FX: Thinking outside the broker in a box
Broker in a box is promoted as a means of taking the pain out of establishing a regulated FX brokerage, but choosing the wrong approach and/or provider runs the risk of limiting the growth potential of the business from the outset.
The appeal of a turnkey brokerage solution is obvious – it enables the business to be launched quickly and promises the assurance of working with a supplier that understands the technological and liquidity issues facing FX brokers.
However, these benefits will only accrue if the set-up is right, says Simon Blackledge, director itexsys.
“The first step is to decide what kind of brokerage you want to be,” he adds. “In addition to registering the company and setting up bank accounts, you need to decide which regulation you would like to operate under so that the appropriate licensing can be applied for.
“You also need to think about your target audience and how you plan to reach them and include staffing as part of your initial focus – are you planning an automated process or will you be offering a more personal service, requiring a number of employees to run a 24/7 help desk?”
Some turnkey broker-in-a-box solutions are focused on technology only, while others include liquidity, dealing services, regulatory consulting and even company registration, observes Andrew Ralich, oneZero Financial Systems co-founder.
Andrew Ralich, oneZero
Ralich suggests brokers should be wary of any solution that crosses the boundaries of clearing, technology and regulatory compliance.
“There are many great solutions available to start-up FX firms which can provide cost-effective infrastructure, software and hardware,” he says.
“Once you start coupling your liquidity and compliance to the technology that runs your brokerage operation, you limit future growth and create a situation where down the road you may need to uproot your entire firm in order to approach a more mature liquidity option.”
Partner or competitor?
Luis Sanchez, CEO of BMFN, urges an open-architecture approach and says prospective brokers should consider whether their white-label provider is a partner or a competitor.
“They need to consider whether their provider is based in the same market/region and the business model it is applying,” he says. “Also, will the supplier be able to support the business in the medium to long term or is it just a cost-effective solution for now?”
When asked what differentiates the various broker-in-a-box solutions available, CFH Clearing’s global head of sales Paul Jackson refers to technology as well as the choice of platforms and liquidity.
“For example, we offer a choice of customizable proprietary and third-party front-end platforms,” he says. “We also provide access to a wide range of tailored liquidity – being able to access liquidity that can be tailored to each client segment is vital.”
Ralich at oneZero says his firm encourages prospective brokers to seek out providers who are proven market leaders in a specific niche – technology, clearing, compliance – and are flexible and agnostic to a variety of deployment models depending on the needs of the brokerage.
Itexsys’ Blackledge agrees that support is a crucial consideration and suggests prospective brokers ask providers about downtime on their platform and their ability to resolve issues around the clock.
“I would suggest that you look at who the provider has partnered with, as this reflects on their professionalism,” he adds. “If they partner with industry-leading suppliers then they are likely to offer you a high-quality service with a wealth of industry expertise.
“You also need to think about how they might accommodate your longer-term plans – we want our broker clients to progress from a white-label platform to a full licence.”
White-label providers have traditionally been the larger brokers. However, this raises issues around partners being restricted to taking liquidity from their white-label provider and the provider on-boarding their client base onto a direct competitor’s server.
“If the provider ever ran into financial or regulatory difficulties and ceased operating, the partner would lose all their clients’ historic and personal details,” suggests Blackledge, adding that this is a reason why brokers are increasingly taking their white-label solutions from technology providers.
“As we are not affiliated to any broker, our clients can source multiple liquidity feeds and change liquidity provider at any time,” concludes Blackledge.
“We have no interest in the end-trading client’s data and we also offer a reduced offering for smaller clients that allows them to expand at a rate that is in line with their business projections and prove their business concept works without having the initial capital outlay of obtaining their own licence.”