FX Industry Pain Points: What Are the Tech Nuggets for FX Brokers
In Devexperts, we’ve been cataloguing some pain points and preferences of FX/CFD brokers and traders alike.
The list below is far from comprehensive, but it will give you a good idea as to some of the issues that are constantly being discussed behind closed doors. We’ve picked the most popular ones and split them into four most common ones voiced by our industry peers.
Brokerage Pain Points with Trading Platforms, Instruments & Risk Management
1. Differentiating the Platform
For a variety of reasons, the online FX/CFD industry is one in which it’s particularly difficult to stand out. As you’ll see below when we get to trader preferences, a single out-of-the-box trading platform still dominates the space, so it’s understandable why the industry has a bit of a cookie-cutter feel from one brokerage to the next.
But it’s more than just the common platform. Brokers, quite understandably, are not keen on their clients having to select their brand from a long list of rivals in order to download MetaTrader®. For one, it contradicts the image of the brokerage as trying to prove they are most popular, standalone venue for market access; it leads to client attrition, and from a marketing standpoint it appears to put the software provider in the driver’s seat. More on this below.
2. Differentiating the Product (Contracts for Difference)
As for the product itself, CFDs for retail traders are not unique to any single business, nor are the underlying instruments that CFDs are based on. Historically, CFD brokerages have sought to stand out by narrowing their spreads and offering more symbols across a greater variety of asset classes.
First it was FX pairs, then commodities, indices, equities, futures, bonds and now crypto. Today, most CFD brokers are reasonably well matched in their respective asset offerings, and there’s only so tight spreads can be squeezed before, again, everyone’s offering the same thing. How to stand out? Provision of some unique in-house calculated indices could be the solution.
Additionally, there’s the added issue of a completely new generation of traders, mostly under-30, for whom CFDs are no longer the only game in town. Many of these new traders have gone straight to zero-commission brokerage apps and crypto exchanges without ever giving CFDs a second thought. We’ve already covered each of these phenomena in greater detail elsewhere on this blog, see here and here if you’re interested.
3. Simplifying the Product (Making CFDs Accessible)
Another common issue, particularly from our brokerage partners in Middle Eastern and Asian markets, is that the product itself is too complicated for the lay public to begin with. They find that the manner in which it’s presented, as well as the steepness of the learning curve, is a real barrier to mass adoption. They feel existing traders are well-served, but many newcomers drop off before ever truly getting to grips with how to trade CFDs.
Essentially, what these clients are asking for is a way to bridge between a relatively simple UX, with limited options for newcomers, to the fully fledged version with all the bells and whistles for experienced traders. This is an effort that can positively impact both client acquisition and retention.
4. Improving Risk Management
This one is a problem for all brokers irrespective of region. Many of the companies we talk to contend that existing risk management software is too basic and lacks functionality, with dated UIs. This impacts not only existing markets on offer, but also any new symbols a brokerage might add as every new addition comes with its own challenges to risk management (e.g crypto assets). It forces many dealers to hedge manually and/or constrain trading conditions.
This approach is far from optimal from a profit standpoint as manual hedging is inferior to an algorithmic approach, but it can also render instruments such as crypto uncompetitive when trading conditions are hampered to mitigate risk (wide spreads, artificial trading hours).
Read what we’re doing to overhaul risk management approaches in the industry.
Thanks for reading! In a subsequent article, we plan to delve further into finding the solution to differentiate with a trading platform.
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