Third-Party vs Proprietary Trading Tech: What Is the Trend in 2022?

Technology is at the core of the electronic trading business. Competent trading technologies are a must for running these businesses. This trend even spawned a new breed of industry, trading technology providers and third-party platforms offering technology solutions to brokers and other trading companies.

Out of many tech needs, the one that most attracts attention is the offered trading platform . It is the one traders use every day to execute the trades. Some of the popular third-party trading platform providers are MetaQuotes, which offers the widely used MetaTrader4 and MetaTrader5 platforms; Spotware Systems, offering cTrader; and Devexperts, which provides DXtrade.

MetaTrader 4 or popularly known as MT4 is a top trading platform when it comes to forex trading. Its support for automation and plugins, backed by a wide community, made it very popular among traders.

“Vendor products, such as MetaTrader and cTrader, are pretty well-known to many traders and make it easier for them to start cooperating with a broker,” Kiryl Kirychenka, the Product Manager at RoboMarkets, explained to Finance Magnates.

However, brokers always have the option to build proprietary trading platforms too. IG, CMC, Plus500 and several other big names in the trading industry are offering proprietary trading solutions to their client base. Many of them are even offering both third-party trading platforms along with their proprietary solutions.

However, building proprietary technologies need massive resources. It needs a development team, time and, of course, investment capital: the factors that do not go in favor of small brokerage platforms.

Also, starting with the development of a trading platform makes less sense as marketing products and getting clients on-board always remains the priority of brokerages.

“Cost and expertise,” are the two areas where third-party trading platform providers excel, Devexperts’ Vice President of OTC Platforms, Jon Light pointed out.

“Unless you are already a very large broker, it would not be economical to build out a propriety platform,” Light added.

Additionally, brokers agree on these factors. Kirychenka of Robomarkes, a broker that offers both third-party and proprietary trading platforms, said: “[Third-party platforms are] convenient because many partners and IBs are already advertising their ecosystems within the very same MetaTrader. Sales teams also clearly understand what MetaTrader is, and they know how to sell it.”

Limits of Third-Party Platforms

Despite the many advantages, third-party platforms have shortcomings too. They mainly target the entire industry, meaning there is very limited space for customization.

“Generally you are stuck with what you get in terms of functionality, you are not in control of your own destiny. You can’t move easily into new business areas, and you can’t move quickly to client demands. They mostly can’t be customized or changed,” Light said.

Indeed, popular third-party trading usually sells licenses with their set features. They only add features with the release of iterations, which often take months or even years. Though many of these limitations can be overcome with plugins, some cannot be bypassed.

Further, a few of the new technology providers in the space are providing highly-customizable white-label trading solutions to brokers.

“Third-party platforms are more focused on the development of the existing product, and they are not too interested in developing new products and niche solutions,” Robomarket’s Kirychenka said. “Proprietary products are winning here because they help users to be more flexible over market challenges. Another advantage is that proprietary solutions can be developed and improved much faster and offer more opportunities.”

The Shift to Proprietary Tech

For a new or small broker, offerings with third-party technology are best. It can save both time and money. However, when the struggling period is passed and scaling becomes a priority, investing in proprietary technology seems to be a better option.

“If a broker wants to grow and expand quickly, it has to offer products and solutions that everyone in the market already has,” Kirychenka added. “At some point in the company's growth and expansion, a broker finds itself in a deadlock – it wants to create something new and runs into difficulties due to the inability of implementing new ideas into third-party platforms.”

However, a handful of small brokers are breaking this norm of the synonymous nature of proprietary technology and big brokers. Zenfinex, a forex and CFDs broker headquartered in London and now expanding internationally, is investing heavily in in-house technologies.

“While MetaTrader is still the most popular platform in the industry, we believe investment into our own technology stack not only adds value to the group, it also allows us to drive our longer-term vision with a bit more control of our destiny reducing the reliance on external vendors,” Zenfinex’s Founder, Nick Cooke told Finance Magnates earlier.

Innovations and Trends

Technology is changing, and so does the finance and trading industry. Demand for retail trading has skyrocketed in recent years and boosted mobile trading significantly. Another area where the industry is growing is robo-advising for building investment portfolios, providing recommendations, and more enhanced trading.

Further, the integration of blockchain and trading in the metaverse could explode in the near future, which might bring drastic changes in the trading technology space.

“I believe many brokers will continue expanding the lists of available instruments, add stocks, and offer clients to trade them. Among other trends in 2022, I would also name the focus on mobile trading and the development of social technologies in the industry,” Kirychenka said.

Overall, the demand for third-party trading platforms will continue to be high, mostly because of the cost and ease of deployment. However, big brokers and even some oddball small ones will continue to invest in proprietary technologies to get more control over their offerings.