Client demand and competitive threats highlight flaws in FX-only mindset. The leveraged trading industry may have its foundations squarely set in currency markets, but recent decades have seen successive demands for asset classes beyond forex to be added to trading platforms. Whilst volatility is at last increasing in FX markets as the world finally begins to progress away from those extended periods of ultra-lax monetary policy and exaggerated geopolitical developments are also delivering more price action here too, clients continue to demand access to indices, commodities, equities and even cryptos as they look to develop profitable trading strategies.
This quest for choice brings with it a challenge for many smaller brokers who may be acting purely on a white label basis or alternatively seeking flow from certain liquidity providers. And in a market that continues to present its own issues when it comes to both client recruitment and retention in many jurisdictions - from the removal of introductory bonuses through to lower leverage restrictions – it’s easy to see why constraining choice when it comes to the available asset universe probably isn’t the easy way to find satisfied customers.
Multi asset trading
As a consequence, the market catering for multi asset trading is growing fast. From the technology providers innovating their offerings to deliver more choice through to the volume of ‘beyond-fx’ flow that’s now being offered, as always, this market is innovating to fit the needs of the end user.
Since the mid 1990’s, CMC Markets has been providing multi asset trading, both directly to its own clients and also through its B2B arm, CMC Institutional. This means there’s a far wider range of tradable instruments on offer from the company beyond the traditional 70-80 currency pairs which many consider to be the cornerstone of leveraged trading, something which has been fundamental in helping drive CMC’s popularity as a trading counterparty.
As Richard Elston, head of CMC Institutional notes “This really has to be about delivering what the customer wants, rather than just taking what may be perceived as the ‘easy’ route.”
And whilst there may be no shortage of counterparties in the market offering two-way prices on any instrument, having all of these supported from a single source and backed up by a robust technology platform again improves the customer experience. From dividend adjustments on an index contract to corporate actions on individual stock CFDs, multi-asset liquidity presents a range of challenges which the larger counterparties can help you address.
A well capitalised broker with good credit lines and strong relationships with tier one brokers will invariably be in the best position to deliver high quality liquidity here. Counterparties need to look for that optimal combination of both spread and market depth, whilst bearing in mind that hitting this sweet spot becomes even more challenging when moving into less popular assets. As such, having a sound understanding of where the price feeds and the accompanying liquidity is coming from should be at the heart of any conversation. What’s more, careful attention needs to be paid to the ongoing relationship, making sure that promised target spreads and depths are being delivered on a consistent basis. Slippage and repeated order rejections will likely lead to trading strategies not being effective and customer disappointment.
Richard Elston added: “As a business, we participated in a study with one of our liquidity suppliers, XTX Markets, which highlighted just how damaging slippage can be to traders. A quoted spread of 0.7 pips with a 15% rejection rate was the equivalent of trading on a spread which was actually around 50% wider. In other words, that eye-catching headline price only stacks up if it can be delivered on a consistent basis.”
The demand for multi asset services is also being exacerbated by the growing competitive pressures seen elsewhere in financial services. Challenger banks are making inroads in terms of providing easy access to trading everything from equities to cryptos, whilst the managed fund industry continues to extend beyond traditional asset classes, too. Put simply without innovation here, smaller brokerages risk making an already challenging situation even worse.
The tools for supporting multi asset trading strategies certainly aren’t in short supply, and with such instruments having the ability to provide much needed volatility when this may be lacking amongst the most popular currency pairs adds further allure to the proposition.
Richard Elston concluded: “There’s a growing recognition right across the broker community that the demand for multi asset trading has to be addressed by all. As long standing providers of a wide range of instruments, we are well placed through our institutional arm to assist those companies who either need to break into this space or want to look at overhauling their current offering.”
“Whether that’s using a comprehensive white label service or alternatively one of the industry standard APIs, we are one of the few institutions with the flexibility to deliver high grade, right size solutions to credible counterparties. And once systems are integrated, the control that’s available to brokers with regard to matters such as exposure reporting and curating the right environment for groups or even individual clients really does make this a very powerful proposition.”
With demand for multi-asset trading continuing unabated and platforms becoming increasing adaptable with regard to accommodating a wider choice of instruments, brokers really do need to give careful consideration to their future prospects if they continue to pursue a policy of an FX-only offering.