White label partnerships play an important role within the entire FX industry globally, and are omnipresent across all sectors on all continents. Such strategic alliances require careful consideration on the part of the broker and technology partner, with a view to utilizing the white label partner as a means of gaining finely tuned localized distribution channels for their product, thus contributing to effective volume generation.
Indeed, companies wishing to establish themselves as white label partners of FX companies have a set of considerations and parameters from the other perspective, surrounding which broker and technology solution, as well as remuneration model are best suited to the objective that the white label partner wishes to achieve.
There was a time when retail FX brokers viewed introducing brokers (IBs) and strategic partners as vital to their recruitment of new clients. The acquisition budget not spent on media buying could be paid to professionals who have relationships with clients, creating needed efficiencies. Back then, spreads were higher than today, making the cost of IB commission negligible.
In this week’s Forex Magnates Executive Interview, Luis Sanchez, Head of Institutional Sales at Dukascopy Bank provides a detailed overview of caveats and considerations relating to white label partnerships and corporate collaborations.
Today, with spreads down to almost raw, is it still viable to recruit IBs and pay commissions with such narrow margins? Will a time come when the IB will have to charge his own clients a consultancy fee and accept no commission from brokers, making the IB a truly independent introducer of business?
The short, simplified answer to this pair of questions is yes, it is still often viable to recruit IBs and pay commissions; and yes, a time is emerging when some IBs are beginning to charge a commission to their clients. Here is much more detail:
Is it still viable to recruit IBs and pay commissions with such narrow margins?
Ten years ago, the spreads we had in our industry were 5-10 pips; then they were 1-3 pips; and today we have spreads from just 0.1 and up. The broker margin today is much lower than it was before, and the cost of acquiring a new client is rising.
The cost of attaining a collection of leads is increasingly expensive (depending on the quality of the lead). Enhancing profitability today is much more difficult than it was before. Becoming a competitive FX player today requires providing our clients with the best market conditions and very competitive prices.
Taking this into consideration, what margin is left to pay IB’s? Answer: Not much. But still, even the “not much” amount can represent a big part of an IB’s income. The task of finding equilibrium between your income and your expenses (including money going to IBs) as a broker will depend on your business model and on the way that your clients are charged.
It is important, also, to consider that in some countries and cultures, the IB figure personifies or embodies the attributes of trust and loyalty. In such situations, clients confidently follow an IB and his recommendations. This scenario is seen often in Asia.
Regardless of business model or how the client is being charged, the following operating principle for the success of all involved is universally true: “A part of something [with that something made possible thanks to the IB] is better than 100% of nothing.” (In this example, with no IB, we would have no client.). Some IB’s choose to share their own commission with their client(s), allocating compensation and commission that the IB is receiving from the broker and giving that back to the client(s) as an incentive.
A further operating principle that holds up strong globally; that of transparency and ensuring open discussion surrounding how your model involving an IB works.
It is worth openly sharing information about roles, responsibilities, and how everyone is getting paid, be CLEAR. Transparency and avoidance of all conflict-of-interest, and even the perception of conflict-of-interest must be key mantras. Making these principles your own tried-and-true guiding pillars will save you many headaches.
Will a time come when the IB will have to charge his own clients a consultancy fee and accept no commission from brokers, making the IB a truly independent introducer of business?
The time arrived; an accompanying trend is for an IB to self-identify as an “External Service Provider” (ESP) and to charge an extra commission directly to each client for the service he will provide (The client is fully aware of this charge).
It is also important to mention that in some countries, IB’s must register with and be regulated and approved by local authorities. Regulation plays an important role—a supportive role, I contend—leading to better outcomes (than an unregulated environment) for clients, IBs, and brokers. It is always important to know and understand the regulatory environment, rules, and policies in effect in the jurisdiction of the relationships among client, broker, and IB.
North America has experienced a contraction in its number of retail FX firms, and recently there has been a degree of M&A activity, with OANDA buying Currensee and FXCM buying a majority stake in Faros Trading. Do you see this as a diversification away from providing pure retail FX, into other areas, or do you think the companies being bought could be viewed as IBs and therefore FX firms are interested in buying them so that they can access the client acquisition potential that they bring, without having to negotiate otherwise expensive IB arrangements, or put the spread up to compensate?
As a preface to responding to this question, it is important to note that one of the main/driving reasons why brokers acquire such companies is so that they may gain direct access to these companies’ databases of clients, thereby instantly expanding its network of clients and prospects.
It can be valid to suggest that by acquiring a company, the buyer does not have to spend money explicitly on IB compensation. However, a fair and important matter to bear in mind from this perspective would be to consider the total cost of the company, and how much business the buyer/broker needs to now generate from the newly available pool of clients/prospects in order to pay the invoice for that acquisition.
In North America, we face a challenging scenario. Brokers are required to maintain high capital reserves amounting to approximately $20 million; and trading conditions/scenarios include factors such as low leverage and non-hedging in contrast to conditions/scenarios in parts of Europe and other continents.
Only a small percentage of most brokers’ businesses involve USA brands. North America’s share, activity, and role in this market is increasingly small. Therefore, for brokers to maintain operations and marketing costs vis-à-vis North America, in the same way that they were doing it in the past has become nearly impossible. Many brokers/entities have exited (left) this market and/or given up their retail fx license. Examples of such entities are: Advanced Markets, Forex Club, FX Solutions, and recently Alpari from the United States.
In order to consider all aspects surrounding acquisition, big brokers should acquire other companies when it is clear that: (1) such acquisitions will help them to continue their existing core competencies, and (2) the purchase will enable brokers to focus on what they already know and do well. The aim is to avoid losing focus on what has worked well for the acquiring firm, as it scales up.
A successful enterprise does not want to become so distracted with a disproportionate emphasis on client acquisition and new client lead generation that it forgets about the core high-quality work that it does that keeps its existing clients loyal to it, and that therefore organically helps build a growing client base due to currently satisfied customers spreading the word. Currensee and Faros may be interesting situations or real-life example scenarios to understand.
Governmental restrictions placed on western firms wishing to enter the Chinese market have created a sizeble demand for white labels and representative offices being located on the mainland. With the recent establishment of a free trade zone within Shanghai, as well as the national regulator conducting cross-border tests with major international firms, do you think the demand for white labels and representative offices will give way to actual branch offices directly owned by FX firms established in the free trade zone, therefore reducing the cost of paying IB commission and ensuring that control is kept within the company rather than outsourcing it to IBs?
The answer to this question, including whether actual branch offices in the free trade zone directly owned by FX firms will become a widespread reality and a major market force is largely contingent upon what regulations will or will now allow (or restrict), as time moves forward. At this moment, there is no dominating regulation. But we are not sure yet, what the Chinese government will do.
They may be testing the situation. Keeping a close eye on regulation will be of critical importance to anyone who is active in this space (This applies to brokers, white label providers, clients, large fx firms, etc.). With such caution regarding regulation as a preface.
The idea of a broker and/or technology-provider offering a white label partnership is—alongside other solutions—perhaps the most catalytic of action steps that a broker can take to fuel a strong “local” presence and coverage. (For more insights into benefits of this arrangement and cultural cautions, please read a recent article I wrote on this subject).
The cultural side of this consideration is very important. Becoming a broker in the referenced free zone in China may be motivated by several factors, but reducing the cost of the IB is definitely not the strongest reason why a broker will enter.
Instead, consider these factors: The Chinese market is a booming market, the culture there is increasingly favorable toward trading, and the size of the country with more than a billion inhabitants is simply monumental, making it inevitable that more FX traders will open accounts in China.
The Government, by testing this free zone, is providing Chinese traders more opportunities to keep their accounts in-house and to experience several options and choices regarding which brokerage house will best fit these traders’ needs and demands.
With regard to IBs, they will definitely take initiative in approaching brokers in this unparalleled emerging commerce space, and they won’t be shy in launching negotiations toward win-win solutions.
Ultimately, all parties will show some interest in synergies within China and will find the right equation for them. The negotiation and relationship-building processes will prompt new advantages and better conditions for the traders and market participants alike, from white labels to all type of vendors.
White label partners with significant potential value to a broker, such as clients in the APAC region, high trading volumes, or a portfolio manager with high performance and lots of long-term sub-accounts, have a lot of choice of brokers these days. Is it a wise practice to subsidize the implementation of such white labels, such as assist with the platform license fees, back-office integration/website to close the deal; or should partners, regardless of their potential value, pay their own set-up fees and integration so that they have invested their own funds and therefore will commit longer term to the partnership?
In my Peruvian culture we say “shoemaker to the shoe”, meaning one should stick to what one is naturally great at doing. Applied to the context at hand, I would urge that white label partners (the brokers) must focus very intensely and only on what is central to their direct business; as such, they must focus nearly ALL of their energy, strategies, and marketing on activities related to driving and maintaining their core business itself.
In practical terms, this means that the broker definitely must take care himself, of his license, his office, his staff, and of all aspects relating to setting up and up-keeping a company.
On the other hand, providers of white label solutions , such as Dukascopy Bank, Saxo Bank, MT4, among others, must provide entire integrated solutions, including branded platforms, tailor-made reports, compliance with regulators, back- and front-office integration with marketing support, new developments in the pipeline to ensure future and new technology, new trading products, and continually current facilities.
These white label providers can afford to place their attention on these assets of large scale. This also means that white label providers must absorb the cost of maintaining and implementing all of these features and the cost related to the technology itself.
There is no point for an individual broker to acquire a new technology with a high cost to develop or maintain. The broker’s resources must be focused on satisfying clients, and building his business upon a growing base of satisfied clients.
As detailed in my prior articles, a white label/broker relationship can be like a solid marriage in which divorce is simply not a scenario up for consideration. In both cases, trust and commitment coupled with respectful, mutually supportive behavior over time leads to long-term fulfillment among partners.
As a white label partner, Dukascopy Bank offers a complete, tailor-made solution that comes with ALL available present and future solution features. Dukascopy delivers and continually customizes and evolves a tailor-made solution that gives brokers space to focus on their own “matière” (or subject-area expertise).
Since Dukascopy technology is developed in-house with/by a team of 250 IT professional developers with vast know-how, Dukascopy Bank can develop, adapt, create, and customize any solution that its broker clients need now and in the future.
The PAMM account recently passed its fifth year since its inception. Since then, it has been a valuable tool for brokers to use to gain large deposits from IBs. Often, the IB/White Label Partners department within retail FX brokers look to bring on board portfolio managers using a PAMM account due to the large net deposit that comes at one time as a result of the sub-accounts. What is the best way to structure the risk for brokers targeting PAMM accounts, bearing in mind the payment of IB commission on all volume traded, plus the risk of full withdrawal of all funds and therefore commission clawback for the broker’s sales team? Are these portfolios worthwhile, or do they carry too much large-sum withdrawal risk and commission liability?
Let’s start by acknowledging that not very many brokers use the PAMM system. However, a very good, and often overlooked thing about a PAMM system is that it provides a wide range of options and supports a fair environment, with high client security of funds, and fair equity allocation. It is a system that can offer many protections to clients.
ACY Securities Supports ASIC’s Product Intervention OrderGo to article >>
Let’s be practical and ask: when a client signs with a broker to establish a managed account, who is responsible for the performance, who is accountable for the outcome of the equation/results? The money manager or the broker?
In many PAMM solutions, such as that of Dukascopy Bank, the PAMM system provides a secure trading tool. An equity stop-loss is available, and the client can control his own equity protection by simply entering the amount that comfortably aligns with his particular risk management profile (i.e. responsive to the client’s wishes, the PAMM system will close all of his open positions based on his indicated numerical preferences).
By applying this option, the client is fully in control of his account. Empowering each client the ability (if he wants it) to manage his own account is a headache-free option for the broker and for the money manager (as well as for the client who values this freedom). And in general terms, every broker must and should provide the opportunity for each client to control his own account, meaning control his risk management, and propensity toward profits and losses. Such an arrangement and power dynamic supports a fair and transparent environment.
In this scenario, brokers can be accountable in a way that provides clients a FAIR trading environment, where at the end of a winning or a losing trading day for the client, the results stem clearly and cleanly from only the money manager’s performance and from the nature and cadence of the market itself.
In the case of Dukascopy, its PAMM system is developed in-house and comes with a host of protection mechanisms besides stop-loss equity; one example: Master Stop Loss, which at any time, with just the click of a mouse, closes all open positions at market prices and cancels any pending ones and shuts down any TP [“take profit”] or SL [“stop loss”] orders.
The advantage of this: when a client wants to stop all of his account activity, he can do so instantly and by himself. He does not need to have delays or worries that come from calling, identifying oneself over the phone, sending a fax or scan with a signature, etc. Instead, with just a click of a button, all positions are closed, and this person is temporarily removed from the PAMM.
Gradually, more money managers are using this PAMM technology because, in addition to the benefits already described, it provides many tools aligned with trading in a safer environment.
One other important thing to add is that whereas in Asia, the IB represents an important part of the business, and in Latin America, as a further example, money managers have a high-visibility presence.
People in these cultures generally prefer not to do self-trading; they prefer managed accounts; and for that reason, with many Latin American clients and partnerships, having the right PAMM system with all the secure options is a must.
Dukascopy Bank does not pay IB commissions for managed accounts. We do this to avoid any instance of possible conflict of interest.
A common compensation structure for such managed accounts is: the money manager may have its own IB and may pay the IB from his own money manager income. So, basically an IB for managed accounts—and how he is paid—is connected more to the money manager than to the broker.
Once recruited, how can a broker best analyze the cost-effectiveness of a white label? Should there be a cut-off period whereby if the partner does not introduce any more clients for a period of time, they should be terminated and no further commission paid, even on active accounts previously introduced?
Entering into a white label partnership means entering into a long-term relationship, [and as previously referenced] in some ways much like a strong marriage. And much like a strong marriage, this partnership will face both GOOD and BAD times. The idea is that both partners are fully committed to moving forward together at all times, UP and DOWN. Business these days is unpredictable.
The market may or may not be volatile during any particular period, and what it does at any moment depends on many factors. We, as a white label provider, must support our white label partner(s) at all times and make sure we constantly provide them all the support needed. As a white label provider with commitment, we uphold a signature practice of continually providing new and adapted features and strategies to achieve the best results.
At Dukacopy Bank, we provide our white label partners with 24-hour support and anything that is needed on the technology side to help them. Remember: No business to the white label partner (the broker) = no business to the white label provider.” Dukascopy charges no fees at all in implementation, support, or training so the only way Dukascopy makes income is if the white label partners makes income. This is a true white label partnership. Incentives for performance are thus aligned.
In further support of our clients and of the partnership model, the Dukascopy Bank white- label solution is a fully integrated solution that comes along with collateral added values including platforms and back/front offices, as well as white label of Dukascopy TV and Dukascopy Community at zero cost.
Our white label solution also provides marketing collaboration, for example, going together to exhibitions and road shows, bank accounts, custodian solutions, and myriad other forward-thinking features.
Dukascopy partnered with several white labels recently. How has Dukascopy’s experience within these markets been so far?
Dukascopy Bank white label solution is a relatively new solution in the market. While others began 10-15 years ago under very different market dynamics, we began our solution only 3 years ago. The huge upside to this is that our technology is new, and our thinking is current.
We developed our platform with full awareness of the current environment; and our ability to maneuver quickly and to adjust direction (with nuances) to meet market conditions and client needs is superior. Our commercial strategy is to develop different cultural regions by building sustainable partnerships via white label.
For the reasons explained in my previous article that was mentioned, Dukascopy Bank is expanding its white label solutions globally, step by step, addressing a fast and sharp increase in demand. We also announce and release our partners on our web site.
Dukascopy bank is currently under development of new white label partners in/from Europe and Asia. These partners will help us to footprint the Jforex trading technology. These new partners are still in the onboarding process. We anticipate that some new partnership(s) will be live in 2013 and some in early 2014. After launch, we will announce more news and details of each partnership. The possible new partners, representing the majority nurtured during our quarter Q4 are Integral Menkul, Divisa UK, Tradenext, Commexfx, Falcon Brokers, and NSFX in Europe, and BMFN in Australia.
Dukascopy Bank’s model and its widely expanding product recognition (e.g. the technology/solution is so client-friendly and so ‘hot’ in the market) have enabled Dukascopy Bank to create a depth and breadth of new partners and new partner-prospects in a time period of just a single quarter. We expect to continue improving our products and technology and to increase/enhance our partnerships globally.
The retail FX industry has witnessed the arrival of new platforms, and the ancillary services which surround the platforms have developed platform-neutral open solutions. Do you see this as a positive move, despite so many retail traders being used to MetaTrader 4? In this case, do you think brokers with their own platform, supported in-house have a USP over the others?
MetaTrader 4 (MT4) can be considered one of the most common and popular platforms. It is also true that this platform has existed for nearly 15 years; it was one of the first in the fx market. The majority of traders have used an MT4 platform to trade, and they still likely refer to it when they think about fx trading, especially when they want to use EA’s (Expert Advisers). The majority of EA’s are available in MQL language, designed for MT4.
As time and globalization have advanced, traders and trades have also evolved and adapted to new market conditions. Traders have begun having new needs (including desiring new features). Good trading platforms must and will adapt to clients’ needs, and not vice versa. A need for new trading options (i.e. other platforms) has gradually emerged, and in this niche, new companies have started to look at introducing new technology with new concepts and business models.
As such, new platforms arise. These platforms have been emerging through in-house development, with huge investments within and behind technological companies. Some companies have launched their own platforms. Each new platform has been designed to satisfy specific trading needs.
Each platform launch has resulted from an increase in traders with more people trading online and an evolution of the needs of traders. Segmented by institutional and retail areas of focus, each technology company has developed what we call a USP (unique selling point), a strategy on how to enter the market, and a plan for what niche to target.
Put another way: more traders means more platforms, and each platform is developed for a niche or segment of traders – much like we have as an example: iPhone, Samsung, Nokia, etc. Each platform has its own USP.
As a result of all of this, what platforms do we have today in FX? Answer: Several: Jforex, Saxo Bank, Currenex, cTrader, UniTrader, others. Each one has its own advantages and disadvantages.
Today, what is happening is that brokers are offering not only one platform, they are offering multiple platforms to their clients, so at the end of the day, each client can have multiple options of platforms from which to trade.
So Jforex, MT4 and Currenex platforms can be found within the same brokerage house and each one geared or tailored toward a specific client. This is the future, and this breadth of access and choice is done via white label partnerships. Just remember: when you choose which platform to work with, choose an open one; choose one that can adapt to the future and that is not a closed product.
What are the latest new developments at Dukascopy Bank?
Our technology and know-how results in genuinely tailor-made products featuring very detailed customization. Our solution complies with local regulations and with each client’s culture and needs.
Every day, trading is becoming more interactive and more social; classical trading practices from “the old days” are no longer valid. Traders are looking not only for an online trading tool; they are expecting to interact, chat, and share trading information in real time. The social side of trading is increasingly critical to the psychology of traders.
Recognizing this early, Dukascopy Bank has developed integrated solutions for traders and all white label partners, at zero cost to users, like you. With 250 IT developers and in-house technology, we are always evolving, pioneering, and one step ahead of our competitors.
Jstore: Dukascopy’s “open source” leadership introduces the app-store for the in-house trading platform called “JForex”. It is a solution embracing Expert Advisors (EA’s), traders, and external programmers. Launched just 4 months ago, it now houses over 1,000 strategies. Clients are able to find diverse strategies, indicators, plug-ins, templates, and workspaces for the JForex platform, all under the name Jforex App Store.
All automatic strategies are available for testing in the JForex Demo account, where any trader can run and justify tests with historical data before implementing in a live account. Through a coding system developed in-house, Dukascopy safeguards intellectual property rights diligently. Every developer is able to market his or her strategies/tools safely and broadly within the Forex Community. (Social networking, blogging, and our well-known trading contest can all play big roles).
Visual Jforex: Thanks to our cutting-edge technology, you can build automatic strategies in just hours. Our visual drag-and-drop system makes the whole process of strategy-building elegantly simple. Adjustments require literally just a few mouse clicks.
You can choose preset components or build new ones. No more endless hours of complicated programming and coding. Your strategy will be clean, professional, and easy to understand. Thanks to Visual Jforex, programming will be easier. And, most importantly, you are in control of your strategy.
Social Signal Trading: This service allows traders to follow (replicate) the trading activity of global Signal Providers and/or selected participants of the Dukascopy Traders Contest. The service will be available only to Dukascopy Community members (directly or via our white label partners). A user of the service will be able to subscribe to multiple Social Signal Providers simultaneously.
Fx Spider News Widget: This is a real-time forex and economic news provider for your webpage visitors. A platform for reading and discussing real-time streaming market news, it is available in 13 languages.
Dukascopy Community: Dukacopy created a community that today unites over 38,000 members. Thanks to this community, traders can interact and chat with each other, in any combinations.
They can also view entire profiles and trading strategies. As a community member, you can follow another member and/or chat in the community blog or participate in our 12 demo contests. Members can register themselves directly from a white label partner and benefit from all that the Dukascopy Community offers.
Here’s a trend: Our technology is becoming increasingly popular; many brokers are looking for additional platforms, for the next trading evolution. Dukascopy Bank continues to increase its partnerships with local banks and brokers, to best serve traders.