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ThinkLiquidity’s Jeff Wilkins on Liquidity: Only the Strong Survive

by Jeff Patterson
  • Forex Magnates reached out to Jeff Wilkins, Managing Director at ThinkLiquidity for his perspective on the ongoing drought of liquidity.
ThinkLiquidity’s Jeff Wilkins on Liquidity: Only the Strong Survive
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Jeff Wilkins

Forex Magnates reached out to Jeff Wilkins, Managing Director at ThinkLiquidity, for his perspective on one of the most destabilizing and crucial realities in today’s FX market, the ongoing drought of Liquidity .

Firms across the world are employing a number of tactics to mitigate the challenges created by the current lack of volatility. For many, this involves questioning their existing practices, cutting costs, and chasing other short term fixes to maintain profitability.

According to Mr. Wilkins, “There are myriad things driving the lack of volatility. But regardless of the causes, the lack of volatility is squeezing revenues and if this environment continues only the strongest firms will survive. When market conditions do rebound, the firms that were able to weather the storm will come out of this like a slingshot. Those that were not will have already been forced to close or sell at a steep discount.”

Furthermore, “When volatility returns to even normal levels, companies will see revenue increase 30-40% immediately. But only the firms still around at the time of this rebound will be able to reap the benefits,” he added. His full-length interview can be read below.

1. Do you foresee the present volatility drought and tranquil markets leading to widespread broker attrition, with a few players emerging out of this quagmire?

The thing that differentiates the big players from other brokers throughout the world is the strength of their balance sheets. Companies with the strong balance sheets are more able to withstand reductions in revenue and volume. If necessary, they have the free capital to operate for an extended period of time even while incurring losses. Some of the smaller players, however, cannot survive more than a month or two of losses before a serious threat is posed to the viability of their business.

While market conditions have affected nearly every firm, the street can only see results with clarity for the large public entities because they have the benefit of being able to review publicly available financial information. Ultimately, the firms doing the best are the ones who have better adapted via a Risk Management standpoint and who prepared for potential market downturns by building capital reserves when times were good. At ThinkLiquidity, we have the benefit of seeing the operations and results of many different firms across the globe. This environment has not been as tough as you would think for many of our customers.

It is also important to note that we are not seeing across the board reductions in volumes from all of the firms we work with. This often depends upon what growth phase the broker is in (new brokers v. established brokers). But even for some established brokers, volumes continue at a level that will allow the firm to be profitable if the revenue generated from that volume is maximized. This requires regular, rigorous review of risk management practices and the ability to make rapid adjustments to shifting market conditions.

Think Liquidity logo

2. Do you see this as something that is hitting more private or public companies, specifically as public companies must post lackluster information?

I don’t think that the lack of volatility is impacting private companies differently than the public ones. But the public companies may be under increased pressure to make changes as their financials are publicly reported and scrutinized by shareholders and analysts. When net revenue, earnings per share, and other financial targets are missed, shareholders want to know what will be done to fix it, and they want to know immediately.

This can place public firms in the position of making short-term decisions to help results (altering risk management practices, modifying partner relationships, etc.) rather than continuing with the long-term strategy that got them to their current strong position in the market.

As a percentage of the overall pool of brokers, the public firms make up a very small portion. At ThinkLiquidity, we have several public brokers as customers and we see them making changes rapidly, some for the better, some for the worse, but we are seeing changes. For the private firms we work with, the lack of outside pressure on decision making has in many cases allowed them to stick to their long-term plans. But, as mentioned earlier, a lack of financial reserves can place smaller private firms in the same position as the large ones by forcing them into making decisions based on short-term results alone.

3. Can you describe some of these changes, are they personnel moves, restructuring, etc.?

When revenues are decreasing, firms often look first to cost cutting measures protect net income. This often includes personnel moves as employee compensation is the largest expense item for most firms. But changes are not limited to the expense side. Firms may also adjust risk management practices to try to earn more from the flow they do have. Depending on the firm, this can result in taking on too little or too much risk if not done correctly.

Another thing we are seeing is that companies are starting to look at IB and partnership numbers and making changes to the commercial structure of the relationships. These changes may not be the best for the long-term relationship, but can help in the short-term by reducing the overall fees paid by the firms. It is also worth mentioning the fact that IBs have had a feeding frenzy in recent years with the explosive growth in the number of brokers. Deals that were written for IBs over the last couple years may not make financial sense anymore.

We are seeing restructuring from firms of all sizes, but because of the limited number of firms that release public data, it can be difficult to identify overall trends in the changes being made if you don’t have our unique vantage point. For the firms we work with, we often focus on identifying the revenue opportunities that exist already, but are not being maximized. Proper risk management strategies can often lead to improved financial results, without needing to make cuts to staff or make drastic changes to the long-term strategy of the firm.

ThinkLiquidity

4. Has lower volatility hurt or helped ThinkLiquidity?

The lack of volatility has been great for our business. Brokers really start to question their risk management practices in environments like this. I have had CEOs from every corner of our industry calling me for meetings and consultations. There is no better time than now to conduct a thorough overhaul of risk management teams and strategies.

Jeff Wilkins

Forex Magnates reached out to Jeff Wilkins, Managing Director at ThinkLiquidity, for his perspective on one of the most destabilizing and crucial realities in today’s FX market, the ongoing drought of Liquidity .

Firms across the world are employing a number of tactics to mitigate the challenges created by the current lack of volatility. For many, this involves questioning their existing practices, cutting costs, and chasing other short term fixes to maintain profitability.

According to Mr. Wilkins, “There are myriad things driving the lack of volatility. But regardless of the causes, the lack of volatility is squeezing revenues and if this environment continues only the strongest firms will survive. When market conditions do rebound, the firms that were able to weather the storm will come out of this like a slingshot. Those that were not will have already been forced to close or sell at a steep discount.”

Furthermore, “When volatility returns to even normal levels, companies will see revenue increase 30-40% immediately. But only the firms still around at the time of this rebound will be able to reap the benefits,” he added. His full-length interview can be read below.

1. Do you foresee the present volatility drought and tranquil markets leading to widespread broker attrition, with a few players emerging out of this quagmire?

The thing that differentiates the big players from other brokers throughout the world is the strength of their balance sheets. Companies with the strong balance sheets are more able to withstand reductions in revenue and volume. If necessary, they have the free capital to operate for an extended period of time even while incurring losses. Some of the smaller players, however, cannot survive more than a month or two of losses before a serious threat is posed to the viability of their business.

While market conditions have affected nearly every firm, the street can only see results with clarity for the large public entities because they have the benefit of being able to review publicly available financial information. Ultimately, the firms doing the best are the ones who have better adapted via a Risk Management standpoint and who prepared for potential market downturns by building capital reserves when times were good. At ThinkLiquidity, we have the benefit of seeing the operations and results of many different firms across the globe. This environment has not been as tough as you would think for many of our customers.

It is also important to note that we are not seeing across the board reductions in volumes from all of the firms we work with. This often depends upon what growth phase the broker is in (new brokers v. established brokers). But even for some established brokers, volumes continue at a level that will allow the firm to be profitable if the revenue generated from that volume is maximized. This requires regular, rigorous review of risk management practices and the ability to make rapid adjustments to shifting market conditions.

Think Liquidity logo

2. Do you see this as something that is hitting more private or public companies, specifically as public companies must post lackluster information?

I don’t think that the lack of volatility is impacting private companies differently than the public ones. But the public companies may be under increased pressure to make changes as their financials are publicly reported and scrutinized by shareholders and analysts. When net revenue, earnings per share, and other financial targets are missed, shareholders want to know what will be done to fix it, and they want to know immediately.

This can place public firms in the position of making short-term decisions to help results (altering risk management practices, modifying partner relationships, etc.) rather than continuing with the long-term strategy that got them to their current strong position in the market.

As a percentage of the overall pool of brokers, the public firms make up a very small portion. At ThinkLiquidity, we have several public brokers as customers and we see them making changes rapidly, some for the better, some for the worse, but we are seeing changes. For the private firms we work with, the lack of outside pressure on decision making has in many cases allowed them to stick to their long-term plans. But, as mentioned earlier, a lack of financial reserves can place smaller private firms in the same position as the large ones by forcing them into making decisions based on short-term results alone.

3. Can you describe some of these changes, are they personnel moves, restructuring, etc.?

When revenues are decreasing, firms often look first to cost cutting measures protect net income. This often includes personnel moves as employee compensation is the largest expense item for most firms. But changes are not limited to the expense side. Firms may also adjust risk management practices to try to earn more from the flow they do have. Depending on the firm, this can result in taking on too little or too much risk if not done correctly.

Another thing we are seeing is that companies are starting to look at IB and partnership numbers and making changes to the commercial structure of the relationships. These changes may not be the best for the long-term relationship, but can help in the short-term by reducing the overall fees paid by the firms. It is also worth mentioning the fact that IBs have had a feeding frenzy in recent years with the explosive growth in the number of brokers. Deals that were written for IBs over the last couple years may not make financial sense anymore.

We are seeing restructuring from firms of all sizes, but because of the limited number of firms that release public data, it can be difficult to identify overall trends in the changes being made if you don’t have our unique vantage point. For the firms we work with, we often focus on identifying the revenue opportunities that exist already, but are not being maximized. Proper risk management strategies can often lead to improved financial results, without needing to make cuts to staff or make drastic changes to the long-term strategy of the firm.

ThinkLiquidity

4. Has lower volatility hurt or helped ThinkLiquidity?

The lack of volatility has been great for our business. Brokers really start to question their risk management practices in environments like this. I have had CEOs from every corner of our industry calling me for meetings and consultations. There is no better time than now to conduct a thorough overhaul of risk management teams and strategies.

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