Swiss forex bank and brokerage firm Dukascopy will venture into wealth management business by pooling its managed clients’ funds to stream liquidity on its SWFX marketplace.
Dukascopy Bank’s new service will add a complementary capacity that helps enhance the internalization of customer orders, which leaves less trading to be done with external dealers.
Dukascopy seeks to introduce a new assets management model, and it seems already has potential clients lined up. The client can invest as low as $1000, and once he grants the management mandate to Dukascopy Bank, the company will handle the entire process.
Specifically, the business structure allows investors earn income through acting as a liquidity provider similar to institutional market participants on the SWFX network.
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The company further explains: “Based on its own technology, Dukascopy will automatically match sell trades of investors with buy trades of other clients, at [the] same Ask price, and will match their buy trades with sell transactions of other clients, at [the] same Bid price. Due to the high frequency of trades in the network, liquidity providers are able to capture half of the spread on their trading volume.”
Traders creating their liquidly
Despite its name, Dukascopy bank derives most of its income from its online trading platforms for FX traders and others rather than traditional banking. The company, however, is banking on its investment management and advisory expertise to grow, diversify revenue and cut over-reliance on the brokerage business.
This approach, however, may have much to commend it given all the inherent risks to the liquidity provider’s business where they get market exposure, and thus their funds are subject to fluctuations caused by market volatility.
As such, Dukascopy allows participants to use the same risk management tools available to retail traders, including setting a stop-loss level on their account which would automatically liquidate all open positions at certain drawdown conditions.
One of the reasons why clients might welcome this is that Dukascopy may return commissions charged for its services under certain conditions. To qualify for fee compensation, the client must keep its investment for one year, without withdrawing any funds. Secondly, the client must get an overall negative performance over the 260 active trading days period.