MiFID 2 and the transposition of the ESMA’s product intervention measures in 2018 has contributed to an increasingly competitive market within the retail brokerage space. This move is fostering an industry consolidation, with the trend reinforcing the need for EU licensed brokers to strengthen their market offerings and to commit to greater transparency.
Indeed, there is no shortage of venues presently appearing to offer the same brokerage services, yet there remains little doubt that there are differences, which can impact both retail and professional traders.
According to Albert Galera, Chief Operating Officer, Tier1fx: “Transparency and market liquidity, interdependent and reflective of a brokerage’s relative strength – this is fundamental to best execution!”
Having commenced operations in 2014, Tier1fx has developed rapidly as an STP online brokerage, and has primarily attracted highly experienced traders and professional asset managers to its platforms. As part of an EU licensed financial services entity, Tier1fx provides the same level of transparency and fair-trading conditions to all its clients, no matter their equity size and trading volumes.
“At Tier1fx we strongly believe that the same level of transparency and trading conditions should be offered to all our clients with no distinction between professional, retail, or account size. A client’s trading should not be hampered by the risk appetite of a specific market-maker when that same trader can access the liquidity of the broader forex market,” explained Albert Galera.
At its core, transparency means giving traders access to all of the information necessary in order to identify the broker they will want to trade with and, importantly, at what net cost. Albert Galera warns: “There are any number of FX brokers declaring themselves as STP.”
“They are typically those brokers who aggressively publicize zero commission rates and tighter price spreads to attract potential clients. Many, however, fail to disclose the real liquidity they have at the prices they publish on their platforms.”
“The result is an environment in which clients are unable to ascertain how much liquidity their broker has at its disposal and, ultimately, they are clueless as to the price they will end up paying for their given trading.”
Digging deeper into prime liquidity offerings
In short, and as alleged, brokers will window-dress their top-of-the-book to show very tight spreads while providing extremely limited liquidity at the prices quoted. The consequence for a client placing a market order will be that by the time the order hits the broker’s execution server, the top-of-the-book is likely already extinguished.
Reflective of these limitations, clients’ market orders will likely be relegated to the second or third level of the broker’s liquidity book, being filled only partially and in multiple trades and most definitely not at the price that had originally triggered the order.
Is this behavior commonplace around the industry? Unfortunately, according to Albert Galera, the answer is “Yes! The reality is that all clients must be aware of how much liquidity the broker typically has and be able to decide whether or not to trade under these conditions.”
The new way to transparent trading
From its inception, Tier1fx has strived to separate itself from the pack by adopting a different approach to its online brokerage services altogether. “It is easy to embrace transparency measures within the STP model. This has served as an impetus in our having created a DMA broker with STP at the outset of our business with different initiatives, including straight through orders without intervention.”
“At Tier1fx, we provide unambiguous data relating to price and market depth and we allow our clients to arrive at informed decisions on the type of broker they want to trade with. Market-Marker, STP, ECNs, all have their pros and cons and clients need to understand how choosing one broker over another will impact their trading experience,” reiterated Mr. Galera.
Tier1fx is nevertheless constantly evolving alongside its market environment, sometimes in anticipation of change, but often in recognition of its clients’ strategies and requirements.
“At the core of our offering, we are consistently making efforts to ensure the most stable trading environment possible, reflective of our commitment to transparency, to the liquidity provided by our prime brokers and to providing clarity and best execution to our clients. By this analog, our clients’ have, at their disposal, complete information per instrument including minimum, maximum, and average spreads for each trading session (i.e. Europe, Asia, and America) and for different trade sizes. Moreover, we also include a clear chart view on the spread behavior over each trading week.”
Tier1fx is in this business for the long haul, having embarked on a mission to create a leading global brokerage house. Despite its relative youth, Tier1fx’s underlying strength and acumen is borne of its founders and management who collectively boast decades of experience and specialization both within forex and dealing in financial instruments globally.
“Ultimately, client retention remains our highest priority. It is this commitment that has led us to focus on the consistency of our business offering to our professional and institutional clients, as well as to the growing interest we are also seeing in our retail clients’ segment.”
Mr. Galera adds, “Tier1FX is a boutique broker house where we ensure that the client’s interests are our interests. By offering a unique combination of technology and best industry practices, we guarantee the same optimal trading conditions to all our clients.”
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