Live from iFX EXPO Cyprus – What do retail traders want? Algos, AI, best execution? Yes, but they want the dream too!

“The only way to stay in this business is discipline” – Fred Scala, Forexware

The gestation period of the surge into the retail FX industry of retail brokerages with very low entry barriers lasted just a matter of three years.

Since the introduction of the now absolutely ubiquitous MetaTrader 4 platform in 2005, the entire web became littered with a proliferation of small, white label license holders whose $5000 subscription to MetaQuotes was enough to set them on their way to living from the profit and loss of what were at the end of the last decade, very inexperienced entrants to the electronic trading world.

Times change very quickly in the retail FX industry, and here today in Limassol Cyprus, the first day of the iFX EXPO International 2017 FX industry conference is underway, produced by ConversionPros, discussions have begun between senior industry leaders who have witnessed the changes in the retail sector as they have been present from its birth.

Introduced by Finance Magnates Editor in Chief Jonathan Fine, the discussion was moderated by an extremely highly renowned senior executive Brian Griffin, whose current position as COO of Settler Trading was preceded by a substantial career at senior level within some of the world’s largest FX and electronic trading entities, including five years at Managing Director level at FXCM between 2008 and 2013, and ten years with a Directorship at CMC Markets between 1998 and 2008.

This level of experience brought a very welcome and engaging interaction between moderator and panel participants, elevating the iFX EXPO’s discussions yet a level further.

Commencing, Mr Griffin posed the question: Where is retail FX going?

Avner Ziv, CEO of ZotaPay began by explaining his background, that he had studied Chinese for four years whilst living in China before embarking on his career which involved senior executive positions at eToro and SafeCharge before joining ZotaPay one and a half years ago. Mr. Ziv considers the payment channels by which client funds are distributed to & from brokers to be critical to the evolving execution and regulatory structure that is currently in place.

Advocate Tal Ron, Managing Partner at law firm Tal Ron Drihem & Co thanked the organizers Gal Ron and Moshe Wasserman for producing what is the number one B2B FX industry conference series globally, before reflecting on how the retail FX industry was structured four years ago at the time of the first iFX EXPO in Cyprus in 2012.

“Back then, firms were registering companies in Anguila and doing unregulated business, those days are gone now.

“In the next few years, we will see a lot more regulated brokers in proper jurisdictions, as well as a shift from binary options toward simplified FX and CFDs, (very retail and mainly aimed at very small firms and novice customers from unaffiliated regions – Ed), and we will see classic financial instruments rather than products that came from gaming” he said.

Fred Scala, VP Sales at Forexware reiterated the question: “What is next for retail FX? I remind myself that I started in the business 20 years before the Euro was even circulated, so I saw the establishment of the entire retail industry from its beginnings. As Tal brought up, with regard to the regulations for retail OTC products, regulators are concerned with risk, we have seen what the way that risk is handled has done to our larger friends in the US, so risk management tools and focus is necessary.”

Duncan Anderson, CEO of Tickmill in London explained that he had begun his career in the futures industry on some of the larger exchanges around the globe, arriving recently as CEO of Tickmill in the UK, a company that is relatively new.

Mr Anderson explained that the firm has recently begun its Tickmill Prime division, demonstrating that there is a continued trend of retail brokerages making attempts to enter the institutional space, and in some respects creating a need for some distinction with regard to what a retail redistributed feed is compared to a prime of prime, something that FinanceFeeds will develop in the future.

Mr. Anderson explained that the new service have started Tickmill Prime, aimed at offering services to smaller brokers. Mr Griffin then asked Mr Anderson “What do retail clients really want?” to which Mr Anderson explained “They want opportunity. They want to be given decent products, and not necessarily complex products but they want full scope.”

Mr Griffin then interacted “Are clients still very spread sensitive and leverage sensitive?

Kobi Gur, CEO at Leverate enthused “Yes, they are, but the professional and more institutional traders are and have always been price sensitive and are continually using their resources to look to see where their trades are being executed and to ensure that the money is going to the right place. Newbies don’t know what trading is all about so they need a soft entry into that world. One of the things we see at Leverate is the facilitation facilitation of this via social treaidng, especially for those who don’t know how to use indicators and analytics, they can start slowly. The Millenials work on mobile, they often don’t have desktop computers, so we see a lot of necessity toward developing the ability to work on mobile.”

“Of course all the components that make for good execution are much more relevant to retail traders than they used to be” said Mr Gur.

Mr Griffin then asked Ran Cohen, CEO of Traders Education, to elaborate on his experience with retail clients.

“Retail clients are risk lovers, they need a platform that allows them to gain that ability to enjoy taking risks with confidence. Simplicity should be embedded within the trading mechanism, and the developers should consider ways to make FX trading simple to the end user” – Ran Cohen, CEO, Traders Education

Mr. Griffin asked Mr Ziv to then provide his perspective with regard to payment processing and how this is now a central point within the retail sector. Mr Ziv said “What I believe traders are looking for is a high quality product. They are more mature than they used to be. Retail traders that are not professionals are nowadays looking to buy shares of Facebook or Google so they have expanded their asset class remit, however they are often people who look to the retail platforms because they do not have access to the institutional charts or access to the futures markets.”

“There are several aspects where retail traders can sometimes dictate what is required by a broker with regard to payment facilities, some of this is region specific tailoring with different local providers, which means that as well as the regular Visa and Mastercard, they would like to see the most preferred local payment services that would be used in high streets and supermarkets in that specific region.”

“Secondly, an important matter is the security of funds and how fast pay in and pay out methods can be delivered. Now, brokers need to be able to process funds within 24 hours. In China, if a broker cannot service one hour payouts, customers will do a media campaign that the firm is unreliable and have this distributed across the entire internet and television channels.”

Mr. Griffin then asked “Is payment procssing now part and parcel of the retail FX busine in the same way that spread, charting and execution is? Mr Ziv said “The number of lots and deposits is relatively less than could have been achieved a few years ago, so now there is a shift toward wire transfers and sending higher amounts of initial capital to brokers.”

Mr Griffin then asked Mr Ron if he had a view on that, to which Mr Ron responded “If five years ago there was lots of focus on refining terms and conditions, which in some cases showed up labor lawsuits against key employees moving from one to another broker, now things are different.”

“It’s all about the wire solitions and paying promptly. Avner said that in South East Asia clients, if they dont receive their money within 2 hours, they will not just write media articles and distribute them but they will come to your booth at the Shanghai Money Fair, come to your office with posters and damage your brand and image. This payments focus became a very big factor. Clients are delaing with things like Bitcoin which is becoming a very interesting instrument. Companies like Bitfinex are now gaining ground. We don’t see large leverage with these new instruments either, with Bitfinex its 1:3 which is enough for clients to feel energized and trade on it” – Advocate Tal Ron, Managing Partner, Tal Ron Drihem & Co.

Mr. Ron continued “From a legal point of view, we still see issues that have existed in the past like terms and conditions, and bonuses, but in our law firm we would say that the number one issue is the payments channel and the regulation whether Vanuatu or MiFID, to make sure the client funds are secured and payments are done effectively.”

“For example, if a broker has $200,000 stuck in a bank in Singapore and cannot access it to pay salaries or operational costs, that is one thing but inability to service client withdrawals combined with that would mean that a broker in that position would not be here next year” said Mr Ron.

Mr. Scala continued on this point “In some respects, retail structure should be offered in the same way as it is to institutional and B2B clients. They want security, a fair price and execution procedure. We see it in the B2B world where credit is a very hard matter, where many companies cannot get a true prime brokerage.”

“I was with a Senior memeber of Citi told me we have 40% of the FX market and i dont know if we are doing the wrong thing, and now we see them pull back a lot, so many firms are moving into the PoP space to fill the gap. We have done that ourselves” he concluded