The landscape of FX trading is changing fast. FX brokers need to adopt newer technologies to remain competitive. As the competition is increasing, most high-ticket investors around the globe are switching to trading electronically. And brokers need to offer competitive services at low cost to attract these customers.
“There is no single technology that can guarantee FX broker competitiveness in this fast and ever-changing environment, as the challenges that brokers face today are coming from every quarter. Even more so that competition is growing with the emergence of new players in this field. And existing FX brokers have to adapt by lowering their cost of operations, since new brokers entering the space are very competitive and are offering high-quality services at lower fees,” said Rahul Sharma, a Market Analyst at FX education Web site Forex Brokers South Africa.
Moreover, stringent regulations across various jurisdictions, including in South Africa, are forcing brokers to offer lower trading leverage and increased reporting to the regulators. The use of expert advisors and copy and signal trading may soon become the norm as more and more traders are starting to rely on them. Cloud computing and VPS are cheaper than ever before, making automated traders a significant market force.
There has been a significant uptick in the new services being offered by trading platforms due to the accessibility of new trading technology. Increased market fragmentation in the FX sector is making price discovery harder and the use of more sophisticated technology inevitable for the brokers.
Hence, FX brokers need to utilise newer technologies like automated trading, copy trading, mobile platforms, newer and customisable trading instruments, user metrics, end-to-end CRM and chatbots to offer clients the quality of service that is fast becoming the norm in the market.
A better automated platform can help brokers navigate through these challenges.
The challenge: Brokers need to implement end-to-end automation of trading processes
FX brokers can only stay ahead of the competition by applying end-to-end automation in their processes. The technologies that can take brokers ‘operations to the next level are available and largely cost-effective. And brokers need to budget for, plan and execute their strategy of automating their processes.
But the common pitfall they need to navigate is overspending on new technology that does not prove to be useful and has a negative ROI.
The focus should be on enhancing the following key areas, that too in a cost-effective way:
Better compliance with automation – Governments and financial regulators all over the world are now abreast of the need to keep updating their financial sector regulations, by keeping abreast of the changes in the market. The penalties for non-compliance with even the most seemingly abstruse regulation is high and can lead to significant cost overruns.
In addition to government regulations, broking firms need to comply with their internal policies and regulations as well. They need to ensure every trade is placed keeping in mind the firm’s policies and compliance structure, business strategy and objectives, thereby minimising their risk from any legal obligations they might have.
Software must have provision for book-keeping, record keeping and compliance features like client verification, anti-money laundering, etc.
Automation is the answer to every broking firm’s woes of compliance and risks arising from them. Compliance-ready automation software can ensure the government regulations and internal policies of the firm are followed in every trade.
They can be made to comply with international standards such as ESMA and MiFID. This negates the chances of human error. The automation process can be changed and moulded according to the changing regulations of regulators like FSCA, FCA, ESMA or ASIC, leading to faster adaptation and more accurate compliance.
Better data analysis and less bias – Traders need access to real-time data and analytics on their fingertips to keep track of their trading activities and market movements to make informed decisions. And brokers need real-time data to watch all trading activities in their system and to target high value clients. Data can help brokers quickly understand their client’s needs and offer them better products.
Automated real-time data helps in taking swift actions and decisions by both brokers and traders. Brokers need to have data like period-on-period comparisons, which they can use internally in sales, and make them available to their clients to refine their trading strategies.
The analytics that data analysis software provides need to be easily digestible and actionable. Fund managers and brokers need access to every layer of the data that is allowed by the analytics software, rather than just the final report. Brokerage firms also need to automate their workflows so that front, middle and back offices are integrated and working together.
Moreover, analysis using software also allows for better risk management and can help avoid financial and compliance risks that brokers face, as computers are not susceptible to human biases and are emotionless. And such risks can be seen and avoided faster.
Inculcating these aspects in the trading platform can greatly enhance the level of service offered by an FX broker.
Up-to-date trading platforms – Apart from providing real-time data analytics and instantaneous trade processing, trading platforms offered by brokers should be compatible with every major operating system. Brokers should be focused on bringing their services to smartphones, allowing traders greater, faster and easier control.
Trading platforms should start implementing newer trading models such as EA, social and algorithmic trading. Traders want access to a diverse range of asset classes like crypto-currencies, CFDs, as well as foreign exchange, and brokers should take advantage of the growing demand by offering these in their trading platforms.
Access to wider liquidity pool – Adaption of the latest technology will ensure traders do not have to spend hours on price discovery. Brokers can now use e-platforms that offer access to the best pricing offered by different liquidity providers around the globe and filter those who do not meet their client’s trading objectives.
This way, brokers could place order for their clients where the price is lowest without any execution delays. And clients can get best price with faster execution and minimum re-quotes.
Complete CRM with end-to-end sales and support – Brokers need to have CRM software that can help them in processes like conversion, sales and support, and automate it for the betterment of both the clients and the broker.
Sales representatives can concentrate on increasing market engagement and reaching a broader customer base, if tasks such as client onboarding, pricing, support and compliance are automated with the help of chatbots and customer profiling.
Moreover, CRM can help brokers in getting better customer retention and improving business relationships with their customer by helping brokers understand the clients’ needs based on their history with the company.
The application of automated systems can better the sales, increase the transparency, improve the compliance, lower the risk and transaction costs for the brokers. This will help increase profits for brokers and better service for clients in return.
Automated and integrated platform and portal could be the solution
Every broker should have an integrated portal and platform with complete process automation, which is constantly evolving with the needs of customer and according to industry standards, which could be the solution to the new challenges faced by brokers.
These platforms could make it easier for brokers to understand their client needs and be able to target each client based on their lifetime value. It should also help empower brokers’ sales teams with the ability to drill down quickly on a client based on their profile.
Brokers need to constantly upgrade and enhance their trading platforms and portals to provide clients with the service they require. Automation of processes with the trading platform as the central pillar can ensure brokers meet client expectations while keeping abreast of industry standards.
Brokers should reserve the ability to quickly implement changes to their trading platform to keep it in line with changing market conditions, client expectations, internal policies and government regulations. Platforms should be able to provide brokers with necessary information regarding each client’s needs so that the brokers can optimise their bespoke services. Brokers should ensure their sales team is kept abreast of necessary data on each client, allowing them to quickly tailor and implement their sales strategy.
Even though market fragmentation is expected as long as FX is traded over the counter, integrated trading platforms can connect diverse market participants while expanding the range of services and products available. A single trading platform that can allow price discovery, trade execution and post-trade reporting can change the way traders function for the better.
Innovative FX trading platforms are now available in the market, offered by companies such as Bloomberg Global, Refinitiv, MetaQuotes, Ctrader and Cpattern, and many leading retail brokerages in SA are using Metatrader and Cpattern platform.
Bloomberg remains the market leader for institutional traders and hedge funds. Through Bloomberg’s trading platforms, financial intermediaries and institutions can send their orders to a central treasury, which aggregates the exposures and maps them to the proper accounts, and subsequently executes the order. This innovative system allows corporate systems to keep tabs on their global exposure through a single window.
Cpattern offers integrated risk management and data analytics that are unprecedented for both retail and institutional brokers, while MT4 remains the favourite choice for retail FX trading.
Several new options for traders and brokers continue to hit the market as it expands, allowing FX brokers to enhance their services and surpass client expectations.
Future for trading platforms and FX brokers
As the number of challenges faced by FX brokers and trading platforms increase, so do the opportunities. FX brokers and trading platform providers would do well to be light on their feet and quickly adapt to the best market practices as they arise, ensuring their position as market leaders.