Capturing new business opportunities with FX White Labelling
particularly with the migration to internet trading, and regulatory concerns drew more attention, the White Label model came into its own.
A White Label system is an application or platform provided by a third party, generally offering technical solutions and services that can range right across the brokerage’s front, middle and back office operations. Te most common cost structure is to offer a White Label system with no up-front cost with the provider generating revenue by taking a cut of the trades that pass through the WL system – the amount or percentage being dictated by the sophistication of the solution and the volumes involved.
Gerry O’Kane examines what factors should influence a brokers choice of FX White Label solution and strategic licensing partner to work with and in what ways WL partnerships can help trading firms to grow their market share and take advantage of fast evolving regional business growth opportunities in FX.
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hite-Label (WL) solutions for financial trading applications have
been around for many years and for those companies in the business who have patiently and diligently been designing WL solutions for the FX market, their investment of time, money and expertise is now starting to pay off.
Te evolution of the WL business has not been without its obstacles, although the lessons learned have brought richer solutions
and opportunities to both those providing White Labels and those seeking them. “Ten years ago, there was limited interest from mainstream financial institutions in White Labelling. But, over the past several years we’ve definitely seen an uptick in White Label partnerships between established FX firms and broker/dealers, banks and other financial services firms,” reveals Muhammad Rasoul, Chief Product Officer at Gain Capital.
Indeed it is no secret that at many of the big Retail FX players there was initial scepticism that platform provision to competing brokers and adding commission on trades would be a successful model. However as the technological landscape changed,
Ideally it offers a fast-track, cost- effective, efficient and ready-made business solution to generate new revenue opportunities, while addressing brokers’ resource constraints such as IT development budgets, staffing limitations and experience.
Choosing a solution
Deciding which WL solution may be most appropriate for a particular brokerage however is not necessarily just about issues such as the IT capabilities and functionality of the platform.
“In my view, when choosing a WL solution, liquidity is ultimately the most important factor a broker looks at. Te tighter the spreads the more profit margin there is available for the broker,” says Jonathan Brewer, head of eFX sales at Sucden Financial. “Retail clients will naturally focus on the more
While the wish-list of new brokers can be expansive, industry experts argue that the best White Labelling solutions involve more than just a technical product.
“..over the past several years we’ve seen an uptick in White Label partnerships between established FX firms and broker/dealers, banks and other financial services firms.”
actively traded majors. Gold is also an important product. Having tight spreads and deep pools of liquidity helps to lower trading costs for the broker and improve their competitiveness.”
Te provision of access to emerging market currencies is nice to have but may not be the game-winner so often thought. “While CNH/Dollar isn’t an actively traded currency pair, it is still useful to be included in the White Label product. It is often a valuable marketing tool for clients in that region and volume may become more significant in the future,” he adds.
Like others in the sector, Artur Filipowicz, a White Label specialist and relationship manager at Dukascopy Bank. argues that those banks or brokers seeking a White Label, should look beyond the IT systems: “In some cases we’ve seen firms offering what they call a White Label solution and who just leave the client with the technology and walk away. It’s also critical to create a synergy with your partners and that’s how the relationship should be regarded – a partnership.”
“Our view is that we want to help them go to market with their new FX product range and they often need help in knowing how to position themselves in the market. For example a Swiss private bank might have different requirements than a retail Japanese FX operation. Te partnership is not just about provision of a solution,” advises Filipowicz.
“Tere’s certainly a need to work as partners, rather than as client/ service provider. For example, we often collaborate with our partners to define and customize their FX offering based on the profile of their existing customer base. Often we find that WL partners don’t really know what they should expect to be getting out of the business and our expertise is invaluable,” explains Rasoul.
INSTITUTIONAL FX SERVICES - THE BROKERS HANDBOOK 2012/2013 | 37
competitive enough market without having to compete with your broker,” he says.
Not perhaps as a result of these competitive anomalies, but as the market structure becomes more complex and clients and geographies have their own requirements, some companies have adopted multiple White Label agreements. “Some fi rms are now off ering two White Labelled solutions in order to off er diff erent platforms and features, giving their clients more choice even if most of the fi nancial instruments overlap,” says Kisyov.
It’s important to also mention the impact that new delivery channels may have on the WL space.
Assessing competitive forces in the retail FX Market
BY JAVIER PAZ, SENIOR ANALYST, AITE GROUP
Foreign exchange as an asset class has been one of the beneficiaries of a reduced investor appetite for trading stocks and unlevered products. Retail FX, the portion of global currency markets traded by regular people, has established for itself a firm foothold.
M illions of
individuals, from stay-at-home parents to young
professionals, have developed a voracious appetite for speculating in FX markets. Retail FX as a trend started in the late 1990s, but only gained major momentum from 2006 onward, as economic turmoil embroiled global capital markets.
Aite Group estimates that the gross notional value of retail FX contracts has tracked a remarkable rise from an estimated US$23 billion per day in 2001 to US$362 billion per day in 2010. Although not seen in the chart below, 2011
saw a modest decrease in volume relative to 2010 but it is still on track to break US$400 billion per day by 2013.
Yet, due to internal netting at the hands of specialist brokers offering this service, less than half the volume makes its way to the interbank market. Tis vast volume is all the more surprising because most retail FX growth circumvented securities brokerages, banks and financial advisors, the traditional intermediaries for new financial products. Simply put, mainstream financial institutions ‘missed the boat’ with regards to FX, but are starting to see the benefits of making up that lost time.
Aite Group believes that the ongoing entry into retail FX of securities firms and wealth management divisions of banks will push FX trading into the investing mainstream at a faster rate than observed in the past 10 to 12 years.
The retail FX trader
To estimate the top line number of people investigating or participating in retail FX, Aite Group evaluated the online traffic arriving to more than 600 retail broker websites. As of May 2011, it quantified a global retail FX audience of more than 28 million unique visitors.
Retail FX Trading Volume by Key Global Jurisdictions, 1995 to e2013 (daily volume in US$billions) Source: Aite Group
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What is now becoming clear to traditional investment firms is that retail FX is effectively opening up a vast new investment demographic and not just in developed countries. FX is sparking the imagination of investors and traders much like stock trading did in the late
Geographic Location of FX Online Visitors to Broker Website (In thousands of unique visitors; n=28.2 million) Source: Aite Group
1990s, and securities brokers need every possible help to re-engage traders and drive up trading volume.
Te average retail FX account size varies somewhat in size by region, but is approximately $2,500. Tis average account size, however, masks quite a diversity of trader characteristics and needs:
• Te carry trader: She looks to stay on trades for weeks and months, aims for a rich daily swap rate. Account average in the thousands of US dollars.
• Te system developer: He brings his knowledge of computer programming and technical analysis to trading and develops automated, rapid-fire trading strategies and custom indicators for personal and/or commercial use. Account average in the hundreds of US dollars.
• Te nibbler: He places small, frequent, and highly leveraged bets in FX markets – often without proper education and is more interested in a quick, outsized profit. Account average in the hundreds of US dollars.
• Te copy trader: She evaluates talented traders and uses trade replication services to copy their performance. Account average in the thousands of US dollars.
• Te power trader: He takes trading seriously, spends on education/ equipment, and expects a lot from brokers. Account average in the tens of thousands of US dollars.
Aite Consulting found the online FX market to be growing exponentially with the need for web-based solutions now being virtually ubiquitous. However as with other internet sectors, the demand for mobility will inevitably rise. As a result, companies are already investing extensively in new technologies in order to provide clients with an advanced mobile trading platform and Apps for their Tablets and Smartphones.
*Dark areas denote higher numbers of retail FX online visitors
Source: Aite Group INSTITUTIONAL FX SERVICES - THE BROKERS HANDBOOK 2012/2013 | 9
Binary Forex Options - helping brokers add a new dimension to retail FX services
We explore why Binary Forex Options are gaining in usage amongst retail traders and investors and how the inclusion of these instruments can help FX brokers to differentiate their e-trading products and services
strongest trending segments of the global financial markets. “It is an interesting product in that even after a period of strong growth it is still in its infancy”, states Ravit Friedberg, product manager at MarketsPulse, a binary options technology provider. She notes that in many ways it is similar to where the forex space was a few years ago; there are a lot of retail traders but not a lot of larger brands out there.
Friedberg adds: “Binary options were originally traded between institutional investors and investment banks, but since 2008 they have seen tremendous growth in trading worldwide. Binary options are a terrific product for novice traders due to the
inary options are gaining increasing attention and popularity and represent one of the
simplicity of the options, and the fact that potential gains and losses are made clear before a trade is ever placed. Binary options trading is not only very transparent but also very simple; traders simply choose an asset and an expiration time when placing a trade, greatly simplifying the trading process.”
“Tere are several distinctive characteristics contributing to the growing success of these financial instruments”, says Arik Peretz, CEO of Forex platform vendor Paragonex. First, he points to the fact that these are simple instruments to understand and trade. Tey involve a clear yet high payout structure, which is unaffected by market conditions and by the magnitude of moves made by the market throughout the duration of the position. Tere are also no costs associated with entering a trade as there is no spread to cover or any sort of carry costs.
No experience necessary
“Tis simplicity, coupled with commission-free trades and the ability to invest small amounts while still enjoying substantial gains, make binary options an excellent starting point for beginner traders, but also a great
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opportunity for more seasoned investors to diversify their investment portfolios,” comments Peretz. “Te fixed predetermined payout structure makes binary options a superb investment for people with little time on their hands to manage and monitor their investments.”
Jonathan Shkedi, director of business development at online trading software provider TechFinancials, states that trading binary options is becoming more popular because it actually allows people that are not traders to come in and enjoy trading on the financial markets, without having any previous experience. He comments: “Tere really is only one key characteristic of binary options; simplicity. As far as experienced retail traders go, it gives them another outlet to trade through. We have noticed that with our MT4 solution, traders that are in longer term positions simply like trading binaries while waiting for the outcome of their more long term positions in Meta, either for hedging their spot positions or simply for trying another method of trading.”
Binary options are characterised as simplified forex trading,
Social Investment Networks are also starting to attract interest from Retail traders, so a new generation of WL services will need to deliver solutions for brokers who are interested in running their own social investing communities and off ering their clients access to them.
explains Tammy Levy, director of marketing at SpotOption,a specialist Binary Options provider. “Basically they allow anyone who is interested in finance and the market to trade, and very little knowledge or training is required. Officially deemed a financial instrument by CySEC this year, the binary option is about ‘up’ or ‘down’ in market movements. It’s simply making a prediction if the price of an asset will be over or under the current rate, by an expiry
time. If the trader predicts correctly, they receive the payout offered in the contract. Tat’s the basic principle,” she says.
As opposed to traditional forex trading, where a trader needs to have a high level of understanding in both the financial markets and the software itself, Ofri Noier, head of business development at financial trading platform provider Tradologic, states that binary options are designed to allow the most inexperienced
users the a good experience in investing their funds.
“Te product is easy to understand, and along with the market data provided and graphs that allow traders to follow trends, investing becomes a simple day to day action. Te product is popular and is even more popular in volatile markets because platform allows operators to offer short term investments (anywhere from 60 seconds to end of month), which allow
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Tel: +44 1208 821 801 Fax: +44 1208 821 803
Or e-mail: Helen@aspmedialtd.com
T e most common argument for use of a White Label solution is giving brokers fast entry to market and lower costs. But it is the intricacies of what Filipowicz describes as ‘partnership’ that creates the best business opportunities for all sides involved. While product-makers see the sales of their software and platforms providing them with additional income, it is no longer a process of simple IT sales.
T e continual evolution of the FX market requires brokers to prepare themselves for future trends, while being fully cognizant of what’s driving customers to them. White Labelling is therefore a powerful tool in helping brokers to meet these future challenges and remain competitive.
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