Forex aggregators
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For years, early movers in the FX aggregation space benefited, uncontested, from the ability to bilaterally charge both Takers Broker clients and Makers Banks and non-banks. As a result, firms that built their marketing, technology and operational machines around these margins are now struggling to make ends meet.
Relationships are now driving LP pricing terms. Many of the firms that approach oneZero for price Aggregation are doing so with two or three liquidity providers and a desire for more regional, customized approaches to liquidity management. In the face of this growing trend, old-guard firms that hung their hat on broad-based relationship-indifferent connectivity are now struggling to re-build their own relationships with market makers, and are re-evaluating their investment in single-source SaaS based deployments.
However, FinTech products require constant re-invention and re-implemention of major architectural components in order to remain relevant in a changing market. This comes with performance, stability, functionality and scheduling challenges that can be daunting for any team. For ancient legacy products whose developers have long since moved on, they can be insurmountable.
A good example of this can be seen with the influx of demand for CFD pricing by Retail FX firms. Considering that many legacy platforms currently struggle just to keep up with the most basic needs of Retail FX firms e. The massive opportunity presented by the FX space over the last decade has drawn the attention of a multitude of new participants, many of whom come with pre-established distribution, support and technology teams. At oneZero, we know that Operational Support is an incredibly critical component.
Unfortunately for the legacy providers, brokers now have options. The declining willingness of Tier-1 PBs to provide direct credit access, the demand for additional compliance and risk controls and a consolidation in the Prime of Prime space are all catalysts that have accelerated the effects of points above on the legacy technology providers.
Functionality adaptability is an imperative, a result of mandates from clearing firms, brokers and traders. Operational efficiency is more important than ever, as firms are tightening their leniency for loose risk management practices and transparency.
Regulators, brokers and clients are increasingly aware of systemic issues and are providing additional external pressure. As a result, brokers have accelerated their search for new ways to internalize and manage risk and cut costs, and are aggressively evaluating new options for differentiating client experience and monetizing flow.
Solutions to these challenges will not come from the same script and architecture that has governed platforms in the past. The need for quick movement and reactive shifts in business model design all tend towards a new marketplace of FX connectivity participants. Only time will tell if legacy FX Aggregation providers will be able to adapt, or if they will continue along their current trajectory and become a relic of a bygone era.
One of the best expert articles I have read in a while.
Forex Strategy Team - Forex News Agency - RSS Feed
Good to see professionals in the industry keeping us informed about real changes. I need some clarification on these acronyms: Why use 3rd party aggregation in the first place? Maybe it is a trust issue between dealers. To call them brokers is to give them a misleading label they do not deserve. People should check the exact regulatory licenses their chosen retail fx provider has very carefully.
If they are allowed to be market makers, then you can pretty much guarantee the will. The reason most market making banks, brokers etc make big profits, is that in the end the buy side nearly always loses.
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News Data Algo Trading Crowd Funding Investing P2P Lending Payments Bloggers. Summits Expos Become a sponsor. Technology Top 5 Reasons Why Legacy FX Aggregation Providers are Failing In the retail FX space, there are 5 key technology and product positioning challenges that will prove difficult to overcome.
Pricing Pressure For years, early movers in the FX aggregation space benefited, uncontested, from the ability to bilaterally charge both Takers Broker clients and Makers Banks and non-banks. Got a news tip? Let Us Know Found a mistake? Notify of new replies to this comment.
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For the retail segment, this issue is a farce. The retail brokers are the market makers. AND, in a very stupid scenario, where a typical retail broker does decide to export its retail deposits to banks, all they need is just ONE bank, not 50! Other warning signs that help you spot a dealer are; deposit bonuses, CPA affiliate deals etc.
Retail markets are a grey area, and it will remain that way for a considerable amount of time. And as for the market makers, ultimately someone has to make it.
Top 5 Reasons Why Legacy FX Aggregation Providers are Failing | Finance Magnates
In this case, I believe the acronym NOP refers to Net Open Positions. Second under a PB, the retail brokerage acts like a client, thus losing its deposits which belong to thousands of sub-clients to the PB, which may in turn lose them to a profiting bank.
A commission based model only works for large volumes, which can be generated by large institutionals, or tens of thousands of active retail clients. An average retail brokerage cannot survive for one day out in the sun, if it were working on a commission only model.
Jeffery Patterson manages the Executives portal for Finance Magnates. He debut in the Forex industry in was at FXStreet, having previously worked in academia across number of econometric studies, and HIV research.
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