So things are ticking along quite nicely, and you are making money each month, but you feel in your bones that something is missing. Only a true entrepreneur would be mad enough to start their own business and live a life of uncertainty, risk, and, sometimes, reward.
What could be missing? Growth and diversification!
Albert Einstein famously said...
“If you always do what you always did, you will always get what you always got”
but Albert is wrong.
What he says only holds if the world around you does not change. If regulators don’t muck around with leverage. If viruses don’t jump from bats to pangolins to humans. If oil prices don’t go negative. If volatility doesn’t go to the stars and back. If Royals stop being Royal. If celebrities become politicians. If, if, if. As businesses, we need to change all the time, standing still is going backwards, so what should you do?
Well, I recommend a good dose of diversification to protect you from the bevy of black swans waiting around the river bend. If you can add more asset classes, types of clients, or new geographical regions, you have a better chance of staying alive and, dare I say it... growing.
You need to be brave, and you will make some horrible mistakes, but fear not! Mistakes are just nature’s way of helping you learn. Be bold, and think the unthinkable, and some amazing ideas will emerge.
I would personally recommend that you have 3 or 4 new initiatives in the wings at any one time, with someone tasked to take each one and flesh it out. Some will wither on the vine; some will grow but then be proved to be rubbish, and some will be absolute gems. All this brave talk then but...
What should a retail FX broker do?
I am going to help you here with a starter list, to get your creative juices flowing.
- Target 3 sets of clients (retail, professional and money managers)
- Add some more Liquidity Providers to get better pricing across the larger asset class ranges - they are not all good at everything
- Add index CFDs, commodities, bullion and major cryptos
- Employ a Business Intelligence tool to look deeply into your client activity. How much are you losing and how much more could you make with better A/B book modelling? Are latency traders taking you to the cleaners?
- Review your technology partners. Are they as flexible and supportive as you need them to be?
- Are there other parts of the World that you could easily sell into?
- What new trends are showing green shoots? Social, sentiment, copy trading, algo trading, correlations, etc.
Target Money Managers and attract professional traders
By integrating a Multi-Account Manager (MAM) into your MetaTrader software, you can grow your brokerage by targeting money managers and attracting professional traders. Maybe you have been anticipating developing your very own customisable solution to grow your business and client base? This may seem like a great idea; however, it could set you up for failure in the long run.
- It can be a waste of valuable time and money to create proprietary software that has already been mastered by SaaS vendors over years of development.
- Research, development and testing could drastically slow down your time to market but rushing these steps could cause multiple problems down the track - the typical tortoise and hare scenario.
- All that hard work, time and money does not stop once you have finalised your product; future development and innovation will continuously need to be made.
Fortunately, there is no need to spend all this valuable time and money, when you can easily partner with reliable technology software providers who have done all the hard work for you! Choosing a white label solution such as Gold-i MAM Pro will address the above issues whilst helping to grow your client base - a win, win? Building your own software may give you full control of its user interface, but don’t forget white label solutions are easily customisable to make the product look like your own brand. By using a white label software solution, you have the time and money to focus on growing your business. Doing what you do best, ensuring your clients are happy.
How to up your Liquidity Management game
Diversifying your liquidity management is one of many ways you can do so. But why? Retail traders have started to get a wondering eye and are now looking to trade new and exciting asset classes such as cryptocurrencies. That’s where you come in. In order to stay competitive, diversification is necessary as it will enable you to gain more clients, take more deposits and see increased trading activity.
Traders want to be able to trade multi-asset markets easily, using only one solution - one broker. This is important to consider, as if they can’t get access to the asset classes they want through your business, then they will most probably be on the lookout for another provider that meets their needs. So, how does becoming a multi-asset Liquidity Provider help grow your brokerage? Giving traders the capability to invest in multiple asset classes is a great way to diversify and grow your brokerage and therefore you need to be able to consume liquidity from multiple providers. Increasing the number of Liquidity Providers not only helps you differentiate but also gives you a much tighter spread allowing you to aggregate feeds to obtain a Best Bid or Offer. You will also benefit from better pricing across the larger asset class ranges. As I always say, LPs “are not all good at everything.”
How many Liquidity Providers should you select?
There isn’t a definitive answer as it depends massively on your strategy. However, the most important consideration is for you to match your Liquidity Providers to the specific requirements of your brokerage – e.g. selecting specialist Liquidity Providers for each individual market (FX, cryptocurrencies and CFDs) as, for example, some Liquidity Providers may have better prices on metals, whereas others could focus on major asset classes or exotics.
Annoyingly for smaller brokers, gaining this multi-asset liquidity is harder to do because of the big multi-asset Liquidity Providers who have been much slower to offer FIX connectivity to their full range of markets - which is a far cry away from FX Liquidity Providers who fall over themselves to take a broker’s trades. But fear not!
Brokers no longer need to rely on Liquidity Providers’ connectivity to distribute liquidity globally. There are reliable technology solutions on the market to enable you to take access a vast range of Liquidity Providers that offer high quality, competitively priced liquidity across multiple asset classes.
Business Intelligence tools
When running a brokerage, it’s easy to apply Pareto’s Law and assume that 80% of your clients lose money and 20% make money. But do the following questions cross your mind?
- How much are you actually losing?
- Are scalpers and latency traders taking you to the cleaners?
By using a Business Intelligence tool, you can delve deeply into all your clients’ trading activity by managing your exposure risk and Profit/Loss. But are they worth the money?
Business Intelligence tools can provide you with invaluable live data and up-to-date key metrics. No matter how much in-house work you have put into them, Excel spreadsheets are not an efficient way to manage your risk. The function of spreadsheets makes them incapable of providing the complete set of data that Business Intelligence tools can:
What information are you missing out on?
How could this information impact your trading operations?
Your spreadsheet doesn’t understand scalping and can’t help to identify where toxic trades are coming from. With a Business Intelligence tool that is developed specifically for your needs, you can see whether your company is sending toxic flow to Liquidity Providers and drill down into live data to get a thorough understanding of where you are currently making money and where you could be increasing your profits.
How to get started
We recommend you look at 5 must-have components in a Business Intelligence tool comparison:
- Specific tailoring to FX Brokers’ needs
- Easy setup and integration
Not only are the components of your chosen software important, but the actual software provider is too. Ask yourself the following:
- Are they a reputable vendor?
- Do they offer a strong level of support across all time-zones?
- What is the total cost of running the software?
- Are they a breeze to work with?
If you are looking to scale your brokerage, you need to maximise your profitability. To do that, you need to fully understand your numbers in a real-time view, down to every single one of your clients and trades. The Gold-i Visual Edge business intelligence tool and risk management software which was first launched in 2015 is a good example of solutions that are now available to assist in this process. Providing brokers and their dealing desks with real-time risk monitoring, exposure tracking, Profit/Loss analysis and historical A book/B book what-if analysis, Visual Edge can save brokerages thousands of dollars in trading operations by understanding and visualising their data clearly.
Business Intelligence tools will provide you with 3 major benefits; a greater understanding of your risk and exposure, the ability to optimise your profits, and a simple way to meet regulatory reports. Delve deeper and you will never look back.