Sunday, July 21, 2019

Forex Whitelabels – Independence & Choices

Faced with a reduction in commissions (as spreads have significantly decreased over the last couple of years), more and more Introducing Brokers (IBs) are moving toward getting their own MetaTrader platform and trying the ‘broker side’ out for themselves.  It is also clear that the appeal of the U.S. broker has faded, as even the American brokers have opened up offices overseas in favor of friendlier (and more appropriate) regulations.  Global retail customers are once again looking locally, or even offshore in search of higher leverages, especially if they can find a better solution through their trusted IBs.  Indeed, these IBs are finding many compelling reasons to go out on their own, gaining more control – and capturing higher profits.

While these new brokers have some educational challenges, they already have customer loyalty.  There are several countries or regions in which they can be based, and for many it is simply a question of registration in their home country and acquiring a trading platform.  For a mid-sized IB who is used to MetaTrader, however, the idea of paying for software up front can be a little intimidating.  It is not the only technical issue:  how do they connect to a real price feed?  What about liquidity, and how do they make those arrangements without becoming an IB all over again?

The answers are not as difficult as they may seem, and many IBs are beginning to realize that.  One of the best ways for an IB to get around the high expense of buying a MetaTrader is to White Label this platform from a licensed White Label broker – or even better, a technology provider.  If an IB wants to be truly independent, then the latter is the only way to go.  White Labeling via an independent tech company will allow these new brokers to shop for tighter spreads and better clearing conditions through a variety of counterparty brokers and banks.  Many technology companies (including PrimeXM) offer White Labels as an add-on, passing through the direct costs from MetaQuotes, because they earn from other products they offer.   Typically, and in our case, that product is bridge technology.

Bridges are not new to the forex industry:  they became popular a few years ago, and until recently, they have worked fairly well.  Bridge software is exactly as the term describes – it bridges the technology gap between the trading platform (MT4) and the banks and broker counterparties that MT4 brokers deal with, both for price feeds and for clearing.  Bridges are essential to the success of an MT brokerage, and an effective, efficient bridge is vital.  With the increases in FX volumes and volatility, some of the older bridging software offerings are starting to show their limitations.  Inability to process excessive trade volumes, lack of support for partial fills, banding (for large trades), and feed stability are just some of the factors weighing heavily on that software as it slowly becomes obsolete.

With newer technologies, progressive brokers (especially the breakaway IBs) are realizing a significant advantage.  New bridges are (and have to be) about protection, functionality and stability.  Protecting their end customers as much as themselves is all about removing latency from the equation.  Whether or not brokers want to automatically hedge trades is their decision, but make no mistake:  latency is one of the most destructive issues facing the naïve broker business.  One of the main appeals of MT4 is that customers can use Expert Advisors (EAs).  Some of these EAs can be toxic if the correct measures to provide a fair, at-market price feed are not taken.  If they wish to survive, MT brokers (old and new) must look into connecting a real (dealable) price feed through a bridge.

As for functionality, a bridge that is a server plugin (such as PrimeXM) will enhance MT4, take over its functions and give the broker flexibility.  From partial fills to average rates on larger trades, and a strong, stable connection to counterparties, brokers can provide tight, competitive spreads (and without any downtime) to their end customers.  These benefits are recognized immediately through better fills, efficient execution, and no manual interference – all leading to a significant increase in profitability.

There are many factors to consider when breaking away and going independent.  Regulations and safety of funds should be the first concerns.  Providing a customer base with the tools they need to trade efficiently should be a close second.  A good reputation and strong customer base are two excellent reasons to consider going it alone.  Smart choices from that point will clear the path for a successful FX broker business.


James Whyte | Head of Sales & Marketing
PrimeXM GmbH
Flurstr. 17 | 8048 Zurich | Switzerland
Sales: +1 714 369 0724 (U.S.)
e-mail: james.whyte@primexm.com | Skype id: primexm_james_whyte | web: www.primexm.com


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