This year has most certainly been an eventful one for social trading platform providers, especially those who commenced their businesses and built up a global client base by ensconsing themselves well and truly within the remit of the sales model of retail FX brokers using the MetaTrader 4 platform.
Historically, social and copy trading were spearheaded by a handful of companies which provided users of the MetaTrader 4 platform with a means of selecting signals set by other traders within a social trading network, and indeed fully automating the system in order that trades can be executed automatically.
Brokers viewed this as a valuable partnership, as it increased the lifetime value of novice traders without the expense and difficulty of excessive contact by telephone, and it provided firms such as Tradency and ZuluTrade with a steady and ever-increasing source of income, often on a revenue share basis.
Technological developments in this field have been driven by two factors. Firstly, the need to accommodate the increasingly knowledgable retail trader, who now requires a direct market access trading platform, as well as the proliferation of new platforms having entered the market, but also in part by MetaQuotes’ somewhat sudden baring of its teeth to four major social trading platform companies earlier this year, in which the firm accused certain companies of hacking the MetaTrader 4 protocol, in turn causing social trading platform providers to expand their horizons by looking towards more flexible solutions.
One of these firms was ZuluTrade, a stalwart of the social trading sector, and whose CEO and founder Leon Yohai is an industry veteran with whom all industry participants are able to interact as he represents the Autotrading section within Forex Magnates Meet The Experts forum.
In this week’s Forex Magnates Executive Interview, Mr. Yohai reflects on the establishment of what has become a crucial niche within the FX industry, and discusses the modernization which it is currently undergoing in order to broaden its coverage in an ever-changing environment.
Please detail your professional background, and what led you to your senior position at ZuluTrade.
I was an entrepreneur during the telecommunications boom era, co-founder of INTQ:LSE, co-founder of the Greek version of Ebay which is called emarket.gr, as well as the founder of Qmobile Inc, a premium text messaging service in the US.
I was trading FX with FXCM and I had the idea to autotrade different strategies back in 2005, via an API and not via an EA! I met Drew Niv from FXCM and explained the idea, and he really liked it. I then built a simple software which connected with FXCM’s API to copy strategies found on the web for my personal interest. I became an IB of FXCM, and some friends loved the idea and opened accounts to FXCM to do the same using my software. It soon became a beta service in 2008.
Upon assuming your post as CEO, what did you initially seek to achieve and how did you set about achieving it?
I wanted to bring good traders, and good execution. APIs were not as powerful as they are now, so we had to wait until technology was ready, in order for them to accept our business model.
As one of the pioneering companies within the social and copy trading segment, how does today’s operational landscape compare to the inaugural stages of the firm, and what adaptations have been made in order to move with the times?
Well, we now have over 120 people, 40 people for customer support which operates 24 hours, 7 days per week, covering 15 languages. Also included in this is a compliance desk, and a server farm way bigger than I ever thought it could be. I started the company in the living room of my home in Virginia with only 1 developer who was actually my roommate.
As social trading and copy trading platforms have become de rigeur as a tool for retail FX brokers to attract more new clients, and increase trading volume from that target market, do you think that regulatory authorities will begin to consider the signal provider that users can copy, as a financial adviser and therefore, require all signal providers to be regulated as financial advisers?
ESMA in Europe considers those services as asset management, when the customer copies a trade in real time. We applied for such a license a year ago and we are now in the final stage, where we expect to get it in the next month or so. Signal providers will not need registration since our license is intended to cover all those requirements.
Do you think trading platforms with built-in social trading facilities such as Tradesmarter’s Strategix Binary Options platform have a future?
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I believe in a community that rewards the original traders for their contribution via a commission.
Over the last few years, an entire copy trading and social trading ecosystem has been built around brokers who use MetaTrader 4. Earlier in the year, when MetaQuotes issued a warning to brokers against using social trading providers Tradency was the first to terminate any relationship with MetaQuotes whereas ZuluTrade and three of its peers retained a relationship due to the popularity of MetaTrader 4. Now with Alpari having replaced the ZuluTrade platform with MetaQuotes Signals, and HotForex also looking elsewhere, do you consider this a victory for MetaQuotes’ percieved bully-boy tactics?
The brokers you’ve mentioned lost new accounts that now are distributed to the rest of the ZuluTrade ecosystem. ZuluTrade’s demand is the same. All new accounts will go to the rest of the registered brokers with our platform. MetaQuotes is forcing brokers to stop working with ZuluTrade and another 100 services to limit competition.
The social trading industry (Zulu + all social platforms) have introduced close to 1 billion US dollars in new deposits to brokers. Brokers who will satisfy MetaQuotes, will lose business in the long run.
Does ZuluTrade plan to concentrate on providing bespoke integrations with other platform providers and brokers, with their own in-house platforms in order to offer social trading as an integral part of a platform? Do you think that social trading and copy trading platforms will become more platform and broker-agnostic in future, and do you think there will be a time when traders can select a social or copy trading platform and execute orders from that, without the need for the actual broker platform?
In reality the user logs in to the ZuluTrade terminal, without having to login to broker’s platform. Therefore the customer trades from the ZuluTrade terminal since all of the trader’s info is there, including performance and other criteria, but integration with the broker’s main liquidity module is essential one way or another!
How do you think newcomers such as iSTRAT from TickCOM will enhance the social trading and copy trading segment? Is there a valuable difference between these automated strategies or is it similar to the existing firms?
I’m afraid that I haven’t looked deep in those platforms, but from their website info, they provide software to brokers and not a service, just like MT4. The brokers bundled the MT4 offering as a service. The difference with ZuluTrade is that it’s a service that works for a broker from day one, bringing new customers to each one of the brokers. The broker doesn’t have to invest time or effort. The MT4 needs ad spending to bring customers to brokers. With Zulu the broker does not invest any advertising, because the customers are brought by us! MetaQuotes provides the platform. We provide customers and the platform to a broker!
Is Japan a major source of revenue for the company, and does ZuluTrade have interests in other parts of Asia?
Yes it’s big part, and ZuluTrade group owns a Japanese investment advisory firm with the FSA.
How can ZuluTrade attract different distribution channels other than operating on a revenue share basis? Does ZuluTrade plan to partner with service providers and institutional firms such as Sucden or LMAX in order that their broker partners can receive ZuluTrade via the liquidity or service provider?
It’s an option.
In terms of cost model, many retail brokers operate within the STP marketplace where spreads are low, and clients drive a very hard bargain in terms of the cost of closing trades. How will ZuluTrade be capitalized in future to ensure that there is still enough margin to pay for the platform, and give the broker a profit without spread or external commissions increasing. With MetaTrader 4/retail broker partnerships, copy trading platform companies could charge 1 pip above standard rate for a dealing-desk based solution. How does ZuluTrade make a profit in today’s environmnet if spreads are so low and commissions cannot be increased?
Any customer that wants to follow a plain vanilla investment strategy would pay 20-30% fees on profits and a 2% management fee on a traditional basis. So everyone expects to pay something extra. Most brokers have 2 pips spread in the EUR/USD. With an extra pip on top, Zulu gets compensated and our traders as well. And honestly I have never received a complaint by a customer for this extra pip. Remember that all results on the follower’s performance page, include the spread!
What is the corporate plan for the immediate future?
Continue to penetrate Asia, more instruments, more brokers, and most sophisticated tools (for what we are known) to identify when a strategy loses its mojo! This way, the customer feels protected, and then it’s when we feel that we offer a valuable service to our customers.