2020 has shown us who has managed to make the best of a bad situation, and who has managed to restructure their work by taking quick and decisive actions.
In general, the financial industry has been operating online and has managed to adapt well to new circumstances, which have revealed – perhaps surprisingly – the truth about many business owners’ preconceptions; that clearly people can work from home, and don’t need constant supervision to carry out their job.
In the last decade, all businesses have been chasing a miraculous unicorn dream, focusing on ever higher goals and achievements.
The tricky part is that you need to be ready for success, otherwise you will fall hard. You might not be able to handle increased demand, or not have the right system in place, which can cause the company to fall apart.
Ahead of the Virtual Vision Expo we’ve spoken with one of its participants, Albina Zhdanova, COO at Tools For Brokers, about business escalation, preparing your company for future success and protecting it from any possible risks, and what role business processes are playing in that.
Albina, let’s talk about these company risks: what are they, and what are they specifically in the finance industry?
This is a topical issue for many businesses today, and I’m grateful for the opportunity to discuss it with you. The thing is, we have many requests coming in every single day which start with a question: “What do you have for risk management?”.
Now, I am very meticulous when it comes to such questions and I really dig deep in trying to understand how everything works and the underlying logic at play.
There’s no single answer to that question, as there’s no one way of understanding the many possibilities of what this question can mean.
Sometimes, companies allude to the bridge, or business models, or position controlling etc. The topic is very broad, and the answer depends on the brokers’ business case.
There are many types of risk, and they are usually similar for all types of businesses, but of course there are specific risks that are typical for brokers.
What might those broker-specific risks be?
For brokers the most relevant would of course be the financial, technological, regulatory and operational risks.
With the financial risk, it is very important to take control of your own finances and financial risks of your clients and their positions.
This is especially true when credit is involved. We have software for managing credit and protecting clients from excessive losses, as it’s hard to do that manually.
Wrong handling can damage the company not only financially, but reputationally as well – which as we know, is the most difficult to fix.
It’s simply impossible to track everything manually. There are intelligence systems out there that help with that task, and I believe the future will be in the hands of those who have extensive data analysis and know how to use it.
You mentioned operational risks. What do you mean by that?
Operational risk for me is about managing the team, building a flawless process of internal work, and optimising those processes as the time goes by.
We are shocked at what actions some brokers are still doing manually – updating certain information, manual checks of positions, cleaning the data and freeing up space on the platform.
These processes can take hours and hours of monotonous work; it’s super easy to make a mistake that can cause a big issue. Another problem is when companies do not document their processes, and people follow unwritten rules.
That simply will not work if you are going to grow. We use a lot of software to automate our procedures and to keep data up to date, and we’re constantly working on that.
The biggest problem is actually starting to automate. This is understandable as what you need to do is to delegate time to writing down all of the processes, talking to all departments and asking them about their working days, including what processes are causing issues and difficulties, where the delays are caused, or where the communication problems occur.
Communication problems are also solved with those written procedures and the greater clarity they bring.
This is especially so when you have an international team and multiple offices; everyone should know who’s who, and what their responsibilities are.
What would your advice be about how to check if there are unnecessary processes or procedures in the company?
The first indicator would be to recognise if any two people do the same work within your company.
They might be in different departments, carrying out the same procedures, calculating the same figure, collecting the same data – this is all highly inefficient.
You don’t need two people to do the same thing – one person can do it and share the results with others if they need them for different purposes.
Secondly, if there’s a document or action that is done on a regular basis – once a week, a month, or (god forbid) every day, and it takes more than 2 hours, this can be automated to make it easier for your team.
Software companies like TFB have dozens of tools to automate all trading platform procedures, like updating swaps, cleaning up the space, and performing specific actions at certain events.
When you have so much software, that’s where technological risk is taking place, I assume?
And you are right about that. Brokerage businesses are built on software, and the core of the business is the executing engine, so stability of the trading platform – and so called “bridge” software – is essential.
You should choose your partner, and work with those who understand how trading platforms work, how fast companies react in case of emergency, how helpful they already are on the demo installation process, and how often they upgrade their product.
The market is changing fast, and you want to stay up-to-date with the latest technology and available functionalities.
But you’re asking the right question – when you rely on software, the key is to constantly monitor all the technical components for the correct work, and of course, this should be done automatically, not manually.
We have developed the system internally first of all for our own needs – designed specifically for MT4 and MT5 brokers.
Our system tracks not only the state of the servers, but also the state of the trading platform, including quote updates, server freezes, availability of operations and connections.
What about regulations? Are there any regulatory obligations for the software?
As a broker, you are required to give your traders the best offers, and at the fastest time, and you also need to justify why you work with your counterparts.
For several regulators we provide detailed documents of our setup and software, to ensure that we have reliable systems, and that we are able to protect clients, deliver the quotes and orders, avoid losing data, track the time for execution, and save data for as long as needed.
I should also mention that reports can be automated as well. Regulators ask for very valuable information from businesses, so we expanded the idea and gave this data in reports for internal use by brokers; this will help them to build the strategy correctly, and adjust it as the market reacts. Strategic risk is, in the end, also a sensitive risk.
That’s interesting, and I see why there’s no short answer for the question about risk management. However, what would be your answer to the brokers that are looking for risk management?
My recommendation would be to start with the execution. Find yourself a bridge that aggregates in 6 different ways, with transparent decentralised architecture, fast execution speeds, an A/B risk tool, and is spiced up by internal execution reports.
Secondly, take control of financial risks where possible – credit management, stop out, position control, and dynamic leverage changer. This will protect your positions and your client’s states.
Of course, regulatory reports like RTS 27 and RTS28, automatically delivered to you on the specified day, will make your life much easier.
Use the same system to analyse trading flow, do A/B testing, stay notified about trading patterns and always look to upgrade your strategy.
You also need to protect all the participants from possible connection issues by using monitoring systems and protection systems that notify you about any adverse events.
And of course, choose your partner carefully to ensure a high quality of technical support, readiness to help, and overall knowledge and experience of the company.
From a TFB perspective, we will be participating in Virtual Vision Expo and hosting a workshop on this topic, and will be happy to introduce our complex risk management system that can cover operational, strategic, technological and financial risks.
Albina, we have seen a wide TFB expansion over the last few years, seeing the company upgrading to a new office every 12 months, and it looks like it’s working very well. What was the biggest challenge in building all that?
Yes, we’ve been expanding a lot, growing not only in our number of offices and employees, but also in the quality of our products and services.
The biggest challenge I would say is making sure that everyone on the team is caught up with our growth and continues to share the same values that we had when we started.
We’ve opened up new positions that we haven’t had before, updated internal procedures which have higher responsibilities, and entered new markets, allowing us to raise our own standards.
We’ve also tried to ensure that our best people stay with the company and keep their quality within TFB, even though circumstances may sometimes push you to change.
I think that this is one of the risks that many companies fail to acknowledge and manage.