“Mind The Gap!” – The life and times of a man on the move Episode 78

Forget the air guitar, here comes the air trader, and I look at some very good initiatives toward responsible brokerage activity coming from London

In this weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment

Air guitar? That’s old hat. Air trader? Not so funny….

In the 1980s we had the ‘air guitar’, however forty years on, we may now have the ‘air trader’.

Whilst over enthusiastic listeners to the dubious genre of music during the age of shoulder pads, red jackets, braces and moustaches that looked like an earwig were the subject of satire and derision for emulating their favorite stonewash denim-wearing icon’s overtly physical guitar playing style, minus the actual guitar, it is unlikely that today’s equivalent will receive such tongue-in-cheek japery.

This week, I saw a prototype of Samsung C-Lab’s ‘invisible keyboard’ for cellular phones, which is now fully functional and could be launched in the very near future to a retail and commercial audience.

The virtual keyboard works by any user of a smartphone with the Android operating system simply propping the phone up in ‘landscape’ position in front of the user. The system then utilizes the forward facing camera to observe hand movements as the user simply touch types in the air or on a table surface.

As you type freely in air and not touching any device at all, the software figures out exactly what letters and numbers are being emulated and there you have it – an air keyboard!

It is surprisingly accurate and resolves that issue of having a tiny keypad on a smartphone which can be cumbersome when doing anything more than a short email, web browsing or sending a WhatsApp message.

The system has a ‘training’ mode, which is designed for first time users so that the AI can actually recognize the typing method of the user, and then store it for more efficient use as time goes on.

Samsung’s ideology and rationale behind the development of this system is that it reduces the need to carry any other device at all other than one smartphone, once again alluding to the mobile-first ethos which has been prevalent in the Asia Pacific region (especially China) for some years now.

Samsung say that they are still working hard on perfecting it and there is no official release date, however considering that this actually works perfectly, and that Samsung have had their senior executives and product development leaders showcasing it in London, I would estimate that it will be within the reach – no pun intended – of users very soon.

This is a development which once again leads the retail FX and CFD trading sector toward not only a mobile-first, but a mobile-only solution, which is ultimately what we all want.

I have been in discussions over recent years in China with senior developers from WeChat, Baidu and news channels, all of which have agreed that most retail traders in that region are dependent on instant messaging services and groups – often WeChat based – for everything from receiving charts and analytics from their brokerages, to facilitating withdrawals and deposits, to interacting with IBs and partners from a broker and client perspective.

“Hit the G in the third octave…. er, no. I meant go short on USD!”

Desktops are of course increasingly obsolete everywhere in the world, and the advancement of mobile technology is a boon for brokers. As long ago as 2010 I conducted some research into the split between mobile and desktop usage in retail trading. Back then, when smartphones and mobile trading technology was nowhere near where it is today 10 years later, only around 30% of traders were using a mobile application, and even that 30% were, for the most part, just using it to monitor their trades whilst out of the house, and then executing on the desktop.

However, out of that 30%, the activity and contact with the trading platform was 76% higher than activity and contact through desktop plaforms, showing that greater development of mobile platforms would mean that traders could trade at any time of day from any place, generating more volume for brokers.

Six years later, I took this to the industry, with some interesting perspectives.

Once this type of new technology that allows users to confidently operate their smartphone as they would a desktop with a larger keypad and reduce the possibility of error, another step toward ditching the old beige desktop will likely take place.

We are here to uphold the standards

I spent the latter part of this week in the interesting confines of the boardrooms of a few well known British brokerages.

As 2020 begins, there is a very interesting and somewhat encouraging pattern developing here in the most economically active square Mile in the world, that being the proactive stance that many brokerages are now beginning to demonstrate with regard to ensuring a good quality overall trading environment for the retail market.

As I see it, the retail FX sector since its dawn over 30 years ago, has gone through only around three evolutionary periods. The first stage was the establishment of what are now major companies with public listings, their own in-house trading systems and vast, loyal domestic market client bases. These firms tend to be located in the UK and North America, and have led the industry’s retail sector to the extent of actually diminishing the retail client bases of listed derivatives venues by simply giving customers what they want in a very effective manner.

This initiative was led to a large extent by Josh Levy of MatchbookFX, and although that is a name from the past, the massive giants that have stemmed from the demand of retail trading are very much at the forefront today.

We then look at the efforts of Thomas Peterffy, who founded Interactive Brokers and can really only hold him out as a major influencer that has done tremendous good to the retail sector.

Thomas Peterffy notified of his imminent retirement from his position as CEO of the what had been the world’s most highly capitalized non-bank electronic trading firm until it began concentrating on eligible contract business just three years ago and this, therefore, represents a milestone.

We are an innovative industry sector, which is what drives us all forward each day, and Thomas Peterffy is no exception, indeed I would put him in the same ‘founding father’ category as the late, great Les Rosenthal as a pioneer of this business who has stuck with it for decades in the quest for quality.

The second evolution was where things began to get difficult, that being the launch of MetaTrader 4 in 2004 by MetaQuotes Software, a firm which aimed a totally closed ‘you against me’ system at affiliate marketers, gamers and lead buyers – essentially people with no capital who had never been in this industry before and who could use an at the time pseudo-trading system to operate a profit/loss zero sum business at total conflict of interest with clients.

Many who entered the arena back in the later part of the 2000s were able to lease a full solution, off the shelf, and use it to approach people to whom they had previously sold extremely dubious gambling accounts and then convince them, by using false names and locations which were barely believable to anyone who could even begin to decipher the loud voices and thick accents.

This activity mainly went on from call centers in the Middle East (usually Israel and some of the CIS countries), via entities set up in offshore locations so that they would be untouchable to regulators.

The fall out from those dark days was a draconian stance by regulators, who developed the Dodd Frank Act in North America, and infrastructure directives such as MiFID in Europe, most of this being well received by good quality brokers who are our good colleagues today.

However, this week, I noticed something even more encouraging. We live today in a world where the retail trader has never had it so good. The entrepreneurial spirit of the retail FX technology sector and its brokerage partners has driven forward the trading environment in a way that, for very low costs indeed, retail traders can access live aggregated pricing which is totally accurate, proper charting and analytics and emulate the institutional desk from their living room.

They can even meet owners of large trading companies and speak directly to them.

What I noticed from this week’s discussions is that, as most firms in good quality financial centers such as Sydney, London, Chicago and New York have now refined themselves to such a high standard, this year it will be the brokerages themselves that go out to actively ‘out’ the bad guys in the media and trading scene.

Many executives are preparing to actually explain to the wider trading arena what to look for, what the signs are that a trading company is not bona-fide, and will be spending significant time repairing the wounds that traders have suffered when using unregulated brokers that have blunted their confidence.

In some cases, departments are being set up for this purpose, rather similar to the Valhalla initiative invented by Sweden’s Scandinavian Capital Markets.

Discussing this with one long-established company in London this week, we moved to the subject of brokers running away from regulatory evolution and setting up in the Seychelles or Caribbean islands. “This is a retrograde step and all the regulators are doing is pushing some good quality companies into making the wrong decision by going offshore, which is sending the retail industry back to where it was 15 years ago.”

Absolutely right. I have said before that going offshore is not the answer. All it is, is regulatory arbitrage and clients of retail trading companies are sophisticated, knowledgeable and will be loyal to a good quality firm that gives them good service, proper execution (and yes, traders do understand what that means) and are not appearing to dodge the infrastructural rulings.

Today’s brokers are actually going to point out to clients and work with regulators to root out the bad apples. This is a great thing.

Clients do not want regulatory arbitrage. They want good quality. They don’t want to trust their funds or trade execution with people who run away to the islands so they can continue to abuse the system with no consequences. This is what regulators do not understand. By bashing the good firms, it creates a dichotomy – those who invest the time, resources and effort into maintaining a good business, and those who run offshore so that they can continue b-booking IBs in the APAC region at high leverage with artificial prices, behaving like a tombola instead of a proper retail trading company.

Once again, this is very encouraging and shows the commitment of London’s brokerages to quality, and to actually doing their bit to advance our industry.

Oh yes, and two days ago I became a year older. Which means I am even more of a cantankerous middle aged man than before 😉

Let’s all do our bit!

Have a super week ahead!

 

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