“Mind The Gap!” – The life and times of a man on the move Episode 38

Marketing vs trading. retail winners and losers, The listicle tests my patience, and Liberland could be ideal FX destination

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.

Monday: MetaTrader’s marketing appeal drowns out its user appeal

Who owns a client? This metaphorical tug of war over the most important item of intellectual property of brokerages which do not have their own trading infrastructure has lasted since 2004, which was the year that MetaQuotes began providing an off-the-shelf, dealing desk orientated system to affiliate marketers rather than brokerages, thus enabling them to enter our industry.

Here we are, fifteen years on, and a whole generation of marketing-led entities have grown up around what is effectively a non-financial technology orientated, lead and CPA-based vehicle for driving traffic, rather than advancing the cause of technology in the financial services industry, which is by contrast something that the good quality firms in this industry excel at.

I have for quite some time made my opinion clear on the unfeasibility of over 1230 entities providing retail FX trading to retail customers being reliant on a 15 year old piece of legacy software over which the lessee has absolutely no control over his business, and that such a methodology would never exist in any other software-dependent business environment, hencce it is the marketing and affliate lead buying model that is fueling the dependency on MetaTrader.

I spoke on Monday to a programmer, who designs and develops liquidity management software and ancillary software for professional trading platforms, who highlighted his experience when attempting to take his solution into retail margin brokers, which in many ways echoed my thoughts.

“Over the past 3 months I have gently been introducing my solution to some margin brokers based around the instrument universe, and direct access to live markets, as well as into some portfolio management companies” he said.

“Some observations that I have is that marketing people who do not trade or have never done so, which represents most of them as they all come from gaming or performance marketing entities, dont read anything at all, and so can never perhaps fully appreciate any programs for retail that are more then one dimensional collection of tag lines.”

That is absolutely right indeed. Ask yourself, how many times has a strategic partner ever asked you to go into detail about your brokerage’s trading environment? On the islands, particularly, the first sentences are about how much traffic, how many leads and what is the CTR. Basically, nothing related to our industry.

“They are always looking for the tag to sell as style over substance” he said. “You may have known this but this is a real experience for me in how marketing works in the retail FX business.”

“It is assumed that retail traders have to have information delivered in one sentence and digestible which assumes that no thinking required and this is a very hard perception to question, again by marketing people who are not or haven’t been traders” he said.

“Now I am being tough here, but as a prop trader in pre-electronic trading era as I was, you simply wanted to know how a program works and then explore all its possible pathways in order to see if it works to make money as I didn’t really care as long as it does” he explained.

“Other than Gann and Elliot Wave which are incomprehensible, technical analysis required some review and testing so what has changed?” he continued.

Andrew with Brian Mehta, CMO, Trading Technologies on reinventing the ethos of platforms, Chicago, 2016

“As a result the gap between marketing [non traders] and traders and how to ‘market’ any trading insight programs has become absolutely huge and appears not to be able to be bridged” he said. “I don’t think this is correct but the gate keepers can sometimes give the ‘eye’ if I don’t deliver simple and simpler systems” he said.

“The main observation that I perceive is the margin brokers running a platform think they ‘own’ the client, in that ‘their’ clients get what ‘they’ deem necessary for them to achieve their trading objectives, while stating they want to be number 1 in providing trader experience, so what is this thing called trader experience? It appears to be whatever the broker defines it as and what their off-the-shelf, thought-free platform delivers over which they neither care about nor have much control” he said.

“Sure there are third party external providers, but apart from a few brokers such as IG, CMC, Swissquote – effectively firms which offer external platforms on their webpage, these are not provided as an option, or they are provided indirectly via affiliate or white label and so out of of the spotlight but the broker may not know this, and subsequently, the retail trader, if they so want can seek out these platforms via search which will turn up well over 2,000,000, many of which are just white labels of the same off-the-shelf system.”

“I am sure there is a legal angle here, in that the broker cannot be seen to be endorsing the external platform, which maybe a bit rich for brokers who offer binaries, social trading and the so-called liquidity providers (which often aren’t really liquidity providers) that are their parent company, so every trader should read the terms and conditions of brokers as to what is deemed unauthorised trading, or abusive behaviour and then review the link that the said same broker wants to provide the highest transparency, and trader experience” concluded my learned colleague.

Quite an appropriate analysis, I’d say.

Tuesday: Planes and retail platforms debate reaches Australia

Last week’s commentary by yours truly spurred levels of debate in Australia, largely among those providing services to some of the country’s very high quality retail FX brokerages.

Australia is certainly a beacon of quality in the retail electronic trading business in general, hence the high level of dialog between the intra-sector business structure in the Antipodes.

My comparison of the challenges faced by the airline industry to that of our very own, struck more than a chord, it seems.

A risk management firm’s senior management responded in detail, and therefore I think it is important to share this with everyone.

“Andrew, I am writing this to you on the commute into Sydney’s CBD on a wet and blustery day, and have to say that was a very observant article and got me thinking outside my little box” he said.

“The comparison of airlines to FX was particularly interesting as to the future of retail FX. In some respects more relevant in that the future seems to be in larger broker institutions with multiasset infrastructure, and away with the smaller generic churn and burn firms”.

This is absolutely something we have been advocating for some time, most recently with my continued interest in CQG’s multi-asset connectivity via NetDania, the firm’s new platform having been shown to me in person by Stig Brylle, NetDania’s CEO and founder, just a few days before he sadly passed away in London, a terrible tragedy that shocked me tremendously.

“An observation, which maybe not fully formed is that retail traders having a short life cycle arrive then exit, over time with 95+% losing or not achieving trade objectives (take all broker clients from the start, divide the winners by losers, not the rolling 3 or 12 month), whether the big gorillas or the chimpanzees, they all coexist, in their ecosystem, but they all offer the same ‘trading experience’ more or less which is that the punters, in aggregate don’t achieve their trade objectives” he said.

“Whether there be more asset classes, lower spreads, faster execution doesn’t matter to the aggregate, and it seems most software development and impact occurs at the margins, with the main metric not twitching. I cannot even name one margin broker where the winning punters outnumber the losers” he explained.

“My main observation is that with the behavioural programs such as Chasing Returns, PsyQuation and others is that automated trading programs may indeed make their internal proposition somewhat redundant, thus it is a rule based approach to trading without the emotions, dependent on the rules which in turn depend on effectiveness in dealing with changing market regimes but I am sure this is debatable.”

“I think it comes down to the matter that in the end, all this effort wont change much because any public edge is diluted through time, so it must be restricted in access, and the universal principle of income distribution won’t change so much, as it hasn’t through the centuries that the 1% who get the 80% (give or take ) won’t change – this metric won’t budge, no matter the good intentions or software promises, no matter the number of traders” was my Antipodean colleague’s intrepid perspective.

“With companies such as Algodynamix as an open platform based on unrestricted fee based model, their methodology in advanced warning on price anomalies should be diluted in effectiveness through time, as more users adopt the same signal, and with replication in methodology. You dont see Renaissance Technologies give anything away and so remain nonreplicable and on top” and that is a very good point indeed, which I agree with.

“So the retail trader, in all their guises, wont achieve their trading objectives in the aggregate, and so this industry, that targets them will always exist, from the dodgy boiler rooms to the sophisticated platforms co-existing in a kind of pond each finding their own niche because people are people, and who knows what they want because any edge has to be hidden but the user experience can improve for retail, just not in achieving their trade objectives, so it’s currently about the journey, not the arrival” he said.

“On this basis, the argument about brokers looking to institutions as the client base away from retail which I know is something you are and advocate of Andrew, and that I totally follow” he said. “That is a better business model for the broker but the client is an institution that lives in its own evolutionary ecosystem which are often hedge funds, active fund managers, prop houses living and dying by performance (in the end) but also have their own relationship with retail through marketing their wares which is like wolves and sheep!”

“However, where does this leave retail? he asked. “Maybe to the simple concept that no matter what is developed, the majority will always be losers in not achieving their trading objectives so it may play out in the % in the different retail profiles (in how you segment-profile retail traders) but in the aggregate = same 90%+ losers to small % winners which is why I personally prefer to target my systems toward margin brokers in the wealth management space whose client base consists of speculators and traders in leveraged derivatives but in restricted numbers both as to brokers and access to the platform.”

“I figured I can only make the world a better place for a small number of smart punters, the lucky few”

“So maybe I am somewhat confined to helping a few, not the aggregate, as I don’t see a solution for the majority. Your airplane argument was convincing in suggesting the benefits of the larger brokers in the future of FX margin trading” he concluded.

Thursday: Another one for the Lake Superior State University’s list(icle)

Call me old fashioned, or a stickler for correct grammatical and liturgical conveyance, but what on earth is a listicle?

I received a marketing-orientated email last week about a dubious new “exchange” which is as much of an exchange as I am Ghengis Khan, the title being preceded by this rather obscure word.

My immediate reaction was to ignore it, as it highlights the aforementioned marketing-led substance-free environment that some of the retail lead-churners are now employing in their metamorphosis from one affiliate site to another, be it binary options or some pie-in-the-sky digital currency ponzi scheme disguised as an ‘exchange’.

Vit Jedlicka could well be onto something!

The email was generated by a Greenwich Village, hipster-infused marketing ‘workspace’ (didn’t we call them offices when people used to run proper businesses?) and detailed a social media-style one-to-ten list of things that an ‘exchange’ should offer, in the opinion of an undergraduate with facial topiary to challenge that of ZZTop’s frontmen and the career experience amounting to the contents of an empty paper bag.

Listicle, therefore, irked me. It is definitely going into the list(icle) of recommended banished words for next year’s Lake Superior State University Banished Words List.

Perhaps it belongs in a category alongside ‘ice’ and ‘test’…..

Friday: Vit Jedlicka may be onto something….

I am a lifelong advocate of personal freedom, capitalist enterprise and ownership of private property without interference from overbearing or corrupt governments and other institutions that do not mean well.

Seeing Paul Orford’s interview with Vit Jedlicka, founder of the most interesting newly created ‘nation’ on earth – Liberland – on Friday was exactly as I’d expected – inspiring.

Vit Jedlicka is a Czech-born libertarian politician, who speaks sense.

On 13 April 2015, he founded the self-declared libertarian micronation, the Free Republic of Liberland, and became its first President.

The nation is tiny, its land area only being 2.7 square miles, but let’s face it, even with a relatively large government and the burden of the socialist EU bearing down on its purse strings, the City of London is only 1 square mile and produces 16% of all of Europe’s tax receipts due to its incredible efficiency, talent base and commercial standards.

Liberland, in my opinion, forms the perfect solution for our industry’s retail sector which does not have the resources of the large, publicly listed retail FX industry in Switzerland, UK or North America.

Of course, London, New York and Geneva will always be the world’s most important financial centers for firms with large, domestic client bases and public listings, and Australia’s retail business serves that region with absolute aplomb.

However, for less well capitalized or smaller firms that want to simply do the right thing, getting away from the corruption and lack of commercial acumen in places like Cyprus or Malta should NOT mean a move to even worse regions such as offshore islands.

Offshore lack of transparency and third rate banking, false names and back-door marketing is NOT the future for our industry, however, located in Central Europe, as a totally independent, capitalist nation with freedom and business being at the very top of its priorities, Liberland could be a nation that we could actually help form!

A government with ten to twenty members has been suggested for the administration of Liberland, to be elected by electronic voting. Liberland intends to operate on an open-border policy and the goal of the micronation, as claimed by its website, is to create “a society where righteous people can prosper with minimal state regulations and taxes”, with the founders having been inspired by countries like Monaco and Liechtenstein, both fantastically well ordered nations with low tax, excellent banking systems and world class security of business.

Liberland has published a draft version of a codified constitution and a list of laws to be included in the constitution. These documents describe Liberland as a country governed under a three-power system with executive, legislative and judicial sectors that seek to promote individual rights, including property rights, freedom of speech and the right to keep and bear arms. It has also a list of criminal offences, which include “polluting environment”, “public nuisance” in addition to crimes such as murder, manslaughter and theft.[56] There are plans for an official cryptocurrency called Merit, although all other currencies would be allowed. There will be a maximum of 700 million merits.

In an attempt to gain recognition at the UN, Liberland appointed 70 representatives in over 60 countries within a year of proclamation.[59] As of February 2018, Liberland had recruited over 100 representatives in over 80 countries.

In order to gain citizenship, Liberland is currently looking for people who have respect for other people and their opinions, regardless of their race, ethnicity, orientation, or religion, have respect for private ownership which is untouchable, and have not been punished for past criminal offences. This is ideal for a globalized, technology-orientated financial markets business such as ours, and Mr Jedlicka is a highly educated Economics Master who understands our business well.

Obviously the staunch socialist European countries that surround it are opposed to its existence but that’s ok! A few good, well behaved Liberland residents driving a few kilometers to nearby Serbia and Croatia to use the local services and spend money freely would end that, plus create jobs for local people that otherwise are less rewarding.

Never mind the vile, anti-business circus that has polluted our retail industry from places whose government, ethos and majority population do not mean well, such as Israel and some of the islands, let’s help found our own electronic trading nation, in Central Europe, along free market, modern, egalitarian and future-compatible lines.

A direct fast train between Liberland and London could even be implemented. Never would provider/broker/client/employee relations be better.

I’m definitely up for that.

Wishing you a great week ahead!

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