RETAIL e-FX PROVIDER
>>> Constraints imposed by traditional architectures
On the constraints on FX margining that have been placed by the limitations of traditional system architectures, and how real time margining systems can benefit brokers and allow them to offer clients more flexibility, Biezup comments that increased risk vigilance, along with higher trade volumes, requires more complex processing and increased performance to handle more complex netting and margining calculations. “Tis can allow brokers to monitor their risk more real time, and thus offer their clients more accurate leverage, which will allow them to trade greater amounts in the more liquid and major products,” he notes.
Nelson says that in some cases traditional system architectures, which were enterprise wide, end of day based solutions, are still being utilised, but they are being supplemented with real time cross product solutions.
As transaction volumes increase with the deployment of algorithmic trading strategies, legacy architectures which do not support open, contiguous processing are quickly deemed insufficient, he adds. “Clients are being barraged with offers from competing institutions so that their current providers are compelled to offer aggressive lines combined with superior technical platforms. In addition, the continued improvement in mobile communication services and the successes of tablet devices are providing the brokers with further channels to enable transaction activity and client service opportunities.”
Te traditional FX margining system used either credit or cash. Credit has its obvious drawbacks in the event of a default, notes Brand. “In the retail world, traditional margin systems meant that brokers used liquidation thresholds so that clients avoided negative balances. Traditional margin calls that are used in other markets were never use in the FX market. Te 24 hour market makes it difficult because the clock never stops on that trade,” he observes.
However, Brand adds: “Te new margining systems can allow brokers to use a variety of instruments as margin and avoid the need to liquidate positions that are in danger of moving into a deficit balance. Clients can still avoid the traditional margin call and would not have to deposit more cash into an account to keep their market positions open.”
140 | april 2011 e-FOREX
Michael Brand
“Te leverage has always been one of the more attractive facets of FX trading, the less cash down the better.
Terefore there is a great need to find alternative margin forms so that cash isn’t tied down,”
Evolving market
“FX margin trading has evolved to cater for a very competitive market place with a huge variety of different features, margin techniques, trade support and many more considerations,” says Behnstedt “Clients can now compare and chose offerings from different banks and brokers, so banks and brokers are being forced to design and establish proper FX margin business propositions with clear USPs. Whereas a couple of years ago, an FX margin solution just required an FX Spot online trading feature, today features like cross asset trading, chart analysis, mobile solution integration, web based trainings and others are must haves. Ultimately a lot of banks and brokers have to decide whether their existing system can be enhanced to meet new business requirements, or whether they need to look for a new system.” he says.
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