Social trading, Brexit, Turkey, A-book & B-book: Where does the retail trader stand?
FinanceFeeds examines how big data and machine learning can ensure that retail traders can use the most stable and useful strategies at times of volatility due to events that may adversely affect their current strategy that they follow, and how different execution models can be taken into account.
The evolution of social trading from a customer engagement tool into a genuine method of automatically trading the FX markets by applying sophisticated machine learning technology to large databases of information that has been collected over a long period of time has now reached a new level.
When working with clients from across the entire world, modern social trading platforms can now be used to demonstrate two different dynamics, and some of the longest established specialist companies in this particular sector are now able to take the lead in conducting a new means of ensuring that the key factors that face retail traders in times of continually changing markets and brokerage risk management models as well as business strucutres.
Brokerages at the moment have two major concerns. The first is the cost of acquisition of clients, and the second is exposure to clients either zeroing their account or even worse, going past zero (if the broker is an a-book broker) and exposing the broker to negative balances.
During the past few days, for example, the Turkish Lira has been plunging in value and then making slow recoveries although not returning to anywhere near the level at which it has stood quite stably for the last few months, and some firms in London have restricted it to close only, but Turkish firms are allowing traders to carry on, but asking them to make their own precautions.
This highlights a great difference in execution model and risk management policy between retail brokers which essentially offer the same product to customers, albeit on different terms.
On this basis, it is important to take a look at how a good automated system that uses big data and machine learning can not only ensure that brokers maintain their client for longer, but also how a system that moves clients to new strategies doesnt just mean that teh broker saves money with regard to increased lifetime value, but also can mean that traders do not fall foul of extreme volatility due to geopolitical events such as the SNB, Brexit or last week’s attempt at a coup in Turkey as the combination of data plus client preference/skill level which can be matched dynamically to appropriate lead traders.
Additionally, if for example, a trader starts to get nervous or lose money if following a previously good strategy but the strategy has been affected by a sudden geopolitical event, it will increase confidence and mitigate losses by moving the client to a new one.
Today, FinanceFeeds spoke to Leehee Gerti at Tradency, the FinTech company that pioneered the Mirror Trader system 11 years ago in order to examine this matter further. “As a technology provider to brokers for over 10 years, we can say clearly that this kind of complex issues are one of the main hurdles broker have to deal with. Brokers are troubled by sharp market movements as we have seen lately with the SNB and Brexit crisis” said Ms. Gerti.
“Since Tradency’s solutions offer algorithmic trading services, our brokers have a much higher level of control and monitoring which enables then to better predict and prepare for this kind of geopolitics events” – Leehee Gerti, Tradency
“With RoboX for instance there is an inherent currency diversification since the advanced algorithm chooses best performed strategies based on business intelligence analysis and not only market volatility. Tradency also made sure to differentiated itself from social trading platforms” Ms. Gerti explained further.
In conclusion, Ms. Gerti said “Our trading strategies are designed and constructed only by top-notch market professionals and esteemed institutional level hedge funds which deeply understand the market. This concept which we have been promoting since 2005, bears fruit especially in times of major turbulences, we speak to our strategies providers in advance and make sure they are careful and aware. Traders of RoboX and Mirror Trader have glided safely through these kind of events.”
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