Minimizing Vendor Lock-in Risks for Brokerages

Selecting the right technology vendor is absolutely critical for any brokerage business. While many brokers initially opt for the quick and cost-effective trading platform that is most common in the industry, this approach can expose the business to significant risks, such as vendor lock-in. In this article, we’ll explore how brokerages can take decisive action to minimize these risks and expand their platform offerings, ensuring business continuity and long-term success.

Typical brokerage software stages

1. Communal turnkey platforms

When brokers launch their business, they have to do it quickly and cost-efficiently. Hence, they usually go with a turnkey trading platform that doesn’t cost a leg and an arm and is ready to be deployed right away. Such a platform might not even be white-labelable, but this doesn’t matter much when you’re just starting.

2. Hosted turnkey platforms

After a brokerage runs for a while and establishes its processes, it’s time to consider securing business from various risks. One such risk is related to the brokerage’s software vendor, which supplies the core business software—a trading platform.

As a broker, the least you can do at this stage is to ensure your web trading platform is hosted separately and you don’t share it with other (possibly rogue) brokers. This way, you don’t mix with the wrong crowd. Your business won’t be closed by a regulator just because it can’t distinguish your operations from those of rogue brokers sharing a trading server with you.

Another good point to consider at this step is getting your own mobile app on Google Play and the App Store.

Some software vendors have only one app with a dropdown menu with all their brokers. Traders download this single app, choose their broker in the dropdown menu, enter their credentials, and start trading on the go.

Here, we have several risks. The first one is the same as with a shared trading server—if just one broker is shut down, Google and Apple take the entire app off the grid, leaving your existing clients without mobile trading app updates. Newly onboarded clients won’t be able to get a mobile app at all, which is a massive dealbreaker because over 50% of traders use exclusively mobile devices to trade.

Another dealbreaker is about losing clients to other brokers. Imagine you have a list of them in a dropdown menu right in front of your eyes, and one offers a great deal to new clients. How easy will it be to switch to another broker? We say easy peasy lemon squeezy.

Getting your own branded mobile app these days is not that big of a deal. Even if you share some communal industry-standard web trading platform with other brokers, the least you can do for risk management is get your own hosted mobile trading app. A web trading platform won’t steal your clients, but a mobile one will.

Branding is also great for getting your own hosted web and mobile apps. Such platforms are usually white-labelable, so your brokerage identity will always be in place in the form of your logo, platform’s name, and even UI colors.

3. Having several platforms

The third stage of minimizing vendor lock-in is expanding your platform offering. Even if one platform falls overboard, you can quickly migrate its users to another that is already in place.

Some firms even go so far as to get a specially designated disaster recovery platform to keep client operations going while their primary platforms undergo maintenance.

4. Custom trading platforms

Another step is for well-established brokers with enough funds and patience to go independent. Going the whole hog in the brokerage business means getting your own proprietary trading platform.

You can do this in two ways: the easiest one is to buy the source code of the platform you already employ from your software vendor (if there’s such an option, of course). The second option is trickier, takes more time, and is way more costly—getting your very own custom trading platform tailored exclusively to your specific needs and business processes. Of course, the latter option is suitable mostly for well-established brokerages with enough funds and reason to get a custom solution.

Bonus idea

If you’re nibbling at an idea of getting a custom platform, there’s an option of getting a taste of custom development—some technology vendors offer custom widgets for turnkey trading platforms. It could be anything—a simple integration with AI to help clients with trading terms and processes or something more sophisticated like an options expiry tool that helps traders make quick and informed decisions about their options positions.

At Devexperts, we can facilitate brokerages at all stages. Whether you’d like to get a branded hosted turnkey trading platform, a custom widget for your unique business flow, or a fully custom trading platform—we’re here to help. We also offer an option of buying out the source code of our platforms, so if you’d like to be fully independent (meaning to have no vendor lock-in risks at all), this option might be the most suitable for you.

Let’s get in touch.