What do retail brokers need to be aware of in terms of offering cryptocurrencies?
In terms of trading cryptocurrencies, there are three distinct strands – physical, CFDs and Futures. Brokers need to be very clear about what they are offering as their end clients don’t always understand the difference. The most appropriate strand currently is the CFD option as brokers can either cover their risk with a traditional LP or warehouse the risk.
The Futures market, however, is developing rapidly, with exchange operators such as CBOE and CME Group – two of the world’s largest options and future exchanges - launching exchange-traded funds based on digital currencies. This will significantly impact the market by providing a regulated trading venue for cryptocurrencies. It will make cryptocurrencies much more of an institutional-style asset class and will significantly reduce volatility.So far, it’s been very much a ‘buy and hold market’. However, once the institutions become involved, cryptocurrencies will be traded very much like other asset classes. This creates a huge opportunity for retail brokers to diversify and add a new revenue stream with a new product offering.
What is your advice to brokers who want to extend their product range to cryptocurrencies?
Brokers need to ask themselves three questions:
1) Which products are you offering?
2) How will you cover this in the market?
3) What kind of trading model do you plan to use – A-Book, B-Book or Hybrid?
They will need to have detailed discussions with their technology providers to help them to make their decisions about what is feasible – it’s not as straight forward as you may think.
How is Gold-i’s technology supporting brokers?
We have developed a Crypto Switch which works across all platforms and offers brokers access to leading global Crypto Exchanges and Liquidity Providers for both pricing and trading. It gives them full control over pricing and execution and the choice of primary/secondary feeds or full aggregation. Our Crypto Switch is proving to be the most sought after product we have ever launched – a sign that cryptocurrency trading is not just a fad but is certainly being taken seriously by brokers worldwide who are keen to seize the opportunities created by
this exciting new asset class.