Low Spreads Threatening Brokers’ Profit?

Thursday, 17/07/2014 | 00:02 GMT by Leon Yohai
  • The stiff competition in Broker margins is a clear indicator of mature industry conditions.
Low Spreads Threatening Brokers’ Profit?

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

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.

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

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.

About the Author: Leon Yohai
Leon Yohai
  • 9 Articles
  • 7 Followers
About the Author: Leon Yohai
Leon Yohai was born in Athens, Greece in 1974, and began his entrepreneurial career when he founded fleamarket.gr, Greece's first and largest e-auction website in 1999. In 2001 he founded InternetQ SA, the company that introduced premium text messaging billing in Greece. Later, Leon came to the United States to launch Qmobile, a mobile entertainment startup that quickly gained 25% of market share in the first 3 months of its operation in the US. Leon has been trading futures for his own account, in equities and money markets since 2000, and recognized a need for a service for individual traders, who have busy schedules and cannot follow the rapidly changing markets, yet need total control of their funds – the rationale behind the company he founded, ZuluTrade. Leon Yohai was born in Athens, Greece in 1974, and began his entrepreneurial career when he founded fleamarket.gr, Greece's first and largest e-auction website in 1999. In 2001 he founded InternetQ SA, the company that introduced premium text messaging billing in Greece. Later, Leon came to the United States to launch Qmobile, a mobile entertainment startup that quickly gained 25% of market share in the first 3 months of its operation in the US. Leon has been trading futures for his own account, in equities and money markets since 2000, and recognized a need for a service for individual traders, who have busy schedules and cannot follow the rapidly changing markets, yet need total control of their funds – the rationale behind the company he founded, ZuluTrade.
  • 9 Articles
  • 7 Followers

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