“Mind The Gap!” – The life and times of a man on the move Episode 97

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

A dog with a digital bone

It certainly appears that comparison tests between products are somewhat lacking within the electronic trading sector, however there is definitely value in comparing like with like, in the form of read-across systems from one manufacturer or software vendor against another.

FinanceFeeds has recently been evaluating some ancillary services, choosing certain criteria within which to evaluate and provide comparative opinion on similar products from different vendors, with quite a response, some angst-filled, some concurrent and some interested in what is effectively a third party looking from an impartial point of view at rival products which are used by traders and brokers alike.

Recently, we looked at analytics and charting software, picking out areas which brokers may consider when using different analytics and charting companies to provide content, calls to action and technical analysis as a retention and engagement tool for their clients.

One such reply from an opinionated but experienced FX industry technologist gave quite an abstract but worthwhile view.

“Andrew, I thought your summary on platform selection regarding charting systems very good. You know my view. Usually, use of this type of system doesnt budge the win: loss ratio of retail traders in the aggregate, because most technical analysis platforms don’t show the probability of the trade being successful and given most patterns are not, they generate more noise than signal” he said.

“I suppose you could certainly say that engagement tools prevent or slow down some of the churn, you have to approach it as though you are there for the arrival and not the joruney if you are a retail trader” he said.

“I think that the immutable LAW is that 80 to 90% of traders will lose money in order for the few successful to reap the rewards if we look at some of the smaller to medium sized retail brokers as having totally embraced the b-book, and hey, we live in the illusion of a free world or freedom in thinking but, ultimately it is their money to lose” said our commenter.

“It is my view that the retail industry deserves the freedom to be able to manipulate and exploit these vulnerabilities, as much as FaceBook’s dumbos give away their data for free, and I recently saw the Finance Magnates virtual conference which got me thinking about all of this even more, however given your insights, why not compare, say Synthetix.exchange v MT4 platform, or trade.connect v Thinkmarkets MT4, which means DLT or DeFi v centralised MT4” – was the nugget of wisdom here.

I actually think that is a very good idea. MetaTrader 4 is absolutely obsolete, and was never really designed as a bona fide trading platform, it was designed as an affiliate marketing medium, with a dealing desk at one end and the trader who had been a novice, or perhaps deposited into one of the early-2000s dodgy casinos, and then the same marketing company calls the same leads and tries to manipulate them into thinking they are traders, when there was never a live market.

Those days of course are thankfully gone, however the MetaTrader 4 in more or less the same guise at the front end that it had in 2004, is still an onboarding tool rather than a de facto trading software. You can’t compare it to professional platforms such as Trading Technologies, a company that is equally as old as the hills which surround its Illinois home, but is constantly providing new and dynamic upgrades because its users are actual traders rather than leads.

Retail firms can only empower themselves and elevate their client base if they either invest heavily in developing and supporting their own trading infastructure, something I have been an advocate of for many years – for example I showed dismay when IC Markets, one of the largest and most profitable electronic trading companies in the world, upped sticks and went offshore when they could easily have invested a bit of the $500 million monthly revenues into developing a rival stockbroking or personal wealth platform for the Australian market and beat all of the challenger banks at their own game due to having no debts or VC shareholders, plus own their own IP and list on a public exchange, something that is not possible with everything outsourced to MetaQuotes.

For brokers with slightly less expendible resources who still wish to bring their standard of client up and increase loyalty, a custom platform from firms like Devexperts, such as the new dxTrade system, would be an answer. Devexperts’ client base consists mainly of banks and professional trading firms in North America, so instead of being subservient to an affilate marketing system and a white label of MetaTrader, your brokerage would be able to offer services to high standards of trader as the software vendor you choose seriously affects how business is conducted.

Our intreped commenter went on to ask me “Are DLT or DeFi platforms the new trading platform [smart contract, digitalise any asset / broker offering tokens such as synthetix SNX or Binance’s BNB as useful tools for the platform, for trading or as speculative tokens in themselves?”

He said “This seems the path of the future, but the old grey suits still talk about tools for brokers, spreads to zero, fragmented liquidity, PoP v BS-PoP, and to think that rented technology tied up in MT4, evolving to multi asset MT5 brokers are the front end of the industry, when in the sandpit out at the back, all this interesting stuff is going on: P2P trading, stable coins allow staking to earn returns, tokens as collateral, client money in wallets not in the broker, which may happen much more so let the children play and the adults sit on their fat arses are discuss important things.”

“All the so called media reporting, in my opinion, are that these platforms are outliers, limited to cryptopunks or geeks if mentioned at all, mentioned in passing so I recommend to think of Christenson’s disruption cycle, that being the pattern that incumbents wont take notice of these DeFi platforms until to late” he said.

“If you can wipe out operational costs to zero, what sort of competitor do you have – think what Plus500 did to the incumbents in simple low cost automated marketing – therefore it is worth thinking about what a DeFi platform can do using smart contracts, oracles, unlimited liquidity pools, creating any synthetic or digitalised asset to trade [mint and burn ] and perhaps in the future the use of stable coins on the platform where no fiat is required, however where is all this talk among the grey suits of the industry on these points?” he asked.

“I may bang on about ‘retail’ mug punters losing money to these 10 + year old neanderthal institutions using rented technology based around marketing machines, their end point has been decided and the tech has evolved to replace them but in the end, in this dog-eat-dog world, retail traders will still lose money, and there will be more of em, but the percentages never change” he said.

“Hence the industry will survive and proposer, but in an evolving space, which is good news for the firms that build shovels for miners (pun intended) – the cycle continues. Here is a sticky wicket question: what is the difference between a scam platform like the-bitcoinrevolution.com and a FX margin broker that offers 500:1 leverage to trade FX, when 80% of their client lose money?.. Answer: One presumably has a license to operate!”

Wishing you all a super week ahead!