The Case for Custom Development in Brokerage

The European brokerage industry stands at a crossroads. Regulatory crackdowns on CFDs and other leveraged OTC products are reshaping the landscape, pushing brokers to rethink their business models. While this change brings challenges, it also opens doors to opportunities, particularly in listed markets like futures and options. The question isn’t whether to adapt but how.

For many, the instinctive solution is to build new software in-house. After all, who understands your business better than you? But while this approach might seem straightforward, the reality is far more complex. For brokers looking to evolve in today’s markets, custom development by an expert software partner often proves to be the better choice.

The regulatory shake-up and its impact on brokers

For years, retail brokers in Europe thrived on products like CFDs, which offered high margins and simplicity. However, recent regulatory measures, such as Spain’s ban on CFD promotion, signal a broader trend across Europe.

These crackdowns aim to reduce retail trader losses and systemic counterparty risks, pushing brokers toward safer alternatives like listed derivatives. While these products are less lucrative than CFDs, they offer a safer and more transparent trading environment—a win for regulators but a potential headache for brokers.

While listed futures and options provide a clear path forward, the shift is far from straightforward. Institutional-grade markets demand systems for pre-trade risk management, reconciliation, and settlement. Moreover, retail brokers accustomed to OTC models face steep learning curves to meet the operational and regulatory requirements of listed markets.

Adapting to these changes requires investment in technology. This is where the decision between in-house development and custom development from a third-party provider comes into play.

The allure of in-house development

According to a recent study, 50% of retail brokers favor in-house development, citing their deep understanding of their business needs and the flexibility to tailor solutions precisely. This trend is especially pronounced among newer entrants to the market, who often build technology as a core part of their operations.

But while in-house development has its perks, it’s not without pitfalls. Building complex systems for listed derivatives trading requires specialized expertise in risk management, trade reconciliation, and front-to-back processing. Many firms underestimate the resources, time, and expertise required, leading to delays, spiraling costs, and systems that fall short of expectations.

Why custom development from a third-party provider is a smarter move

For brokers entering institutional or listed markets, custom development by a trusted software partner offers a compelling alternative. Here’s why:

1. Expertise and specialization

Developing systems for institutional trading requires niche knowledge, from pre-trade risk checks to post-trade settlement. Established software developers bring years of experience in creating scalable, reliable solutions tailored to the demands of financial markets.

2. Time-to-market

Building in-house systems from scratch can take years—time that brokers navigating a shifting regulatory landscape don’t have. Custom development partners can deliver tailored solutions faster, helping firms seize market opportunities before competitors.

3. Cost efficiency

While in-house development may seem cost-effective initially, hidden costs like hiring specialized talent, maintaining infrastructure, and ongoing updates can add up. Third-party custom solutions spread these costs across multiple clients, making them more economical in the long run.

4. Regulatory compliance

Brokers expanding into listed derivatives markets must meet stringent regulatory standards. Custom software providers, familiar with these requirements, can build compliance into the solution, saving brokers from costly missteps.

5. Scalability

As brokers grow and markets evolve, so do their technological needs. Custom solutions from a third-party provider are designed with scalability in mind, ensuring they can handle increased volumes and new functionalities without significant overhauls.

A tale of two strategies

Consider this scenario: A retail broker pivoting to futures and options decides to build its own trading platform. The project stalls as the firm struggles to find developers with expertise in reconciliation and risk management. Costs balloon, and by the time the system is ready, competitors have already captured the market.

Now compare that to a broker that partners with a custom development provider. The firm launches a state-of-the-art platform within months, fully compliant with regulatory requirements and equipped with features tailored to its clients’ needs. The broker not only retains its market position but also attracts new clients with its enhanced offerings.

Hybrid models: The best of both worlds

For brokers hesitant to relinquish full control, a hybrid approach offers an effective compromise. By combining in-house capabilities with third-party custom development, firms can achieve:

1. Tailored fit

Custom solutions designed to align with specific workflows and business models.

2. Faster deployment

Leveraging external expertise for core functionalities while retaining flexibility in peripheral systems.

3. Future-readiness

Adaptable frameworks that grow with the business as listed volumes and institutional flows increase.

This model is particularly relevant given the findings of recent research: 38% of brokers prefer a mix of internal and external development. As brokers expand into institutional-grade markets, the inclination to outsource is likely to grow, given the availability of sophisticated off-the-shelf products in those segments.

Why Devexperts?

For brokers ready to embrace custom development, Devexperts stands as a trusted partner. With decades of experience building solutions for brokers, exchanges, and trading firms, we understand the unique challenges of the industry. Our expertise spans everything from high-performance trading platforms to risk management systems, ensuring that your technology not only meets today’s demands but also scales for tomorrow’s opportunities.

If your firm is navigating the transition to listed derivatives or exploring new market opportunities, let’s talk about how custom development can give you the edge.

Reach out to Devexperts today to explore a tailored solution for your needs.