The early days of the Retail Online Trading Industry are, or more accurately should be, a thing of the past. Why? Because the latest Business and Technology transformations have eventually made the impossible possible.
With daily volumes estimated at USD 300+ Billion, Retail Forex (i.e. your trades) already accounts for 8% of the global Forex Market. It has proven one of the fastest growing and is nowadays one of the most sought after segments of the Forex Industry.
Tier1 Bank and non-Bank (i.e. Hedge Funds, Dark Pools, etc.) Liquidity Pools are now actively seeking Retail Liquidity, hence started to open-up a once restricted direct access to the inter-banking Market. In other words, all combined, your retail trades are worth Billions, probably as much as those of any given major Financial Institution, and what used to be a No-Business has now became The Business, full stop.
Robust bridging, aggregation and clearing technology have finally emerged to fill the gap between the inter-banking Market and popular Retail Trading platforms, such as the Meta Trader, which were historically strictly designed to operate under Market Making conditions (i.e. lacking sufficient technology to provide direct access the inter-banking Market).
As a natural evolution, Retail Traders may now benefit from a direct access to the inter-banking Forex Market under the same conditions as any given Financial Institution, while keeping their marks using their preferred Retail Trading platforms, including the Meta Trader.
In 2014, Agency Only Model (i.e. 100% DMA/STP Execution), transparent pricing (i.e. no spread mark-up), MiFID compliant post-trade transparency (i.e. who filled your trade / when / how fast / at what price) and full anonymity (i.e. anonymous Stop Losses and Take Profits to the counterparty) shall be the only standard for Meta Trader users and more so their only concerns, certainly not Bonuses and other Cash Promotions.
Unfortunately it is not.
Numerous so called “world class” historical Retail Brokers (i.e. Alpari, FXCM, FXDD, FX Sol, and more) are still resilient to embrace the change.
Not only do they actively prevent access to all the above by raising their thresholds on “Pro” accounts and/or by adding intentional complexity to their offering (i.e. too many account types, terms and conditions, pricing and execution structures, etc.), but they also tend to attract Retail clients by spending millions of Dollars on numerous cash promotions (i.e. Credit Bonuses) and advertising campaigns in order to distract their clients’ attention from what truly matters:
- How pertinent is the order I want to execute? (the Trader’s side)
- How accurately, how fast and by whom will my order be executed? (the Broker’s side)
Why add more complexity by selecting the wrong Broker when Margin Trading itself is one of the riskiest forms of investments? Leverage can work against traders as well as for traders, and losses can exceed one’s entire investment. That is more than enough to cope with, and everything else shall strictly lead towards Retail Traders’ interests in order to facilitate chances of success, without any compromises.
The world’s best and most advanced technology would be worth nothing if it wasn’t for the applications leveraging from it. How good can any innovation such as Social Trading platforms be if in the end your trades are to be executed by a Market Maker which will have total control over your trades’ pricing and execution?
Any Broker claiming an STP / NDD / DMA / ECN / PRO offering, may nevertheless “Make the Market” even if partially (i.e. STP 50% of clients’ orders and make the market on the other 50%). In theory, there is nothing wrong with this configuration as long as the Broker runs an ethical business. In practice, Regulators such as the NFA and the FCA have both demonstrated condemnable practices conducted against Retail Clients’ interests by "world-class" historical Retail Brokers claiming out and loud such STP/NDD operations. The temptations to manipulate pricing and execution to the sole interest of the broker’s bottom line remain systematic.
Indeed, what truly needs to evolve is the constant conflict of interests sitting behind any of the latest innovations. Social Trading Networks, Automated Trading Platforms, or ECN/Pro Account types, as good as they can be must now leverage from the latest business models to make a significant difference. Otherwise they will only act as another nail polish hiding the not-so-bright truth driving the Retail Trading Industry (i.e. preventing Retail Traders from a direct access to the Markets).
Are Retail Market Making Brokers and Tier1 Banks both Market Makers?
Simply put, "yes but". As much as a Retail Market Making Broker, any Tier1 Bank will also operate as a Market Maker, hence have total control over pricing and execution, yet with significant variations.
Firstly, in both cases your profits are indeed the Market Maker’s losses, except that Retail Liquidity (i.e. your trades) only represents a fraction of any Tier1 Liquidity Provider’s business, whereas it unfortunately represents the vast majority of any Retail Broker’s business, hence the vast majority of its Profits & Losses.
Additionally, Tier1 Liquidity Providers usually transform Retail Liquidity into Added-Value inter-banking Liquidity. Whenever the Market suffers from shortage of Liquidity (i.e. not enough Liquidity available on the Market), Tier1 Liquidity Providers tend to source additional Liquidity from the rapidly growing Retail Market (i.e. your trades) in order to resell it at a better price to other Tier1 Liquidity Providers, thus realising a profit.
In the theoretical and very unlikely event where every single Retail Trader would realize a profit at the exact same time and if all Retail trades were straight through processed to Tier1 Liquidity Providers (which is hardly the case nowadays as the vast majority of Retail Brokers are Making the Market, hence preventing Tier1 Liquidity Providers to access Retail Liquidity), these would indeed suffer an aggregated loss of USD 300+ Billions. 300+ Billions would certainly appear as a significant amount if taken out of context, yet it only would represent 8% of the total daily global Forex Market volume which may not be sufficient to bankrupt the Market players as a whole.
The same example applied at the Retail Brokerage level would have other consequences. Any Retail Market Maker (i.e. the vast majority of Retail Brokers) may then suffer from dramatic losses, possibly leading to bankruptcy.
Secondly, trading under a 100% DMA/STP Agency Model grants Retail Traders with full anonymity on the inter-banking Market. Stop Losses and Take Profits limits are kept within their Retail Broker books, out of reach from Tier1 Liquidity Providers, hence preventing any potential price and execution manipulations at the inter-banking level, such as Stop Hunting or Requoting.
As long as Retail Brokers will purposely lock their clients into precarious terms, Retail Traders will inevitably suffer from the full exposition of their trading strategies, including Brokers’ visibility on their Stop Outs and Take Profits, coupled with a systematic conflict of interest (i.e. client profits are their Brokers’ losses).
Simply put, trading with a Retail Market Maker equates to kneel down at its mercy.
Inevitably, over the most recent years and despite all the latest business and technology improvements, questionable practices conducted by numerous so called “world class” historical regulated brokers have been exposed by renowned financial regulators such as the NFA and the FCA. Such cases have been fully referenced online and we at Edge Brokers invite Retail Traders to run their own research accordingly. Most cases present unfair and unethical business practices, often preventing Retail Traders from realizing profits, or worse forcing their losses.
The question remains, why and how such Retail Market Making Brokers are still attracting Traders?
We see 2 main reasons for this:
- Until most recently there were no valuable alternatives.
- Such alternatives are yet to be known from the Retail audience.
As concerning, nowadays new Online Retail Brokerages are being established throughout the world every other week. In effect, establishing a new Brokerage is as easy as 1, 2, 3.
- raise some funds, a few thousands may suffice.
- setup a white Label partnership with a Tier2 or Tier3 unscrupulous Retail Market Maker.
- build a flashy website and kick-off Marketing and Promotional campaigns online promising great returns and attractive welcome bonuses.
From the most newly established to the largest “world-class” historical kind, nowadays most Retail Brokers claim for Transparency, Fairness, STP, ECN, NDD and a number of other attractive attributes.
It is about time for the Retail Trading Community to challenge such Brokers with the following set of questions:
- Are you fully authorised and regulated by a well regarded Financial Regulator such as NFA, FCA, ACPR, ASIC, BaFin etc.?
- If so, does your License grant you permission for “Dealing on Own Account” (i.e. permission to “Make the Market”)?
- Most importantly, will you systematically provide upon my request a MiFID Compliant Post-Trade Transparency Execution Report presenting which Tier1 Liquidity Provider filled my trades?
If any of the above is answered negatively, chances are your Broker does purposely maintain a (most lucrative) conflict of interests with its clients and, as described previously, may not systematically be in business to protect your sole interests.
Ask Edge: We at Edge Brokers protect our clients’ interests by enabling the Retail Trading Community to make informed and responsible decisions at all times. How? By providing an open access to insider’s knowledge-sharing via the ASK Edge programme. ASK Edge will proactively and reactively address any grey-zones, concerns, and questions the Retail Trading Community may seek About Edge, our competition and the Industry as a whole. Our highly experienced Senior Management Team will expose overtime, with the highest degree of integrity and transparency, the worst and best brokerage practices affecting your trading experience and will welcome any questions to be asked, with a particular interest on those the vast majority Retail Brokers would never want to be asked.
Zero Conflicts: we at Edge Brokers are operating a Revenue Model which is strictly Commission-based, and we are exclusively licensed as a Matched Principal Broker (100% Agency Model), which may not hold any proprietary positions, has no exposure, and is therefore only acting as an intermediary between its Clients, Liquidity Providers and major Exchanges. Simply put, we have no rights to “Make the Market”, hence have no conflict of interests with our clients and are strictly in business to protect their interests. The more our clients trade, the more profitable they are, the more loyal they are, the more successful we shall be. Our clients’ interests are our main and sole interest, full stop.
Transparent: We at Edge Brokers protect our clients’ interests by granting them with full transparency, both pre-trade (No Spread Mark-up) and post-trade (full Execution Reports presenting the name of the Liquidity Provider which filled their trade, how fast, at what price and at what time). That is how Transparency shall be understood and implemented, that is how the MiFID Directive sees it, and that is precisely how we believe any Retail Broker should operate. Anything else cannot be qualified of Transparent by MiFID standards.
Fair: We at Edge Brokers protect our client’s interests by offering a one-for-all simple solution to all of our clients without any discrimination, i.e. 1 account, 1 platform, all Markets, backed by a friendly, open and helpful Customer Support. Clients testing our platform starting with the minimum deposit of USD 500 and clients fully leveraging from our solutions USD 500,000 deposits are granted the exact same treatment. Moreover, every single one of our Clients’ orders are systematically STP to our Liquidity Providers on a "Fill or Fill" basis (i.e. no requotes) with both positive and negative Slippage enabled (i.e. no broker intervention on price improvement). We feel doing business otherwise would not be Just Fair and Direct.
Anonymous: We at Edge Brokers protect our clients’ interests by granting them with full anonymity at the inter-banking market level. While without any exceptions 100% of our clients' trades are DMA/STP to the marketplace, our clients' identity and orders are also kept 100% anonymous (i.e. including Take Profits and Stop Losses limit orders) to our Liquidity Providers, thus minimizing any information leakage risk. This is an absolute protection against the unethical practice of Stop Hunting.
Knowledgeable: We at Edge Brokers protect our client’s interests by providing unrestricted access to professional coaching. Our Just Fair and Direct specifications attracted some of the most-acclaimed Financial Markets Analysts available in Europe whom found in Edge the absolute answer to their clients' growing concerns and complaints with regards to the Quality of service and level of integrity delivered by their Retail Brokers. Again, The world’s best and most advanced technology would be worth nothing if it wasn’t for the applications leveraging from it. In essence, what is as much important to us as developing and deploying an absolute Trading environment is to attract and support knowledgeable, sophisticated and satisfied clients whom in turn will generate a repeat business and grant us of their ambassadorship (i.e. positive word of mouth).
Scalable: We at Edge Brokers protect our clients’ interests by investing in Technology rather than in Marketing, always deploying the most cutting-edge infrastructure money can buy in order to process all trades real-time to the inter-banking Market without suffering from any bottle-necks, including those generated by the most demanding EAs, HFT, and Quant strategies. Indeed, our IT infrastructure supports up to 10,000 trades per seconds within the MT4 environment and up to 50,000 trades per seconds outside of the MT4 environment (i.e. connecting Quants and HFT strategies directly to our Liquidity Pool).
Low Cost: We at Edge Brokers protect our clients’ interests by sustaining the lowest Trading Costs possible. We scale down our Operating Costs (i.e. establishing our Headquarters in France and other operations in Eastern Europe rather than in more expensive locations such as London or New York, or limiting Marketing spend to the strict minimum) while guaranteeing the highest Quality of Service our clients shall deserve and expect from a Retail Broker nurturing world-wide ambitions. We also multiply our sources of revenues from operating Retail Trading, Asset Management, IT Solutions, and even FX Delivery (planned for launch in Q1 Q2 in 2013) activities under one single proprietary IT and Regulatory environment, hence we optimise our business efficiency through economy of scale while sustaining a solid and serene Business Model overtime.
On a final note, we at Edge Brokers consider ourselves as genuine Game Changers and are immensely proud of the Just Fair and Direct trader-centric solutions we have on offer.
We would like to invite the Retail Trading Community to try us and adopt us in order to take immediate advantage of the latest Business and Technology Transformations improving our industry. This is only the beginning and we have many more innovations in the pipeline for you to benefit from.
Once again, our specifications have been proven to increase Nominal Trading Volumes and Clients Profitability overtime. Our offering shall be a no-brainer and we expect to increase accounts acquisition / retention, trading revenues, and overall clients’ level of satisfaction over a Quick-Win.
In today’s turmoil, while a majority of "world-class" historical Retail Market Making Brokers are increasingly experiencing regulatory pressures, volumes drops, income losses and client disengagements, adopting a transparent and disruptive WIN (Partner) + WIN (Edge) + WIN (Client) model does make a lot of business sense.
For this reason, we are very much looking forward to engaging and growing a long-term successful relationship with the Retail Online Trading Community.
We are Edge Brokers, your game-changing partner of choice!