Tom Higgins is the Founder and CEO of Gold-i with experience in financial technology spanning over 25 years. With an in-depth knowledge of the trading technology industry, Tom set up Gold-i in 2008 after spotting a gap in the market to enhance the FX trading process for retail brokers. As the inspiration and driving force behind Gold-i, Tom has played a major role in disrupting the retail FX and Crypto market, giving opportunities to brokers/exchanges across the globe. Now extending the firm’s focus to the institutional market, he uses his market insight to continue to drive innovation.
What Problems Do Start-Up Brokers Face?
Setting up or growing a brokerage today is easier than it has ever been at any time in the past. Everything is available to buy as a service, from trading platforms, CRM systems, liquidity management, risk management, marketing, sales, compliance, and legal services.
But how do you choose which companies to use from a huge list? Which ones are good, bad, or just ugly? What do you actually need, and when do you need it?
Let’s start with the most basic need, trading platforms.
If you are attracting retail or semi-professional clients, then you will need a scalable, robust, and cost-effective platform that supports all the assets that you want to offer. The first choice you need to make here is whether to go with a 3rd party platform like Meta Trader or C Trader or with a bespoke platform provided by your Prime of Prime or Liquidity Provider.
The pros and cons of each…
You will undoubtedly pay a lower fee if you opt for a vertically integrated solution where your LP provides you with everything; however, you will have severely limited your options at every front. For example, you will only be able to use one LP, use only their platform and technology add-ons, and are completely exposed to one entity. What if they have technology, liquidity or business issues? What if you don’t get on with them and want to move?
The fully flexible 3rd party option may look like it is more expensive, but it will almost certainly not be the case in the medium and long term. You can choose the platform your customers demand, the assets they want to trade and the liquidity to power those assets. When you want to add extra features, like risk management and money management, you can choose the supplier that best meets your needs.
The fundamental difference is that you need to take ownership of your technology and not be driven by a liquidity and technology one-stop-shop seemingly ‘great offering’.
Unless you are a very small broker, you will need access to multiple LPs as they are not all the same and have different benefits and costs. A liquidity management system, like Gold-i’s Matrix 2.0 platform, greatly simplifies connectivity to multiple LPs and trading platforms, as they are all pre-integrated. Have a good look at the market and find a vendor you like, trust, has a good reputation for customer experience, has the functionality you need, and is at the right price.
Most brokers now operate a hybrid A/B book model (assuming they are licensed to do this) therefore carrying significant risk on their books. To mitigate this risk, brokers need to continually monitor their risk so they can act on adverse events or fraudulent traders (there are many waiting to pounce when you launch a new brokerage!). As a starting point, I suggest having a look at Gold-i’s Visual Edge product. Choose a system that comes pre-populated with automated monitoring and alerting so you can hit the ground running.
Keeping track of your customers and prospects is one of the most vital parts of any new and growing business, and unless you have a minimal number of customers, you will need a dedicated system. You can either choose a generic CRM or an FX-focussed one like Skale CRM.
Sales & Marketing
Get your company operating first and then focus on sales & marketing, or they will just be sitting around with nothing to do. A modern brokerage needs to allocate a significant chunk of resources to attract the global audience that you will need to thrive. Bill Gates once said that if he were down to his last $, he would spend it on marketing. The key to marketing success is to measure the effectiveness of what you are doing and change it if it does not deliver business in spades.
Compliance & Legal
Initially, you will probably need to use expert contractors for these roles, but you will want to employ legal and compliance staff directly as you grow. These people are hard to find and expensive, so budget high for this.
Be strong, be powerful, do in-depth research on what is available on the Web and by word of mouth. Then be ready to drive your business to the stratospheric levels it deserves!