The taboo is no longer: Australian brokerage goes to the public domain on how b-book brokers make money and debates high leverage, likening warehousing to ‘casino’ businesses.
For some reason, a taboo subject among retail FX brokerages for many years has been the discussion in the public domain by industry participants, reporting entities and media outlets about the methods used by retail electronic trading companies to entice clients.
Most discussions on panels at conferences, in written material and between technology vendors, liquidity providers and brokers steer well clear of any mention of high leverage, trade warehousing and internalization and the realities of in-house risk management.
Why these matters are taboo is a complete mystery. In many other technology-driven industry sectors in which competition is as fierce as it is in the FX and CFD business, making important statements about malpractice is commonplace. Indeed, even the absolute pillorying of products by independent journalists and public forums has been a longstanding activity.
Back in the 1980s, consumer and special interest magazines on all subjects from consumer audio equipment to new cars began listing product information and specification pages which would alphabetically list all products from all companies in the industry, along with a short summary of the product, followed by a ‘pros’ and ‘cons’ statement. The ‘cons’ were often derogatory and very amusing.
This prevailed during the late 1980s and by the mid 1990s, television shows about new inventions, household goods and indeed cars became a platform for amusing anecdotes which in many cases highlighted the low points of each product.
British journalist Jeremy Clarkson has spent the past 35 years humorously piling contempt on products and companies which he believes are inept, embarrassing or fleecing their customers, yet nobody reaches for the telephone to call their lawyers.
The opposite is the case at the lower end of the retail FX and CFD business. Many companies which seek to bring inexperienced clients in via the backdoor, circumnavigating regulations and using offshore entities to provide glaringly outrageous trading conditions will immediately reach for the Cease and Desist letter template as soon as any utterance is made.
Speeches at conferences are tuned by compliance departments and vetted, nobody steps outside the box and very rarely is any misbehavior highlighted. Quite the opposite in fact. Just a few years ago, the largest names and loudest voices in many retail trading events and media were the semi-literate criminals running binary options brands – a whole concept which does not belong anywhere near genuine electronic trading. Some regulatory authorities, now hamstrung under MiFID II rules, even gave them financial services licenses!
This week, light is definitely visible at the end of the tunnel, as Australian electronic trading company Global Prime has begun to issue publicly available videos depicting the pitfalls of working with low end brokers, and what high leverage and b-book market making really represents.
Whilst FinanceFeeds takes an impartial view on this matter and can categorically confirm that we have absolutely no commercial relationship with Global Prime, it is a debate that is worthy of industry discussion.
For this reason, it is viewable here. Let’s hope that we, the good people of the FX industry, can work together to keep our standards high.