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Te transition to offering a real time STP is now more a matter of semantics than relationships. With STP technologies, such as our liquidity bridge, pushing into the under one millisecond range for executions, most clients do not see a difference between traditional B-Book and STP execution. Tis frees up the broker to identify situations where they are comfortable


managing risk, and situations where they are happy to offset that risk.”


Ralich adds: “We are continuing to evolve our technology to make it easier for the broker, in real time, to decide which clients, groups of clients, symbols and/or positions they want to offset. In addition, our business intelligence tools have been developed in a way that helps brokers become better informed when they make these decisions by identifying opportunities where client trading is more conducive to an STP model.”


Timur Latypoff


“More and more brokers are deciding to stop playing dangerous games of manual risk management, and now rely on contemporary software solutions like Liquidity bridges to do the job. Of course, when you reduce the risk, you also dramatically cut your profits, therefore we will not be seeing 100% STP


and ECN trade execution in the near future..”


On reducing brokers’ market risk, Latypoff says: “Firstly, it has always been known that dealing with high volume clients has always been a market risk. Tere are many schemes one can use to mitigate the risk, but the only reliable way to reduce it down to zero is executing trades against third party liquidity providers. It’s like pushing your risk down the line to someone bigger. More and more brokers are deciding to stop playing dangerous games of manual risk management, and now rely on contemporary software solutions like Liquidity bridges to do the job. Of course, when you reduce the risk, you also dramatically cut your profits, therefore we will not be seeing 100% STP and ECN trade execution in the near future as smaller clients are easier to manage, and brokers usually still keep them away from third party liquidity, relying on own risk management.”


Latypoff continues: “Secondly, not offering STP or ECN trade execution is tantamount to market making, imitating how


80 | INSTITUTIONAL FX SERVICES - THE BROKERS HANDBOOK 2012/2013


the market works, not working at market conditions. Tat brings us to what some traders consider cheating by exploiting non-market behaviour for the purpose of earning money with lower or no risks. Although it is possible to battle this by putting additional constraints in trading rules and customer agreements, arming your servers with special algorithms (and many do that,) the only mathematically effective way is going down the STP route, as real market execution cannot be manipulated.”


Increasing numbers of brokers are looking at reducing their market risk by offering STP and ECN trade execution. Higgins notes that this is because the algorithms used by clients are becoming more sophisticated, and many brokers simply cannot afford to wear the risk and cover the trades later. He adds: “A super low latency liquidity bridge can offset as much or as little risk as the broker wishes, allowing them to select and vary their risk profile as the markets ebb and flow.”


“Smart brokers will constantly assess their clients’ ability to make profitable trades, to help them decide who to cover and how much to cover. Brokers may choose to cover 100% of trades, 50%, 0% or any other level. Some brokers may even use advanced facilities like reverse coverage where they bet that the client has got it 100% wrong.”


Pimp that bridge


Liquidity bridges can now be configured and customised to automate and solve many of the risk management issues facing FX brokers, says Ralich. oneZero


Technology and Connectivity


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