5 Challenges Retail Brokers Are Dealing With and How to Solve Them

Brokers have a range of issues to grapple with in order to be successful.

This article was written by Adinah Brown from Leverate 

I’ll take that word “challenge” in the title of this article and trade it for the word ‘transitions’. Yes, undoubtedly there are numerous challenges facing the financial trading industry at the moment, but the critical issue is to utilize those challenges to ideally grow through them.

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To do that, a broker needs to do more than just jump the hurdles presented by more stringent regulation standards, marketing restrictions and more aggressive competition. Instead, brokers need to transition themselves and entirely re-orientate their thinking and attitude, to a level that goes beyond their operational framework, but deeper into the broker’s fundamental DNA.

In the inability or refusal to transition, the broker will increasingly find itself being pushed with its back against the wall as it continues to attempt subverting the ongoing industry trends. In contrast, a wide scale transition that runs deep into the broker’s DNA will align the broker with the current regulation and financial climate, where qualitative regulation developments will continue to serve the broker’s interests as it matures the industry and its perceived reputation.

Within the scope of this article we define each of those points of transition, the current dynamics and how they will each respectively need to change.


In 2015 when the European Securities and Markets Authority, ESMA, released MIFID II, a debated and revised version that was to set the standards by which financial instruments were to be traded in the European market, they instigated a domino effect by which regulatory bodies across Europe were in hot pursuit to fall in line.

As Denmark, Netherlands, France, Belgium and Cyprus consecutively emerged with a new set of financial trading regulation standards, each faced a delicate balance of safeguarding investor protection whilst ensuring the operational viability of businesses under its regulation.

The agenda behind much of the regulation changes was therefore targeted at consumer protection and not curtailing the industry. Incorporating tied agent measures for example, rather than entirely prohibiting the use of IB’s and affiliates, a major life source for the industry.

For a broker that does use aggressive marketing and sales techniques, promotes itself through exorbitant bonuses and exponentially high leverage ratios, these changes in regulation, certainly did mark the beginning of the end. With these techniques no longer available, the parameters of operation are far more restrictive in attracting new clients to your brand. The feat to stay afloat becomes nearly impossible as the broker is still trying to compete in an industry that is characterized by extremely expensive licensing and CPA costs.

No matter how severe this wave of regulation is perceived by brokers, the reality is if a broker sees it as something that needs to be ‘survived’, the answer is already clear, it won’t survive it. The wave of regulation with its objective of making the market cleaner, needs to be perceived as an operational guide.

To achieve success in this new climate brokers need to re-orient and perceive themselves more as investment firms that aim to serve the interests of their clients. The enhancement of regulation requirements means that brokers need to re-structure their current legal financial setup.

For example, regulations now require that a broker operating in one jurisdiction is responsible for its brand operating in another jurisdiction. So for example, a broker in Belize who has the authority to provide portfolio management, cannot provide an advisory service, even if it has the authority to do so in Cyprus.

The co-ordinated effort of international regulators now exists to the point where if a broker’s brand has been in contravention of regulation in Belize, unlike before, it will directly affect the broker’s regulation status in Cyprus. In the previous structure it was possible for a non EU Money Maker to serve as a liquidity provider for a straight through processing broker. Set-ups such as this are no longer viable.

Undoubtedly at the back of every broker’s mind, is the real possibility of the market being heavily regulated to the point of virtual closure, as happened with binary options. However, the financial industry needs to utilize regulation to not just survive, but blossom to its full potential. Many have already started.


The operational domain most significantly targeted by the wave of regulation stringency has been marketing and sales. Although standards vary from one regulation authority to the next, in Poland a CFD broker is required to disclose the performance ratios of their clients, while in France, Holland and Belgium marketing retail forex trading is banned altogether. In Spain, as in many other jurisdictions, all advertisements need to be accompanied with a warning statement advising of inherent risks.

Adding to the complexity of the situation, the decision to incorporate affiliates in a broker’s acquisition plan, now enhance the responsibility to ensure that affiliates are fully compliant with regulations. While it’s all very well for the regulators to monitor the operation of brokers, it is often the affiliates who utilize many of the sales and marketing techniques that the regulators are trying to curtail.

To address this, regulators are now demanding that affiliates operate as tied agents who besides being monitored by the brokers they represent, regulators will also have the ability to monitor them.

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Yet, even outside the regulatory framework, the cost of CPA can easily run a broker into a deficit. A heavy dependence on affiliates contributes to a CPA cost of around $600 to $700. While a broker who chooses to go through paid Google advertising is not going to fare much better, with keywords related to the forex industry priced into the thousands of dollars per click.

On top of this, the broker’s operational and administrative costs will bring the total CPA to around $1,100 per client. Once a client starts to trade, over the course of their life time, a broker will on average generate revenue of $1,500. While this entails a $400 profit, even this amount is impacted by the trader’s P&L, entailing that even though a profit has been made on paper, in actuality the broker’s cash flow could be far less than this, and potentially in the red.

With this being the standard scenario, brokers are under significant pressure to improve their profit margins in order to ensure their ongoing viability. The solution, is to be found in a refocus from being a glorified call center that happens to deal in foreign exchange trading, to an active and contributing member in the wider financial trading industry.

In order to achieve this, brokers need to develop active internal media networks and establish automated marketing funnels, a combination which will work to not only reduce costs but also ensure full adherence to regulations. An internal media network involves gaining traction and awareness of your position as a thought leader in the industry. While, an automated marketing funnel involves maximizing the use of available technology to increase conversion, whilst also increase the trader’s lifetime value.

Knowledge and Financial Expertise

In the objective towards developing your internal media network, it’s not enough just to know what you know, you have to show that you know it. In this current climate, it is no longer possible to just sell products by enticing clients through your door with slogans that promise to make them millions.

Stringent regulations and the need to differentiate your brokerage demand that brokers must have substantial knowledge of the financial markets and in order to succeed, demonstrate themselves as trusted and professional thought leaders.

This involves a transition where the focus of marketing efforts is not about the sales pitch, but about letting your achievements speak for you. Demonstrate your financial knowledge and proven ability to work the markets whilst teaching and coaching your traders about online trading.

Initiate quality learning exchanges via webinars, e-books, articles and videos about what real financial trading is. What are real assets? How does it work when it’s coming from an exchange, or not an exchange?

This is a significant jump away from the earlier norm, where the expectation was to turn clients into trading junkies, where in a spiral of events, traders would be offered a money manager, astronomical leverages and bonuses that would compound risk. Not all too surprisingly, these clients were drained of funds extremely quickly.

This transition to using knowledge as a resource is about turning your traders into professional investors who are equipped with real trading information and are authentically positioned to succeed.


In order for brokers to stay competitive whilst fully compliant within the strictures of regulatory guidelines, they need to transition away from the manual and resource-consuming efforts of operation and service and move into technology.

As it stands, most brokers possess technology that is merely limited to facilitate trading. Moving forwards, brokers will need to be aware of what technology is out there and know how they can take full advantage of it in order to thrive.

Innovative trading technology is in continuous development and refinement.

The transition from service into technology has implications for the operational set up of the brokerage. A broker’s human resource personnel is no longer going to be made up of a sales and retention team, but will necessitate a proficient technology oriented team, who are skilled in their ability to implement these technology tools and ensure their smooth operation for the trader.

Yet, this difference in operation of the brokerage, is simply symptomatic of the underlying transition that needs to take place in the broker’s DNA.


A broker’s ability to succeed in the current financial trading era will come down to the predisposition of its DNA. If you want to create a professional soccer team, it won’t be sufficient that the players you are trialling know how to kick and catch a ball, or for that matter are good basketball players.

As a coach, you’ll be wanting to make sure that the players you select have the ideal DNA that predisposes them to playing soccer. Simply put, whether a brokerage will succeed in this new era depends, at the most nascent point of conceptual focus “Are you an investment trading brokerage that seeks to provide a quality service?” or “Are you looking to make money fast, through whatever means possible?”. Every process that you implement in the operation of your brokerage will be an outgrowth of this early mentality.

It’s no longer a mindset of a win/lose game theory, where the broker has to win to the trader’s disadvantage. Now, you’re an investment company, where you are oriented towards regulation, finance, education and technology. Now, your success builds on your credibility and prowess.

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