FX, CFD, and publicly traded derivatives brokers need to be careful about how brokers are properly hired. We look at the developments that are vital to the growth and future sustainability of brokers, and why the old mind and sitting on the fence won’t work. Here is the solution.
The electronic retail trade business is certainly run by astute and tenacious professionals whose leadership and adaptability have created an environment where the primary capital markets sector for international market accessibility for retailers is constantly evolving despite continuous regulatory evolution, fierce competition and the need to keep evolving Include more demanding customer bases.
It is perhaps more than an anomaly that, given the avant-garde nature of electronic trading and the importance of technology, many FX brokers, banks, hedge funds, and publicly traded derivatives providers continue to use legacy systems that limit their scalability and growth.
In other branches of the online industry, solutions are currently in demand that bring as much data as possible to one place. It is surprising that this has not been the case in the forex business before, especially given the fragmentation of OTC and exchange-based electronic trading around the world.
Andrew Gillibrand, a former Credit Suisse Quant who is now CIO at UNION, recently spoke to FinanceFeeds about it from an institutional trading perspective. Mr. Gillibrand was an asset manager who found that the time frame between engagement and engagement was long. Mr. Gillibrand had relationships in South Africa, Japan and Europe and realized that if it exists for him, the distribution problem is for many.
« Some of this was brought up in Chris Anderson’s book » The Long Tail, « which says anyone can write a book, sell things on Amazon, or run a fund. To make a sound recording, you need a good fortune so you can spare time You have to do it in a place that costs very little and use the idea of organization to succeed. «
“You don’t want to be fragmented and have an account with four different brokers and push signals. You need a well-suited venue and you can connect with prospects today because it takes a long time to convince someone to give you $ 5 million and longer to give you $ 50 million. «
Indeed, this is an issue that is not currently being addressed and it has to be.
Fragmentation has been discussed very peripherally for a number of years, but from the point of view of the trading platform, not much has been proactively done about it.
As last year ended, FinanceFeeds looked at how the global markets led by tier 1 banks could potentially reform fragmentation and bring it back to a more consistent method of liquidity and execution. NDFs might be the favorite of retail brokers with their own platforms that were previously geared towards CFD trading.
There is more to it than that, however, as the user interface needs to address this issue clearly so that traders can have more control and analyze all the data in a single way.
We can certainly learn from developments outside of e-commerce and bring them to our industry.
Roman Nalivayko, CEO of trading platform developer TraderEvolution Global for global multi-asset markets, told FinanceFeeds today, « Fragmented technologies lead to the development of products like Beeper. »
“Beeper is an interesting product that allows users to connect to 15 different messaging services. In the brokerage business, there are many companies that are still using fragmented technology to access different markets and asset classes, ”said Nalivayko.
« The TraderEvolution Global platform provides aggregated access to multiple markets and all major instrument types including cash stocks, ETFs, futures, options, forex, CFDs, physical crypto and fixed income under one roof, » he concluded.
Beeper was launched this week by Pebble founder and Y Combinator partner Eric Migicovsky, who is revising this concept, but this time with an emphasis on centralizing access to modern chat applications, a format that is sure to respond to requirements The FX and CFD industry allows for engaging good quality clients with properly aggregated information.
Mr Migicovsky became famous for his introduction of the now defunct Pebble smartwatch in 2013. Although the company no longer exists, Mr. Migicovsky certainly knows how to work with the big companies, especially when it comes to connecting different large and important applications on a single platform. When Pebble started shipping watches to Kickstarter backers in January 2013, they could connect them to Android and iOS devices to display notifications and messages. An online app store sells Pebble-compatible apps from many developers, including ESPN, Uber, Runkeeper, and GoPro. The company was then acquired by Fitbit for $ 23 million.
Many years ago, a software program called Trillian introduced a way for Internet users to interact with multiple instant messaging networks such as ICQ, AIM, and MSN Messenger in a single window.
The new beeper solution from Migicovsky continues to build on this concept, but this time with the focus on centralizing access to modern chat applications. The newly launched Beeper app allows users to connect to 15 different messaging services including WhatsApp, Telegram, Signal, Instagram and Twitter DMs, Messenger, Skype, Hangouts and others – even with a few tricks of iMessage with Migicovsky Lassen Come up with the idea of a universal chat app while you work on Pebble before it is adopted by Fitbit.
In fact, this is absolutely the kind of engagement technology that is needed within the platform sector in the electronic commerce industry.
While the FX and CFD world has somehow left NDFs by the wayside, the big tier 1 banks and some institutional settlement firms are still heavily involved in this style of trading.
Today it has been discovered that the undeliverable futures market is becoming more complex and fragmented, much like spot FX. Trading activity with NDFs is now spread across multiple venues, so attendees are looking for new ways to optimize execution.
Less than a year ago, a single exchange kept prices fixed both on and off swap execution facilities, and liquidity was easy to manage, with credit being the only differentiator between traders.
There are several pools of liquidity these days that offer a combination of fixed and latest prices. This shift has led large traders to develop complex algorithmic strategies to optimize execution and better manage risk. For illiquid products like NDFs, algorithmic execution helps minimize transaction costs in the long term by capturing a larger spread for passive orders than for more liquid products like G10 Spot.
With interbank top-of-book spreads for NDFs averaging more than 2 basis points, there is a significant chance of capturing spreads compared to the G10 spot, where the spreads are below 1 basis point. A critical component of execution algorithms is the depth and quality of the liquidity pools. In order to minimize the drop in prices, an algorithmic strategy requires a clear and uncorrelated – or « orthogonal » – liquidity.
Unless liquidity is curated for reasons of orthogonality, end users face wider aggregate spreads, high market impact, increased liquidity loss, and low fill rates.
According to HSBC’s NDFlex execution algorithm solution, after the peak of the coronavirus pandemic in March 2020, interbank spreads and the volatility of NDFs increased by more than 200%. Volatility and spreads have returned to normal, but the NDF market continues to fragment and liquidity is dwindling. This has resulted in greater demand for algorithms from customers who want to minimize their market needs, capture diffusion, and optimize execution.
Interestingly, despite the move away from single-dealer platforms and centralized liquidity to some sort of mimicking the Spot FX world, NDFs are gradually waking up from their nearly 10-year slumber among Western counterparties, especially given the fatigue many companies grapple with had CFD products and the continuous blasting of regulators resembling a pile driver onto solid concrete.
Unlike Spot FX, an NDF has similar advantages that make CFDs popular instruments, in that an NDF is a direct futures contract where counterparties are the difference between the contracted NDF price or rate and the prevailing spot Price or rate to offset an agreed value nominal amount.
This type of trading has gained its greatest popularity in regions where forex trading has been banned by the government, usually to prevent exchange rate volatility.
In established markets, NDFs have been heralded as a means by which OTC FX companies can reduce the risk of and their retail clients’ exposure to sudden and unexpected bouts of market volatility.
Oddly enough, NDF trading has not caught on as much as CFD trading has, with a loyal and dedicated UK customer base who vigorously trades CFDs in a largely domestic market via established, often publicly listed UK electronic trading giants, especially when you consider the global regulatory disdain for CFDs that has created the disinterest of many FX companies in NDFs.
Certainly the way forward is to go down the listed derivatives route while providing a full set of instruments via a single broker specific platform that provides proper aggregation of data in the sense outlined by Mr. Nalivayko of TraderEvolution Global.
Evolution is vital. Now is the time.