The stiff competition in Broker margins is a clear indicator of mature industry conditions, and is a serious threat to many Brokers’ profitability and long-term viability. Currently we notice a number of market participants with more or less identical offerings, to lower their spreads trying to increase market shares and attract new customers.
Economies of Scale
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Apart from the optimization of any adopted risk management models, which is an important aspect of the FX brokerage business, a sensible approach to deal with such conditions are economies of scale, especially when these are accompanied by effective management of customer acquisition costs – CPA. This path is more suitable to brokers with strong cash flows that can also take advantage of industry restructuring opportunities.
Under such difficult conditions, middle and smaller-sized Brokers need to explore ways to differentiate themselves from competition, to maintain positive customer acquisition and remain profitable. Brokers need to invest into new open technologies, advanced customer support, platforms and services that will add value to their offerings and allow greater flexibility over the long term, thus allowing them to increase client retention and lower CPA costs. In other words, Brokers need to concentrate their efforts into identifying their customer needs and wants, and trying to develop unique selling propositions that will distinguish their offerings.