Often when a new industry arrives on the scene, its appearance and subsequent evolution generates a market for specialization in providing technology designed for a specific purpose. Binary options is a case in point. Although in existence for some years now, its popularity is still in its relative infancy, thus providing scope for innovative software developers to direct their efforts toward it.
Established in 2009, binary options technology provider TechFinancials has built its business along the path of raw technology provision, carving out a very good market share in supplying services to forex companies since establishment due to the company’s not inconsiderable claim to be the only binary options platform which can be integrated with the ubiquitous MetaTrader 4 forex trading platform.
Commercial success for the company ensued because this innovation has provided TechFinancials with a very good means with which to target their offering toward being the preferred binary options platform provider to established forex companies whose system is built around MetaTrader 4.
It could certainly be assumed that this is a good method of easing the sales process, as a proportion of TechFinancials’ clients are already established in the forex sector meaning that there is no need to guide them through a startup process as is often necessary with new companies wishing to establish themselves in the binary options business from scratch. This has generated a high quality client base consisting of established medium to large companies.
In terms of the technology itself, the MetaTrader 4 integration is built as a one-wallet solution which is handled within the MetaTrader 4 environment. When a client makes a deposit through the broker website, the funds arrive directly into the existing MetaTrader Manager in exactly the same vein as if the client was depositing to their forex trading account.
The TechFinancials software operates via its own web based platform which obtains account balance and risk information from MetaTrader 4. It also communicates with the MetaTrader 4 engine to deduct or add money to the customer account as trading takes place.
The MetaTrader 4 then communicates with the TechFinancials software via an operating bridge which is sourced from Panda TS and has proven itself over a good few years to operate reliably with MetaQuotes software.
To be able to implement this solution within forex companies is a major advantage. TechFinancials is very much a technology orientated company with its focus on technical advancement rather than sales. The company purely provides software which includes a CRM, website integration, trading platform and back office facilities including deposit and withdrawal plus retention tools.
In terms of liquidity, TechFinancials offers its clients a choice of either taking no liquidity stream with the product, instead sourcing it themselves by forming a relationship with an external liquidity provider which is regulated by CySEC, or alternatively the partner can request this from TechFinancials who will provide it via a CySEC regulated market maker. On this basis, the software itself does not need to be regulated, as TechFinancials are not in the business of handling any client-related processes.
The company provides its partners with a choice of two methods of payment, either revenue share or as a percentage of trading volume.
The company was established with technology as its key perspective by Eyal Rosenblum and Asaf Lahav, both of whom enjoy a long and detailed career in the high technology sector.
Mr Rosenblum explains “This is a growing sector which is becoming increasingly technology-driven. We expect to see a four-fold rise in trading volumes across the industry by the end of 2013, indicating that the coming year will be a year of significant growth for the established software providers”.
“TechFinancials understands the need for efficient pricing algorithms, quality integration and support which will allow our partners to build and develop their business. Our platform is highly adaptable and flexible, therefore ensuring that it will easily be able to operate within the parameters which regulators will stipulate in the future, therefore ensuring smooth business progression to our partners as the industry evolves”.
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“Having the know how to calculate the value of the position based on pricing engine is paramount. Facing regulation in Japan, US and Europe the only companies that stand a chance of providing partners with a product that eventually will comply with more concrete regulatory restrictions will be those with flexible pricing structures.”
“Japan’s regulators as an example will not allow simple high/low products for a few minutes. The Japanese regulators will only allow price products which are open both sides, where brokers can explain to the client how this is calculated. JFSA will require transparency on this including explanations of how a fair value is calculated, how a particular price is calculated which means the price has to be explainable and not arbitrary.”
“There are also still some companies who employ traders who take the opposite position and supply this to partners. This is likely to be an area covered by the regulations. Bearing the imminent industry regulation in mind, technology providers must secure their offering by ensuring enough flexibility in terms of pricing to meet most of the major regulators who will implement restrictions and expect disclosure on pricing when the regulations are more defined.”
“It is important to develop the software to be adaptable enough so that brokers can easily satisfy any restriction that the regulators will come up with without it affecting their business adversely.”
In terms of the position in the marketplace, TechFinancials do not provide a fixed formula to which their partners must adhere, and do not involve themselves with brokerage business. “We consider our partners to be brands rather than white labels. They are completely independent companies with full autonomy and therefore do not become also-ran franchises offering the same things to their client base. The handling of the client records, the trading conditions and the merchant account are the partner’s responsibility, only the gateway is the property of the software provider” explains Mr Rosenblum.
“Involvement in brokerage activities by a technology firm is viewed largely as a short term model because in the long term it could potentially take the partners out of business as a result of becoming so dependent on the provider that they will not be able to build their own business structure.”
Such dependent partners would have to pay continual royalties for the services on an ongoing basis which would be damaging for their business.
Because of this, TechFinancials avoid forming relationships with brokers who have no competitive advantage, no money, or a weak business plan. A new partner requires $1 million commitment to invest in the business” he explains.
The quality of corporate partners is a matter of importance to TechFinancials, and for this purpose the company has a policy of evaluating of potential partners.
“We took a decision to avoid forming relationships with brokers who have no competitive advantage, no money, or a weak business plan. A new partner requires $1 million commitment to invest in the business.” Explained Co-CEO Asaf Lahav.
“Capitalization must also be demonstrated because this is a revenue share business. Customers of TechFinancial therefore must demonstrate their knowledge of how to generate traffic, have strong sales experience, understanding of the industry and know how to build a structure.”
“The corporate view is taken that if the technology provider needs to provide traffic and risk management as well as software then it brings into question the acumen of the partner as well as making them redundant.”
During 2013, the binary options segment faces certain challenges, one of which is the inevitable rise in payouts, which could reach 95% industry-wide, another being maintaining a toehold in the upper echelons of the industry given the onset of competition, and of course imminent regulation across the international markets with CySEC having implemented this last year, and the Japanese FSA in the process of doing so. .
TechFinancials has a plan to move into reselling their brand in order to gain presence in other markets by working with specialists in those areas. “This flexibility is a focus for 2013. The company is currently inviting global software integrators to develop their own system on top of the TechFinancials platform and resell the product. Parties interested can sign a contract, take the platform and develop on top of it a version for a different region, or different segment of the industry and once completed the reseller will become the marketing team. The company itself will therefore not have presence in the new markets, instead the reseller taking care of that” concludes Mr Lahav.