Highly competitive is one way to describe brokerage enterprises in the world of binary options.
A series of just two occurrences which took place over the last two years has led to this particular market sector gaining a proliferation of brands vying for market share in a short space of time.
The first was the regulation of binary options as a financial trading instrument by CySEC, legitimizing it as a financial product, therefore providing a framework around which companies could plan their offerings.
Secondly, four platform providers, SpotOption, MarketsPulse, TRADOLOGIC and TechFinancials all set in place platform solutions and an entire support methodology aimed at providing turnkey enterprise systems, therefore facilitating the easy establishment of brands which can sell the product in return for volume revenue share.
Nowadays these binary option brands, each with their own marketing strategies compete for business, and further jurisdictions have seen the value in attracting these companies to their shores, and are following in CySEC’s footprints by defining a regulatory structure for binary options.
Just prior to the Forex Magnates Tokyo Summit last week, Japan’s Financial Services Agency set in place regulatory requirements for binary options. Platform providers responded to this by showcasing their Japan compliant platforms at the Summit.
Even more recently, the Malta Financial Services Authority took the responsibility of overseeing binary options regulation, which came under the rulings set out by the Lotteries and Gaming Authority in Malta.
With this background borne in mind, newcomers with new platforms and new methods of approaching the market are certainly interesting and a diversion from the largely standard brands which dominate.
At this year’s iFXEXPO in Cyprus, Forex Magnates spoke to Panda Trading Systems about its newly launched binary options platform which came into being subsequent to the firm’s acquisition of Polar IO Software Ltd. Panda Trading Systems provides this system to binary options brokers, as well as FX firms wishing to provide binary options to their client bases and manage them through an existing CRM via the shared wallet solution.
Subsequently, CTOption was founded, using Panda Trading Systems’ new platform. Interestingly, the founder of the firm has a background in technology rather than sales.
In this week’s Executive Interview, we speak to CEO and Founder of CTOption, Zacky Pickholz, as he explains his viewpoint on new entrants to the binary options industry.
Please tell us a bit about yourself, elaborating on your professional background and what led you to found CTOption.
My background combines technology with entrepreneurship. My academic history includes B.Sc and M.E in mechanical engineering, first degree in software engineering and M.B.A in marketing. I started my professional path as a software engineer in small unknown startups as well as known names like BMC Software, Atrica Communications and more.
My expertise in the online trading world began at ITG Investment Technology Group, where I learned the essentials of the traditional trading business and its technology from the ground up. Then during my years as director or product at eToro in which I lead all the back-end trading systems, I learned the specifics of FX trading brokerage. Following that period, I started providing consultancy services to FX and Binary businesses- both business consultancies as well as providing technological solutions, up to development of complete trading systems.
The software I developed was very robust as I always insisted on a thorough design, clean and defensive implementation – these practices gave me the nickname “First Time Right”, as software I developed always withstood the test of time.
It was then the right time to establish something new, innovative, that brought together my extensive background and my aspirations. This is when I designed CTOption platform’s architecture and orchestrated its development, which was executed by a group of extremely talented developers. I truly believe it is the best binary options platform there is out there today.
When you founded CTOption, what did you seek to achieve initially and how did you go about it?
As a freelancer in the FX and binary market, I had the privilege of examining several platforms and getting to know them from all aspects. I found that there’s plenty room for improvement.
Comparing the binary market to other markets, including FX, I believe that binary options are here to stay and are merely a small baby today, with so much ahead.
One of my goals when founding CTOption was to provide a fair, engaging and unique trading experience, and to stand out from other ubiquitous binary trading systems.
CTOption has its own unique fingerprint, and our traders are noticing it and staying with us thanks to it.
Establishing at this point in time as a newcomer among a number of strong existing binary options brokers could be perceived as a risky step. What does CTOption bring to the marketplace which is different to that of the existing brands?
Indeed, there are strong brands out there, but we embrace the competition instead of fearing it. The binary options world is currently at its early stages, and it has a bright future in which we intend to partake and become a dominant player.
For example, we tailor innovative solutions to our affiliates’ needs, and then harness our technical team to develop and deploy that solution. We are able to do that in very short cycles, which is a truly competitive edge.
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How will this serve to attract brands to the CTOption platform?
We are focusing on building the brand name and our business affiliate network. We have a long list of new trading tools that we plan on focusing on in the near future, which we believe will prove highly attractive and engaging.
A strategic decision we have made in early stages is that we have no intention to actively addressing the B2B market, but rather stay focused on the CTOption brand.
Subsequent to the CFTC’s warning to US residents not to trade in off-exchange binary options, CTOption announced that it was in discussions with NADEX to work on a solution. How will you approach the US market, and will you proceed with the NADEX solution?
The US market is a heavily regulated one, and thus we’ve already initiated discussion threads with several regulated US binary exchanges, including NADEX, seeking ways to work together. There are several avenues we’re currently looking at, each with its pros and cons.
Binary options on the US regulated exchanges are substantially different than those offered worldwide, which is why finding a way to work together is far from trivial. We are however dedicated to trying to find the right approach to making CTOption available to US residents.
What do you see as the potential downsides to operating in the US in terms of competition and regulatory adherence?
I am unfortunately not familiar enough with the US markets. We are now in discussions with the NADEX and Cantor exchanges to consider possible cooperation avenues.
Japan is clearly an important Binary Options market. Do you have Japanese brands at the moment, and will you concentrate on Japan, even in the light of the new regulatory structure? Do you view the regulatory changes positively?
Our unique platform has been tested by several interested parties from the Japanese market, yielding promising results, and showing good adaptation to the Japanese market. Should the right local partner appear, we would enter the Japanese market at full throttle.
In terms of business model, which is more favorable: To take all of the risk management on board and offer the platform to sales-orientated brands who will purely go for volume and deposit, or to just be a platform provider and let the brand control the risk model?
The way I see it the answer is pretty clear and straightforward: risk management should be taken on board, and not left to the brand.
The reason behind this is that risk is properly controlled and not left to irresponsible brokers to fiddle with in favor of the broker. Thus, fair value for the trader is guaranteed, while the broker is covered by professional risk managers.
On this basis, how do you protect your interest if they do not get their risk management right and there is not enough percentage to cover the platform costs?
Our perspective on this is that the platform the provider should take a fixed monthly maintenance fee to cover its operational costs, rather than a percentage from the volume as most providers do today.
That way, even the slightest possibility of conflict of interests will be eliminated.
Since CySEC regulated binary options as a financial product, Japan has gone even further in establishing rules as a financial product, and the US requires it to be via an exchange. Do you think that nowadays binary options is becoming viewed as a financial product compared to a gaming product?
As I predicted a couple of months ago, binary options are being increasingly perceived as a strictly financial product (as they should), and this trend will further continue in this direction until there is virtually no relation between binary options trading and the gaming world.
As payouts are getting toward 95% industry wide, and likely will be all around that figure shortly, how do you ensure there is enough careful risk management to ensure that this is still profitable?
Payout rates are the outcome of highly sophisticated pricing calculations, constantly being optimized on an on-going basis to always provide fair pricing for the traders.
Any deviation from these calculations would cause the balance to break, either in favor of the user or the company. Traders should watch out for brokers who offer extreme payouts, and pay careful attention to the small print when starting a trading account.
How do you consider the best method of client acquisition? Binary options are a different business to FX, insofar as that usually after a trader has blown his money twice, he doesn’t reinvest. This means concentrating on acquisition, which is becoming expensive. If for example the total deposit of a client is $700 and the acquisition cost goes up to $500 (today it’s around $250) then it’s a loss. How do you counteract this, and increase the lifetime value of a trader?
Our experience shows that investment in client education, fair option pricing and providing a set of tools to help traders improve their trading skills have great positive effect in lowering churn rates, increasing client satisfaction from the overall experience, and ultimately much longer time spent trading on our platform.
What is the future for the binary industry and for CTOption itself?
No one can tell what the future of the industry will really look like, however we do strive to be the ones taking part in the shaping of it. As far as it is up to us- the future looks bright.