A Shift To Hybridized Risk Management Models
An effective hybrid principal model is not easy to implement. The shift requires an extremely experienced risk management team.
There are many different techniques for running a book of business, and risk management has evolved drastically over the years. This largest impact an experienced risk management team can have for a broker is converting from an agency (STP) model to a hybrid principal model.
An effective hybrid principal model is not easy to implement. The shift requires an extremely experienced risk management team with shrewd attention to detail. Every broker is different, but the magic number tends to hover around 70% B-book, 20% A book, and 10% C book. This is not a ‘set and forget’ formula since changes in market conditions affect traders differently. Also, client trading behaviors evolve and change over time, requiring a constant evaluation of all books. A principal hybrid set up has to be a fluid model.
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Another critical component to the shift in risk management is technology. Traders should not feel a difference in execution based on their corresponding book. Brokers should have the ability to shift traders amongst different books without server restarts or forcing the traders onto a new symbol set. The model needs to be dynamic and changes need to be made on the fly. It doesn’t matter how good a risk management team is if they are using outdated tools.
Almost all of the large players in the industry run a hybrid model, and it is scalable across any broker of any size. STP brokers don’t always realize what is being left on the table. Sometimes a quick analysis of the customer base can go a long way. No matter the size of the broker, it is a worthwhile exercise to look at client profitability as a ratio to volume. There are resources available to help with this review.
This article lacks substance and any relevant insights. It basically comes off as a rushed cover for a half-baked marketing pitch for Jeff’s company, and nothing more. What type of “expert” leaves open questions like “.. there are resources for this”.
Annoyed.
‘Shrewd attention to detail’ that Think Liquidity can’t accommodate since they’re an external risk manager.
Jeff, can you clarify what you consider to be “A”, “B” and “C” books of business? I’m particularly interested in C book definition.
“Traders should not feel a difference in execution based on their corresponding book” – I doubt this is possible, unless B-Book execution is made slower on purpose.
But yeah, agree with the guys, the article misses some value.
We have used Jeff and his team for over 2 years now and the comments above seem pretty baseless. The free bridge we get is better than anything we have paid for and we have used them all, don’t understand all the hate here
@Andy – “To further support the Company’s growth the Board also intends to develop business channels in less mature markets, attracting new clients and reducing the Group’s current dependence on the UK market.”
if you scroll down on this page http://www.londoncapitalgroup.com/regulatory-news/proposed-financing it has many of the details
@Andy – “To further support the Company’s growth the Board also intends to develop business channels in less mature markets, attracting new clients and reducing the Group’s current dependence on the UK market.”
if you scroll down on this page http://www.londoncapitalgroup.com/regulatory-news/proposed-financing it has many of the details
happy to discuss the above with anybody. My email is jwilkins@thinkliquidity.com
A) 70% promotional. B) 20% nobody cares C) 10% why was this published