot platform is not conducive to growing business in many of the regions that are important to the capital markets industry”. “What is important is being able to offer trade ideas and analytics for the client” continued the Singaporean executive.
There is already a move toward this among the off the shelf platform providers, as there is now a fully accessible multi-asset solution for retail brokers which allow the trading of spot OTC derivatives on the same platform as multi-asset exchange listed futures and equities.
This not only elevates the potential client base of brokerages, as it accesses the equities and futures traders on exchanges, many of whom reside in first tier regions such as the United States, Singapore, Hong Kong, Australia and Switzerland, but also generates a highly sustainable environment for brokers in which long-term traders with less leverage and larger capital margins operate, bringing them into the realms of the portfolio holders rather than CPA/lead conversion short term business.
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.
The solution, developed by Markets Direct, operates via a B2B integration to the CQG API to stream tradable FX, US equities and Futures prices via MT5, CQG and NetDania platforms.
Thus, it is clear that even MetaQuotes realizes that this direction has to be embraced, but the question remains: Do you want to be subservient to a fully closed system which dictates who processes trades, or do you want to have full access to derivatives exchanges and global markets when entering the multi-asset space and therefore be master of your own destiny in a world of massively high output, experienced traders?
Even Robinhood has proven itself to be a triumph of marketing over substance, and as one senior FX industry executive told FinanceFeeds today “Robinhood is dead. Let’s get back to adding value rather than sucking it from clients.”
He is indeed quite right.
As we are now witnessing a massive unraveling of the warehouse / b-book model, now’s the time to think carefully about the future.