Following the issuance by MetaQuotes of a warning to brokers about what the company sees as perilous usage of copy trading platforms including Tradency, Tradeo, Zulutrade and Myfxbook due to an alleged hack, it may come as no surprise that with MetaQuotes’ current stance on third party products being a hot topic within forex companies at the moment, there are certainly many of the top industry executives who view this as the latest in a line of events surrounding the future compatibility of MetaQuotes with third party software companies and signal providers.

Aside from technical considerations, there are practical and regulatory matters which could be raised as a result of this particular occurrence, mainly due to this being an alleged hacking incident, whereby MetaQuotes cites third party copy trading platforms as the vehicle by which the hack entered the system.

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Regulatory Food For Thought

There has been some debate among some regulatory circles as to whether copy trading constitutes a form of financial advice, and therefore could face a future of requiring to be regulated, however as the source of an alleged hack, could it be that the powers that be may go further than that and demand extra reporting and compliance transparency from such third party firms in order to mitigate insecurity of clients’ trading accounts?

Mitch Eaglstein, Managing Director of Boston Prime spoke to Forex Magnates on the subject: “I do not think it will bring any specific attention to the regulators about copyrights since regulators are usually more concerned with protecting clients and ensuring firms are financially sound. During the Liquidity Panel at the 2013 Cyprus Expo one of the distinguished panelists did mention that if MetaQuotes disabled the functionality of the bridge which connects MT4 to the interbank market than that would likely have regulatory consequences; since, many regulators require brokers to STP trades to other regulated brokerages. Moreover, regulators requiring firms to use an STP/Agency business model is a trend expected to continue especially in Asia and Europe.”

Andrey Pavlov, CEO of SpotWare Systems believes that this will have minimal effect: “Mirror and social trading are already covered by current regulation because the trader has absolute control over his account. Users can stop trading and/or modify multiple parameters at any time. Therefore this should not bring any additional concern to regulators. On the contrary, traders can improve their performance by mirroring successful strategies, providing the system does not overcharge them for it as some of the above systems do” is Mr Pavlov’s take on the situation.

Alpari UK doesnt think that the copy trade function means that the provider is carrying out a regulated activity or even encouraging third parties to carry out a regulated activity. “However, this is recent.” says Alpari’s CCO Mushegh Tovmasyan. “As it is new, the regulator may be looking carefully at it. By the way, regulated firms don’t need to report to the FCA on system safety, only when a significant incident occurs.”

Banning By Stealth

Software conflicts between MetaQuotes software and third party products are another recent source of anguish for brokers, as build upgrades of the MetaTrader 4 platform have begun to generate errors and compatibility issues, such as last week’s erratic performance of Myfxbook when used in conjunction with MetaTrader 4, sparking supposition that MetaQuotes had begun intentionally blocking it.

MetaQuotes recently launched a third party provider marketplace, however its availability is restricted to broker clients. This will entail third party providers being able to submit their solution to MetaQuotes to test for quality and performance, in order that the company can ensure compatibility. This hands control to MetaQuotes by proxy which as can be expected has resulted in mixed viewpoints from brokers and technology providers alike.

Anticompetitive Measures?

Dissent was expressed to Forex Magnates by the CEO of a very large company to who wished to maintain anonymity. He considers the entire matter from a completely different standpoint to others in that he does not accept that it is a software compatibility issue, but something more sinister. “Last year MetaQuotes filed a lawsuit against Xogee. In my opinion they did this because MetaQuotes released its new mobile trader. At that time, the whole market worked with Xogee. This was a move to finish them off. The same thing is happening now with the copy trading and signals side of MetaQuotes’ business. Now that MetaQuotes has launched its own signals and copy trading functionality, the company wants to educate the whole marketplace to work with them only. It is nothing to do with conflicts or incompatibility of software, it is much bigger than that” explained our source.

Hackers or Heros?

A London-based broker which prefers to remain anonymous as well shared his view with Forex Magnates on this matter: “One man’s hacker is another man’s hero”, thus demonstrating that there are schools of thought among the institutional sector that MetaQuotes is wielding too much power over its customers. “I think that the way MetaQuotes is acting is like the Sheriff of Nottingham, therefore I don’t think it’s a good idea to publicly be supporting Robin Hood” is this particular broker’s opinion.

Speaking at the iFXEXPO last week in Cyprus, Integral Development Corporation’s Global Segment Head of the company’s Retail Brokers division Norbert Lukasiewicz surmised what he views as a protectionist standpoint by MetaQuotes. “The build 500 blocked all the third party plugins. This required some changes to the legal contract between brokers and MetaQuotes. The whole idea was to expand the technology from the broker side, and this defeats it. They had a right to do it, but on a server-side build it would be much more difficult for them to push it and it would not be well received by brokers”

Opponents of overtly proprietary methods of operation among software and platform providers include Drew Niv, CEO of FXCM. Addressing the Liquidity Panel at the IFXEXPO, Mr Niv said: “The more business that has to be externally executed by the software vendors in the business, the better quality will emerge”.

Another advocate of non-proprietary systems is Tim Haman, CEO of Fair Trading Technology. He does however point out the pitfalls to brokers of allowing a free-for-all when it comes to copy-trading platforms: “All copy trading should be cross platform, cross-broker, therefore traders can stay with the originator of the strategy regardless of platform or treatment of the originator by a specific broker. The copying of orders on that scale will take a time. We have this with EAs. Some buy a very cheap EA, then set it up, go to sleep and wake up a millionaire. This can cause immense problems for brokers” explained Mr Haman.

Falling on the side of MetaQuotes is Alpari UK, whose management team is fully behind the corporate direction which MetaQuotes is taking. Mr Tovmasyan told Forex Magnates: “We understand the reasons behind Metaquotes’ actions and fully support it. From our side we have no way of proving or disproving whether certain third party technology providers use hacked or non hacked implementations, so we have to trust and follow what MetaQuotes indicates. It is unfortunate that this has happened as we have many clients who are actively using some of these third party platforms and are unaware of these issues. We as a broker are forced to adapt to the situation by informing and supporting our clients who face uncertainties or connection issues.”

Juan Jutgla, Director of Institutional Business at X Financial Solutions had this to say: “X Financial Solutions is of the opinion that the future of broker/vendor relationships are those of an open environment and partnership. The time of a ‘one stop shop’ solution is no longer conclusive to providing a premium service to the 21st century clients both at the retail and institutional level.”

“Today’s retail clients require more from their platforms than ever before. With advancements in charting education, social trading and EAs, there are needs for a system to provide them with the openness to develop and amend to meet all of their expectations. Closing avenues off to traders is detrimental to the client retention that brokers are striving to achieve. From an institutional perspective, brokers, banks and larger financial centers have to cater for all of their clients requirements whilst maintaining the ability to differentiate themselves and promote their own identity. With the progressively closed environment with the MT systems, brokers are being forced to compete on price rather than offering value in their service and proprietary front ends” concluded Mr Jutgla.

An interesting matter will be how this pans out in the wider trading community. An example of this is how it will be received by high frequency algo traders, and other groups which use electronic aids alongside MetaTrader. As yet, silence abound.

Finally, there are those who have worked out a good strategy which becomes popular within a copy trading community. Brokers themselves will adjust their risk management model to suit their own ends if such a copy trade strategy attracts a lot of users and is profitable. “If you have a good strategy and 1000 followers, your spreads will widen, brokers will start not wanting to offer it to that particular trader” explained Jeff WIlkins, Managing Director of ThinkLiquidity. He concluded by saying that “care must be taken when using copy trading platforms, as the threat of hacking is not the only danger. Blind faith in popular strategies is equally risky: “It is also a case of looking at their background or statistics rather than just start following”.