Over recent years, FX companies wishing to increase their share of retail clients who perhaps are new to FX trading, or indeed, generate an environment whereby more seasoned traders can come together and share their techniques, have directed their sights toward building relationships with social and copy trading platform providers, in order to leverage the community-based trading environment, to increase volumes and lifetime values of clients.
The entire structure has so far enjoyed a degree of success, and an entire copy trading ecosystem came about, built around retail brokers using the MetaTrader 4 platform. Today, the entire social and copy trading segment of the business is evolving in order to provide an array of new platforms with social trading facilities, including one such company, Tradency, having sought to distribute its platform via institutional firms.
In this week’s Forex Magnates Executive Interview, Tradency’s CEO, Lior Nabat discusses the current landscape of the social and copy trading sector, and where it is destined in the near future.
Please detail your professional background, and what led you to your senior position at Tradency.
I’m a hi-tech veteran who co-founded Tradency in early 2005. Following my long career in the technology arena, I became interested in the financial industry, specifically, the foreign exchange market. I found the high liquidity, round-the-clock nature of the business and high level of the technology in this field, exciting and fascinating. With the help of my partners, we have developed an automated Forex trading software solution, involving signal providers, and originated the Mirror Trading concept & trading platform.
I have an extensive technological background, derived from various hi-tech companies, some in the telecommunications field, and currently as an entrepreneur in the financial technology industry. In terms of academic qualifications, I hold a degree in mathematics and computer science.
Upon assuming your post as CEO, what did you initially seek to achieve and how did you set about achieving it?
First and foremost, I was interested in building a solid, steady, long-lasting company that is based more on organic growth and less on fund raising. The development in the on-line trading world, and the emergence of new technological capabilities, enabled my partners and me to provide retail traders better tools to trade with. These tools provide opportunities, that in the past were available only for institutional traders, and now have become available to everyone.
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?
First of all, there is an inherent tension between real financial advisory services and social media recommendations (as with social networks). Today’s technology has created a new specie that is not solid established financial advice, nor unrestrained financial social trading, but a mix breed. To meet the challenges of this specie requires a new set of regulations and protocols.
Since Mirror Trading is becoming a mass market phenomenon, there is a real need for new suitable regulations. We at Tradency welcome the involvement of global regulators, and welcome any opportunity to cooperate with regulators (as we have been doing during the last couple of years). We see the new regulation as a joint interest for the regulators, Tradency, brokers and traders, and we also see it as an obvious evolutionary step in our evolvement from a niche product, into a mass market service.
If this occurs, how will Tradency mitigate downtime, and ensure that volumes are continuing whilst signal providers apply for regulatory licenses, which take time? This would also mean that the existing signal providers, to whom traders are accustomed, would potentially be replaced and Know Your Client/Anti Money Laundering procedures would have to be conducted with clients wishing to copy trades. Do you think this would damage the social trading sector long term, or make it more sustainable?
What you mention above are only growing pains. We are already in the midst of an implementation process to accommodate new regulatory demands. So, even in the unlikely event of an immediate aggressive move by the regulators, we are prepared. As we work in cooperation with regulators all over the world, we make sure to build on-going infrastructures that will answer to each local regulator’s demands. Looking at other markets, we believe that the steps you are talking about are important and positive, and will surely increase our market’s sustainability.
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, one of which was Tradency, Tradency was the first to terminate any relationship with MetaQuotes. How has this move worked out so far, as the others, have gained market share previously occupied by Tradency?
Tradency is a pure technology company. We work in complete cooperation with world leading backend suppliers. Let me be clear, Tradency has never forced itself on any other company or organization, on the contrary, we are facing an overwhelming demand for new cooperation.
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As soon as MT4 announced that they do not wish to cooperate with us, we immediately ceased all operation with them. This unequivocal business move created some inconveniences with some of our brokers using their services, but on the other hand, a massive wave of new cooperation requests has been washing us ever since, and we are already in the implementation process with many of them.
Does Tradency 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 further open functionality advantages, such as the recent partnership with X Financial Solutions to integrate X Open Hub indicate Tradency’s move toward customizable solutions?
Tradency has done that numerous times in the past. This ability is one of our core technological advantages. Lately, as the demand for Mirror Trader grows globally, we are experiencing acceleration in 3rd party integration with us. We integrated with FXCM backend several years ago, and work with them globally.
Two years ago, the integrated solution we developed with Currenex, became very popular in the Japanese market. We also integrated with 3A in Japan, ACT globally, and lately with X Financial Solutions, CFH, and several more are currently in development.
We also did numerous integrations with proprietary broker systems as part of our service offering. Actually, during the years of our activity we worked with tens of brokers, and as we don’t have our backend, we integrated with each of them (while some use the same 3rd party backend).
In July, Tradency announced that Japanese usage of Mirror Trader has grown 100% over the past year. Is Japan a major source of revenue for the company, and does Tradency have interests in other parts of Asia?
Tradency is an international company. In our early years, we focused mainly on the USA and Europe, and through the years, in accordance with the Forex world trend, we’ve become active and popular in Japan, Asia, Australia and other Forex markets. Since 2009, the Japanese market surpassed all global markets combined, and is still growing, we are honored and blessed to be the solution of choice for leading Japanese brokers.
We have reached a record-breaking 160,000 live MIRROR TRADER accounts as of H1 2013. More than 100% growth within a year! A big part of our success can be associated with the Japanese market.
Please elaborate on Tradency’s foray into the institutional FX sector. Do you view this as a cost-effective and efficient distribution channel for Mirror Trader, whereby institutional firms providing services to brokers can distribute Mirror Trader, thus saving marketing and sales budget within Tradency, as per the recent partnership with CFH Clearing?
The retail Forex market has recently grown in very impressive dimensions. Top tier players that up until now were focused only on the institutional market, now see the business potential of growing activity in the retail market segment. The Mirror Trader is the perfect gateway for these giants to foray into retail. CFH recently issued a press release on the cooperation with Mirror Trader, and there are more cooperations in process.
In terms of cost model, Tradency is entering an institutional STP marketplace where spreads are low, and clients drive a very hard bargain in terms of cost of closing trades. How will Mirror Trader be capitalized in such circumstances? With MetaTrader 4/retail broker partnerships, copy trading platform companies could charge 1 pip above standard rate for a dealing-desk based solution. How will Mirror Trader make a profit, if spreads are so low and commissions cannot be increased?
We are maintaining our business model and we are not turning institutional. What we do, is enable the institutional players to enter the market and take part in these spheres, this being a core part of our added value.
What is the corporate plan for the immediate future?
Our immediate plans for the future are to continue and widen our position as mass market solution, and to establish global dominance of Mirror Trading. We intend to do this by utilizing out top-notch R&D abilities, new regulations and cooperation with many more global players. I strongly believe that the core principles of Mirror Trading can be seemingly implemented with additional assets, or as we say, “same principals suits all”.
The Mirror Trader trade-by-knowledge approach to trading, eliminates common trading errors resulting from human nature (when to enter or exit a trade, identifying trend, choosing symbol). Therefore, the advantages of Mirror Trading for the trader, availability, knowledge and confidence, can be successfully implemented with additional financial segments over a variety of asset classes.