“It’s worth mentioning that when I refer to Multi-Asset I am talking about thousands and thousands of products, not just an additional gold, dow and Nymex! There are many reasons why this is a good idea for a brokerage” – Dan Moczulski, CEO, Star Financial Systems
Value proposition and maintaining a modern and innovative edge over swathes of competition in today’s retail FX industry is a constant consideration in the board room of every FX brokerage worldwide, especially in times of heightened competition, relatively low margins and the proliferation of firms offering MetaTrader 4 to a client base that is all too familiar with it.
Retail FX has become a conundrum based on resources and capitalization, as brokers with their own proprietary systems that cater to the requirements of multi-asset traders and loyal customer bases that have taken a number of years to nurture and to which to serve specific services as well as technology-led solutions from firms that offer opensource trading solutions that tap into prime of prime liquidity yet allow traders to choose the compatibility of the way they interact with the markets dominate with their giant investment into the trading experience, whereas those with less ability to plow tens of millions into their own environment continue to take the MetaTrader 4 route, often as a white label solution, which costs less than $10,000 all inclusive.
MetaTrader 4’s advantage is also its Achilles heel, in that its familiarity and compatibility with trading robots means that it is very easy to onboard the clients of other brokerages, however it is just as easy for a competitor to sweep them away.
The main difficulty, however, is the ability to offer true multi-asset trading facilities as a smaller brokerage which relies on MetaTrader 4’s enterprise infrastructure.
Yes indeed, a MetaTrader 4 brokerage with an off-the-shelf solution from MetaQuotes could well find itself restricted to what is provided under their license, or an even more restrictive a white label license, therefore the ability to seek toward diversifying their asset range and how they should go about it is a major consideration bearing in mind that most MetaTrader 4 brokers go to MetaQuotes because they dont have the capital to design their own platform.
Alternatively, companies in that category could commission a firm like Spotware to make them a bespoke system which has algo capability and supports which assets they choose including non-FX classes yet costs less than developing and hosting their own.
To address this, FinanceFeeds spoke to Dan Moczulski, CEO of Star Financial Systems in London, who explained this from his perspective.
“There has been a lot of comment recently about the supposed discontinuation of MetaTrader 4, and how Metaquotes will look to fill the gap with MetaTrader 5” said Mr. Moczulski.
“One commentator on Linkedin sparked conversation remarking how it should be the retail traders who are to determine whether MetaTrader 4 dies, as opposed to MetaQuotes or brokers” he continued.
“I’d perhaps agree with that, although it’s worth pointing out that MetaTrader 4’s dominance is perhaps a function of retail trader’s reluctance to try new platforms. Once the community was established the only way any new broker could get access to this EA loving trading club was to offer MetaTrader 4. This readymade audience, alongside Metaquotes’ industry changing pricing model forced even the largest brokers to offer an MT4 solution, a real, if you can’t beat em, join em conclusion” – Dan Moczulski, CEO, Star Financial Systems
The dawn of the multi-asset retail solution – by necessity!
Mr. Moczulski then began to explain his perspective on the need for retail firms to offer a full multi-asset solution. “Now it seems the industry is waking up to the opportunity that a genuine multi-asset offering provides, something that MetaQuotes realised MetaTrader 4 could never really offer, hence the pushing of MetaTrader 5. It’s worth mentioning that when I refer to Multi-Asset I am talking about thousands and thousands of products, not just an additional gold, dow and Nymex! There are many reasons why this is a good idea for a brokerage” he said.
Client Acquisition and retention.
Mr. Moczulski understands clearly the competition element, and not just at platform level, but also a massive competition for visibility on the internet as similar solutions offering similar products continue to target a similar audience. “At present, thousands of brokers are competing over a select number of FX orientated SEO terms” explained Mr. Moczulski.
“By opening up your offering, you can bid on a far more diverse and cheaper range of terms. Your brokerage now appeals to people who are just learning about financial markets – as typically “newbies” understand their domestic equity market far more readily that the movements of macroeconomic influenced FX markets. At the other end of the spectrum, your sophisticated audience can now flock to wherever there is volatility and opportunity, and if that happens to be in the bond markets, orange juice, or palladium then so be it” he said.
Revenues per trade.
“FX spreads have been squeezed. Sub 1 pip rates are becoming the norm. This hasn’t happened to the same degree in other markets. A 15bps charge on a £100000 trade on HSBC will generate £300 round turn for a broker. A £100000 trade on GBP/USD you could be looking at $10 on a 1 pip offering. Anecdotally, the frequency of trading is slightly less for equity traders than FX traders, however, this could still be revenue enhancing as financing rates are much higher and equity traders tend to hold positions longer” explained Mr. Moczulski.
Thus, Mr. Moczulski considers that the reasons to move from offering just FX to becoming Multi-Asset are pretty compelling.
“It will be interesting to see if the MetaTrader 4 client base migrates to MetaTrader 5, and provide brokers again with that ready-made trading community who demand access to one ubiquitous platform. It will also be interesting to see whether brokers will help with this migration and the creation of this community. There are some reasons why they may not. The strength of MT4 can also be considered a weakness. Being able to offer a platform your potential clients are already familiar with can be great for acquisition, however the fact that thousands of other brokers offer the same platform may make it terrible for retention. This may be a reason FX spreads are typically under so much pressure” – Dan Moczulski, CEO, Star Financial Systems
“Finally, while offering a familiar MetaTrader 4 is easy and simple, it is very difficult to really differentiate your product and your brand when the look and feel of your trading interface, the very thing your clients engage with, is so similar to competitors.Clients are just not sticky. This may be one of the reasons some firms are looking to either build their own propriety platforms or bring in separate, more bespoke Multi-Asset platforms from third-party providers such as Star. This move to Multi-Asset will certainly be interesting!” he concluded.