Is MetaTrader 4 an opportunity or a threat to value proposition? – FinanceFeeds investigates

Attracting and retaining clients is now one of the biggest challenges for brokers as the FX industry matures and as CPA (Cost Per Acquisition) which is a major factor within an online advertising model grow highers, averaging $1000 per funded client in western countries.

To tackle the issue, some of the smaller retail brokers to whom cost of acquisition and retention is extremely important, have been ever more active in developing their differentiation angle via various means, ranging from promoting the social trading experience to offering deposit bonuses and cash rebates, as well as loyalty programs and interactive marketing campaigns, while automating data intelligence for the sales teams.

On that note, trading platforms such as MetaTrader 4 may pose an issue given that the ubiquitous trading platform acts both as a key facet with which to onboard clients and as a retention problem, becoming one of the main criteria when choosing a broker to open an account with, which also means those brokers risk being easily substituted following a minor incident or an aggressive marketing campaign by a competitor.

Given the high CPA costs that exist today, many brokers cannot afford the risk of converting clients only to see them leaving in a heartbeat, as such low client lifetime value can push smaller brokers out of business.

With that in mind, FX industry executives have been taking different strategic paths, some more leaning toward the development of a proprietary platform structure and others towards a differentiated MT4 experience, with special features developed in-house or via partnerships with integration technology companies, while also looking to diversify the technological risks on a single platform. Protrader, Ninjatrader and cTrader, among others, continue to compete for a market share, but the MetaTrader 4 platform accounts for approximately 45% among global (excluding Japan) retail forex and CFD firms.

White label MetaTrader 4 solutions are regarded as the cheapest and quickest way to enter the retail market, with firms paying subscriptions to a third party provider instead of acquiring a full license from MetaQuotes, but it also comes with the downside of less (or no) control over strategic decisions such as spread and products offered, potential conflict of interests as the provider is usually a competitor, and difficulty to scale the operation.

The fact of the matter is that high CPA of today requires ambitious goals when it comes to the client base, which means having enough available funds to embark on large marketing operations and have a unique value proposition to lower the CPA.

The quest for differentiation may also lead to the in-house development and maintenance of proprietary software despite the obvious costs because in addition to promoting their own platform to their clients and increasing the rate of client retention as they grow accustomed to an environment they will not likely find elsewhere, these brokers can also reduce their costs or even make profit out of offering white labeling solutions to other firms.

This is the case for Saxo Bank’s platform serviced at CityFX, FXCM’s software offered at E*Trade, and OANDA’s technology used at HSBC.

And while all of these large Forex retail brokers are invested in proprietary platforms, that doesn’t necessarily exclude them from offering MT solutions to their clients. In fact, of the top ten brokers in 2015 by trading volume, only Saxo Bank and Interactive Brokers do not provide Metatrader.

Dukascopy Bank is also an example of a broker devoted to proprietary platform development, securing their active traders and promoting the JForex platform as a white label solution for other firms within the industry, such as AFT FX, NSFX, and MIN Bank, among others.

FinanceFeeds’ Ricardo Esteves spoke today to Laurent Bellieres, CFO and CRO at Dukascopy Bank SA, a company which is very much an advocate of the proprietary systems model, who explained “We understand the diversity of traders and willingness of white labels to attract/satisfy a wide spectrum of them, so we are not surprised by the current situation where several trading platforms co-exist” he said.

“As a pioneer, MetaQuotes successfully disseminated its trading technology among brokers. As a result, a certain population of traders got used to MetaTrader 4 and do not like to have to adapt themselves to a new trading environment. We understand and respect client preferences and sometimes consider adding MetaTrader 4 to our own offering” said Mr. Bellieres.

“However, developing a trading solution requires huge investments and Dukascopy Bank will definitely continue to concentrate its innovation and improvement efforts on its own JForex technology”, continued Mr. Bellieres, then explaining in detail the factor of differentiation of their platform versus MetaTrader 4, centered around greater security; price history down to full tick chart; total order cancellation and position closure; advanced charting including the display of several instruments on one chart for comparison technical analysis; Level 2 market data (current bid/ask levels with volumes); JForex API; Native OS support.

“The white label solution of Dukascopy Bank entails advantages for brokers as well: there is no need to host, support, make maintenance of any servers. All servers are hosted by Dukascopy Bank for free including API servers” he said.

“This allows to save IT administrators and maintenance costs; entry fees to start business are low. The white label only pays CHF 20’000 as conditional refundable fee (returned to the white label in case a minimum volume is reached) in order to get the basic package including mobile applications; Dukascopy Bank provides more than its advanced and reputable technology: support, expertise and guidance in trading technology and online business” concluded Mr. Bellieres.

Indeed, here in London today, it is clear that among the large, established British electronic trading firms, the continual development of proprietary platforms is paramount. CMC Markets, for example, invested over £100 million in the development of its Next Generation trading platform which is completely proprietary, however the cost did not stop there.

Yesterday, at CMC Markets’ head office in London’s Square Mile, Grant Foley, the company’s Chief Financial Officer explained to FinanceFeeds during a meeting that the importance of continual research and development and continual attention to improving the functionality of the platform is essential to provide the correct trading experience to a discerning client base of several tens of thousands of customers in jurisdictions in which quality is paramount, such as Britain, Germany and Australia, three main markets for the British company.

Indeed, the leasing of a third party ‘off the shelf’ solution may appear a quick and effective means of establishing operations with minimal cost, especially with an MetaTrader 4 white label license, compared to taking the initiative and investing the vast amounts of research, development and money in developing proprietary platforms, however the easy route can sometimes be a double edged sword.

All photography copyright FinanceFeeds; Featured photography courtesy of Banco Carregosa