How has the SNB event affected the retail FX market?
TH: As a result of the SNB events, the bank Liquidity Providers have reassessed their risk and many have decided they aren’t happy with the return they get for the risks they take. As a result, a number have exited the space. With a reduced number of bank Liquidity Providers, Prime Brokers who use bank liquidity are finding it increasingly difficult to find Liquidity Providers. This has had a knock on effect, leading to Prime of Prime Brokers struggling to find Prime Brokers.
SNB events have changed the landscape completely. We will of course still have Prime of Prime Brokers moving forward – but they will only want large accounts, with large amounts of capital. I am sure there will be a lot of consolidation in this space as well as opportunities for the surviving Prime of Primes to grow significantly.
As with all situations, the changes to the status quo have opened up opportunities for new players and we are seeing a whole wave of new entrants, such as IS Prime, who are providing liquidity using their own capital. Whilst these market makers existed before, I believe we will see them playing a bigger role moving forward. They are ideally suited to this market as they are used to managing risk and high transactional rates.
For Gold-i, it also creates an opportunity as these new players require technology to manage their liquidity. We have seen a surge in demand for our Matrix product which allows brokers to aggregate in-coming liquidity feeds and offer their own liquidity out to clients. It also enables them to combine multi-asset liquidity into a single book.
Brokers seeking to become market makers need a bridge to integrate multiple Liquidity Providers. When selecting their technology partner, I would urge brokers to select a provider who has experience in integrating with multiple non-bank liquidity providers.
What tools are available to help MT4 brokers with risk management?
TH: I’ve always been surprised by how many brokers haven’t taken risk management practices seriously in the past. It’s been all too easy for them to make money. However, the SNB crisis has made brokers re-evaluate their situation and has put risk management at the top of the agenda.
One of the major reasons why so many brokers were impacted negatively following SNB events was because they didn’t have a clear overview of their clients’ trading activities and were caught out by the market change.
There is now no doubt that brokers need to invest in analysis and risk management tools. They need to understand who to cover and where to cover and plan appropriate strategies for different clients.
We have two products in our portfolio which help brokers with risk management. The Gold-i Position Keeper is a customisable tool which shows profit and loss and position in real-time, providing small and medium sized MT4 brokers with the level of informed data which is normally only available to institutional brokers.
In addition, Gold-i Visual Edge, aimed at hybrid A/B Book brokers, provides powerful visual analysis capabilities which are invaluable for planning appropriate strategies for every client.
Brokers across the globe are excited by this product as it provides a very clear view of which clients are making profits and which clients are making losses. Brokers can also see if the profits or losses are specific to certain types of trades or groups and how consistent these trends are over time.
Gold-i Visual Edge provides dealing desks and risk managers of MT4 brokers with unparalleled understanding of their clients’ trading performance and this can help them to increase profitability by optimizing client trade flows. It is an invaluable tool and there really is nothing else like it on the market.
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