One can accurately assert that foreign exchange (Fx) is a new investment asset class. It can be considered a “niche,” and in the present financial economic landscape, companies are seeking new niche and income-driving products: Fx is becoming increasingly known as such. Foreign exchange is penetrating new markets, especially those previously considered “exotic”. The overall size of this growing market—and the enormous demand that it currently embodies—is allowing new players still to enter fruitfully. Now is an especially good time (and maybe even a unique window) for new companies to make a footprint in the foreign exchange market.
Learning how to take advantage of this opportunity cannot occur through standard academic means. For the most part, there is no school or university granting specialized degrees in attaining hands-on forex trading or management excellence, so nearly all successful players in this market tend to learn everything (from A to Z) that they know about the realities of foreign exchange on the job.
This means that large, small, and medium-sized Fx companies presently serve as the universities and Masters-makers in the Fx industry and are responsible for the human knowledge in this field.
Seasoned practitioners in the field of foreign exchange are shaping the new realities (and reaping the new rewards) in the evolving field. It is no secret that ex-employees from across a variety of FX companies have occasionally defected and/or collaborated to open their own successful (or failed) new Fx company(ies). Success remains possible and common because the market is profitable, demand is high, and there is room for a variety of different products.
So why not open your own FX brokerage? To answer this question, you must ask yourself—and satisfactorily answer—the even more pivotal question: “Why would a client choose to open an account with me?”
Among the many different and valid answers to this question, let us now focus on just two.
1) Platform and Technology: If I am able to offer a state-of-the-art technology and platform that provides clients versatility and features that they value than the technology and platform(s) offered by other brokers (competitors), then I will have a powerful lever to attract market share away from other, less client-focused players.
2) Social interaction: If I am able to provide a robust social aspect to my clients’ experiences on a day-to-day basis, then I will have a distinct and durable advantage. The term “social” has a lot of meanings in today’s world. All of the meanings (both face-to-face and high-tech/Internet-related) share this: they place premium value on human-to-human exchanges of words, information, and connection.
Today, “social” is becoming very strong and is a MUST in human life; the need to interact is strong, and even more so in some specific cultures. If I am able to provide social features and social tools and opportunities as a broker (including social trading and access to/nurturing of a genuine FX, then I will have an advantage and appeal that many other brokers and competitors don’t have or don’t prioritize.
With these two core questions and considerations in mind, let’s turn to this key meta-question: When is choosing a “white label” solution a good option for a broker, and when is it not?
[As a reminder, from past articles—A broker can “white label” a new technology and platforms (desktop, mobile, and web versions, for Mac, linux, or any operating system) by building upon the work of often-larger industry players. As such, a white-label solution may come fully customizable and tailor-made for the broker (and ultimately his clients) in all aspects, including reporting, integration, back office, trading book options, and special features that unique brokers and clients need. Some white-label solutions even come with added features such as 24-hour market support, a training toolkit, bank accounts, marketing tools, custodian services, FX online community, Expert Advisors, stores, and the option to provide “sub white labels” to others.]
As a person or group of investors considering forming your own brokerage entity, you must consider the following choice when it comes to providing a platform upon which you will service your clients (and through which they will engage with all market players and forces): “Will we create our own technology, or 2) Will we leverage an existing technology (a ‘white label’ solution) and brand it as our own?”
Let’s examine key aspects of these two options:
1) Creating/using your own technology: This option requires a large team of qualified information technology (IT) personnel, a very high financial investment, (+ 100 million dollars), and many years to develop and test the product (easily up to 3-5 years). Another very important aspect of this option is the COST OF OPERATION.
This option requires ongoing investment to keep the company running and to constantly develop and improve the product, adapting the user experience regularly and proactively to meet the evolving needs of clients and evolving trends in the marketplace. At the same time, you must be able to offer competitive pricing and smooth execution, while remaining liquid and profitable enough to move forward comfortably. Choosing this option is a decision that requires very diligent thought, analysis, and preparation before jumping into it.
If this diligent thought, analysis, and preparation yields a “Yes—let’s go for it” response, we must set ourselves up to continually provide additional new values and reliability for our clients, including attributes that occur outside of the realm of any standard trading platform.
2) Social interaction: Whether you choose to create your own platform or brand your business under a white label solution, you will need to prioritize providing strong social ties and tools to the new client base that you anticipate building. Even with the best technological solution, if you don’t offer enough collaborative and social features and opportunities, you risk losing new clients immediately (or steering them elsewhere before they even get started with you).
Even if you are springboarding off of a traditional platform, you must plan on adding social Fx trading to enable strong social interaction among your clients. Why? Trading is increasingly experienced by many people as a career and as their job. Traders live in a different way from most people who work a ‘normal’ 9am to 6pm job. They often work alone, in front of a computer screen. They lack colleagues who are physically present, “water cooler” talk, and enriching face-to-face interactions with other people. Since the FX market is open 24 hours a day, they often find themselves getting deep inside their minds, analyzing the markets and trading trends.
Many of this traders don’t receive or make as many phone calls as other people and yet they often experience the same psychological needs to be social as people who have chosen other more conventional professions and work- lives. Since traders don’t have as many natural opportunities to interact with other people (organically), these opportunities must be created and opened up for them and made easily accessible to them by the platform upon which they are doing most of their work. This is where business savvy and human compassion can combine to create a ‘win-win’ for everyone.
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By offering your clients a genuine community enabled by the technology and the community culture that you encourage, traders associated with your product can chat, talk, and meet new people who are experiencing similar work & social situations; they can speak and ‘chat’ with each other about strategies, jointly conduct analysis, and discuss what new factors must be considered for particular optimal trades or other issues.
This traders often have a psychological need to be a part of a community in cyber-space, so they do not feel overly isolated and alone. So, if you don’t provide them this environment, they will look for it in some other place or with another broker—and the risk of losing these individuals as clients increases.
Separate from—but related to—attracting and acquiring new clients is the critical consideration of retaining your existing clients. (As you know, the cost to acquire a new client is typically far, far higher than the cost of keeping an existing client happy and present.) Here are three technologically enabled ways to help increase your client retention: (Motivator #1) as mentioned earlier, offer a prominent Fx community available only via your website…to avoid the following very common default scenario: a client goes to your web page, downloads the demo platform, then opens his account, downloads the platform you’ve provided him, and starts trading. Since this client has a live account and platform now downloaded, he builds a new habit of simply trading directly from the platform locally on his computer, and he never goes back to your web page and never sees what is new there (e.g., maybe you have new campaigns and a new product or new information that he might need).
To avoid this common scenario, you need to provide your client something that will motivate him to regularly return to your web page; offering an Fx community is one perfect example of such a motivator. The client will log into this community via your web page routinely. Technologically enabled Motivator #2: Provide on your web page educational videos, such that your clients can go and look them whenever they need help related to a specific topic. Technologically enabled Motivator #3: offer a web-based TV feed featuring daily videos of market news, analysis, products, reports, and interviews that provide up-to-date information for your clients to consider and use.
If you fail to provide products that speak to these new trends, you will be at a competitive disadvantage. In my personal opinion, such features are “a must” and a very important part of successful brokerage businesses in the mid-2010’s. To succeed, you must think as a trader (your client), put yourself in his shoes, and consider what needs he has. Then meet those needs.
Given all of the aforementioned, then, when it comes to making a decision about whether to develop your own technology or to choose a white label solution, you may wish to even more strongly consider white label as an exceptionally powerful option.
The possibility to “white label” your platform and your technology today embodies simplicity. The steps are: (1) Identify your target market, and (2) Choose which platform and technology to use in order to meet the needs of that target market. There are several options available today from which to choose. For example, Jforex by Dukascopy Bank; Saxo Bank; Metaquotes; Unitrader; Integral; Currenex; and Sirix among others. Once the preliminary platform decision is made, you may (and must) shift your attention to the specific technological options available to you within or alongside your chosen platform.
Based on my personal experience, in this assessment, I’d advise considering factors such as:
1) Cost and implementation time: How much will the entire development of the white label cost me? Remember that we are talking about a tailor-made, custom product, fully branded to my business practices/needs/culture and to my clients’ needs—from platform through reports. What types of one-time and ongoing costs should I anticipate: For example, will I have a development payment, plus a monthly support cost, plus a trading cost-per-million? How long will the implementation take? Will it be done in weeks, months, or years? Keep this in mind: Customizing and tailor-making the product for you may vary widely depending on regulatory requirements, reporting-feature needs, and the cultural market you are targeting (languages included). Some providers may not be big enough to do this work in a timely fashion—or at all. In this market, with the particular window of opportunity available, you will do best being able to launch the business as soon as possible. You will need to allocate time for applying for a license and organizing the office structure. So: time and attention toward acquiring and optimizing the platform and technology must not be a headache and must instead be an extremely flexible and friendly process. The money (and time) that you can save by choosing the correct partner can be used to focus on your business and marketing purposes. Your chosen white label solution must not be a big cost or investment, and at the same time, it must be the top and best product, because this will be your key selling point to clients (for client acquisition and client retention).
Other considerations: Will this option also come with liquidity? If yes, at what price? And also, will it come with mobile trading platforms and web platforms?
2) Reliable technology: What technology underpins and adorns the platform you are selecting? How fast and reliable is the technology’s execution? It must be accurate, stable, and fast. Are the mobile trading features up to state-of-the-art: can a client easily place and follow his trades using the mobile components of the platform? What mobile devices and operating systems are supported? Apple, Android, Windows? Is the search engine for the mobile on the ‘app’ branded under my company’s name or the technology company’s name? Remember that mobile trading is the future, and that the desktop eventually will be replaced, especially in some cultures and markets like Asia, for example, where people use mobiles for everything. Example: last week, I was in Shanghai, and mobile there is so powerful that if you want to take a taxi (and anyone who has been there will agree that taking a taxi in Shanghai today is very complex and difficult), there is an application empowering you to talk into your mobile phone, indicating that you need a taxi—and instantly your request is pushed to hundreds of taxis. In matter of minutes, a taxi stops and picks you up. From this example alone, you can imagine how strong the mobile presence and “mobile culture” is in some places (and will be increasingly so globally), so applying mobile optimization to the trading world is imperative to be and remain ahead of the curve.
It is also important to consider that the technology you choose must have the option to evolve new versions and products, in a way that is maximally adaptable to market needs. This means that your chosen technology must be characterized by an open architecture. You must discern: does your chosen technology come with a back office? And/or can it be integrated with your existing back office? Can the reports be adapted to my business practices, regulatory requirements, and internal procedures? Can it also be integrated with my other system(s), for example with my monitoring? And also does this technology come with an API (application programming interfaces) trading option? If the platform requires updates to meet changing market conditions or client demands, how easy (or hard) will the platform accommodate that—and at what cost?
3) Support and training: Will I receive ongoing, continual support? Does support come at an extra charge to me? Is the support proactive, routine, and educational or more reactive and emergency-based only? Remember: At the beginning, when you acquire the platform and associated technology, you must train the staff to use it. Success in this regard does not entail a one-time training. Rather, it requires several trainings and follow-ups to assure that the staff and the sales team can all master it. Will the training occur over the phone? via video conferences?
Will the training take place in your own offices or in the provider’s office—and who pays for the training costs? When you launch your brokerage, your staff will constantly experience situations that require provider guidance and assistance—situations ranging from client requests and complaints to staff-needed explanations of back-office and platform features. Even if you are successfully trained and have a manual for the platform and associated technologies, daily experience and challenges will vary widely, and it will take some months until you actually understand how most aspects of your platform and associated technologies work. So you need a dedicated team from the provider to be available 24 X 6, providing you with support.
4) Business Model: What business model underpins and drives the relationship between your brokerage (and clients) and your platform & technology provider(s)? Does the business model offer you ‘A’ and ‘B’ book capacity, and if so, how? Where are your trades executed, and from where do you get the prices and liquidity? Who is the counterparty? A real, solid, and grounded partnership is embodied in a model in which the provider earns income ONLY when the broker earns income—reflecting a win-win situation, with no conflict of interest. As a broker, you must clearly understand and value this because your clients will definitely ask you about this business model, and it can be a very sensitive topic. Clients want to be sure that they are trading in a transparent and honest environment without having any worries about possible manipulation for the benefit of other parties due to mis-aligned incentives or business models.
5) Marketing tools: once I have the technology and platforms set, how much (if any) support will I receive from the marketing side of my provider—and, if it’s available, how and how much do I pay for this marketing support. For example: will the provider announce our partnership? Will the provider mention my brokerage on its web pages? Will the provider come and help me in expositions? Will they design brochures, banners, and any additional marketing materials, or would all of this be strictly the responsibility of my staff?
What other marketing materials can the provider offer me? For example, some providers can deliver to their white label partners educational videos that are branded or co-branded to benefit the brokerage (e.g., you); some provide reports and analysis of the markets (including economic calendars). Some of them can also provide a complete white-label branded TV feed, like Dukascopy Bank via its Dukascopy TV.
And as highlighted and emphasized before, will they provide me an Fx Community? Will they make demo contests for my clients’ engagement and participation? Will they provide articles and interviews focused on partnerships and aspects of the business of interest to my clients. It should be important to any broker that their provider helps them in a direct and comprehensive manner with marketing materials, making the broker feel that he is not alone, that he is in a real partnership. And lastly will the provider be a COMPETITOR or a true partner?
There are certainly some other factors to consider too, but this article encompasses my long-time experience and the factors I consider to be the most important and critical. Remember: a white-label partner is—as I have analogized in recent articles—like a marriage in which divorce is NOT an option. Therefore: Take the time needed to search properly and find the right partner, right from the beginning.
Please respond with which parts of this article you find most useful and raise any unanswered questions that come to your mind.