John Owens Sales Director, FinTech Solutions at Transaction Network Services
John Owens Sales Director, FinTech Solutions at Transaction Network Services

Selecting the Right Financial Extranet Provider Can Give FX Players an Edge

In the ultra-competitive world of foreign exchange (FX) trading, deploying a financial extranet has become one of the most effective tech strategies for FX firms to secure their market position, however, careful due diligence is required.

First Published: e-Forex Magazine 80 / Expert Opinion / April 2018

Extranets are a high performance, trusted and reliable method of achieving one-to-many and many-to-many connectivity, which are essential for FX trading. They can dramatically reduce the cost and complexity of reaching a global marketplace, however caution must be exercised as not all extranets are built on solid foundations nor designed to meet the demanding needs of the FX trading markets.

TNS developed the first dedicated financial markets extranet more than 20 years ago and in the time since we have seen many organizations try to adapt their technology for our industry with limited results. This has made it difficult for FX firms to make the right choice for their specific business requirements.  If you are evaluating a new extranet, careful consideration should be given to the business benefits of choosing the right extranet as well as the technical advantages. A conscientious review from a business perspective should include the following areas:

Speed to market

When exploring connectivity to a new trading counterparty, the faster that you can establish that connection, the sooner you can begin trading in earnest. TNS, for example, can establish on-net connections within just three working days anywhere in the world. Choose an extranet with a large global reach and clarify that it can provide access to all relevant trading counterparts, ECNs and providers. Give consideration to immediate, as well as future needs. If you have ambitions to expand in a region, you ought to think about who your target customers are and how to add them speedily. TNS’ connected financial community of interest has grown to more than 2,000 endpoints worldwide, including all the leading FX trading participants, liquidity providers and ECNs. This means there is a strong chance that whoever you wish to connect with is already on-net with TNS.

Reliability and latency

Trading with firms outside your country of origin can present challenges. Layering on cross-regional connectivity and then stepping up to the global playing field increases this complexity exponentially. An internet connection may appear to suffice in the short term, but its dependability over the long term cannot be relied upon. Performance on the internet is vulnerable to extraneous factors, such as major news or sporting events, which can cause throughput bottlenecks and this can result in the strike price of a trade being missed, reducing profitability or worse still causing a loss. A reliable and predictable low latency extranet, such as our TNS Secure Trading Extranet, will be isolated from such external factors and is managed to ensure the highest throughput performance. 

Security

It is essential for all trading firms, but particularly those with high visibility, to ensure that the systems and networks that they use are secure. The internet is viewed as a security risk (especially by many of the tier one buy side institutions), while extranets typically offer better security provisions, however, ensure the one you choose has good and reputable credentials. At TNS we pride ourselves in meeting the high standards of the PCI DSS certification, one of the highest payment industry security accreditations.

Cost savings

Establishing individual telco connections can be a slow and costly way of setting up counterparty connectivity. Telco organizations typically insist on selling bandwidth in minimum increments, which results in money being wasted on excessive and unused bandwidth. Unlike a telco, an extranet provider such as TNS can scale your connectivity to meet your business needs exactly, meaning you only pay for the bandwidth you utilize. This can be done at a very granular level with connections starting as small as 64kbps.

Local market access 

Establishing your brand in a local market can reduce the costs for local firms to connect to your facility or service. This lowers barriers to entry, stimulates growth and can generate a lot of goodwill as you, the counterparty or participant only has to budget for a local connection as opposed to an international one. Some firms choose to establish a gateway in a regional hub with connectivity back to their HQ, while others deploy an entire trading stack. Some start with a gateway and build up to the full trading stack. Either way, setting up a facility in an overseas territory can be fraught with challenges, such as finding and co-ordinating the right resources, procuring hardware, project management, system installation, test and commissioning. These aspects combined can significantly drive up the cost of ownership and divert resources away from core trading activities. Extranet connectivity can now be combined with managed hosting and co-location services to maximize the impact of both. 

Extranets are a simple and effective way of overcoming many of the challenges facing FX firms today, however, to ensure you maximize your return, gain competitive advantage and strengthen your bottom line it’s important you consider the above areas when evaluating the options available to you.