FDC Research

FX Retail Brokers

Why Retail Brokers are Pivoting to Institutional Clients?


The problems with technology lie in that the entire industry is still stuck on the prolific MT4 platform.

FX brokers are facing a tsunami of leverage restrictions, increased technology cost, and client acquisition cost. Consequentially, retail firms need to move their client base upstream. Leverage restrictions are coming primarily from Europe under ESMA while other growth markets like Southeast Asia and South America may one day follow suit. The lower leverage is reducing the profitability of the retail trader for many brokers depending on their business model.

At the very least the restrictions incentivize brokers to target clients who stay with the firm longer and deter the “churn and burn approach” to client acquisition. The restrictions also benefit firms who deal with Professional and ECP clients as opposed to Retail clients who have the highest protection under MIFID2.

To remain historical levels of profitability, OTC Brokers must create a new regulatory structure for servicing clients or become more operationally efficient by utilizing new technology. The problems with technology lie in that the entire industry is still stuck on the prolific MT4 platform which accommodates retail traders but does not meet the needs of Institutional clients, both professional and ECP.

Risk management is crucial in any back office reporting system. Users should be able to quickly see open exposure and identify risks, match this exposure with covering trades at the liquidity providers. A margin monitor must notify users immediately of any risks of a client going below margin or abusing credit lines. Alerts should be provided on screen with color and sirens, as well as email SMS and other messenger options to get the issue resolved as quickly as possible. Alerts can also be used for big trades or other potential risks. The system should highlight the most active and profitable traders as well has perform automated checks for potential fraud or undesired scalping.

For a small to medium sized broker to adapt their MT4 environment or develop a differentiating technology that meets the needs of institutional clients requires a large and experienced team of developers who fully understand MT4 and the needs of all FX market participants. These skilled teams are usually only reserved for very large players, like Gain Capital, Saxo Bank, and FXCM.

Internet Giants (or maybe better put ‘the Big Net Oligopoly’), i.e. Google, Facebook, and Twitter are all limiting or removing forex and crypto ads for most firms. There are some exceptions for highly regulated and publicly traded firms listed on top exchanges but besides the few behemoth companies exempt from the new advertising rules implemented by the Internet Giants, will make it more the vast majority of retail brokers to acquire clients.

Using proprietary technology, FDC developed a solution for brokers facing these three problems. FDC Condor Back Office 2.0 is the only back office for MT4 which efficiently supports Institutional & Retail clients. Condor Back office provides brokers the ability to charge commissions, in the same way, a Tier 1 bank charges it’s client’s (in $ per mm USD) and allows firms to track rebates to their partners and salespeople easily.

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