Choosing the Right Technology for Your Broker
December 14, 2016
Establishing a new brokerage house is subject to many hurdles, but this is something valid for other industries as well. The decisions to be taken at the moment a new brokerage house is started are decisive for the way it will expand its future activities.
The most difficult part in starting such a business is the legal requirement. Obtaining such a requirement is not an easy task as regulations are different on every jurisdiction, so location is very important. This affects the company incorporation as well, together with other things that must be done at the start of a business: opening bank accounts, having a business plan, etc.
Perhaps the most important aspect to consider, though, is related to the technology needed to establish a forex broker.
Technology Aspects to Consider
From this point of view, technology is the bread and butter of a forex broker. Not only that the last state of the art technology should be considered, but the ability of the technology provider to keep up with the changes in the industry is important as well.
The best example that comes to mind is to go back in time and check the types of trading account and spreads offered by main forex brokers in the early 2000 years. To have an idea about this, imagine that the EURUSD spread was three pips minimum and all accounts were four digit ones.
Many of the brokers active then are still in the business, but the business changed from a technology point of view. New technologies became available (ECN, STP), new ways to bridge with liquidity providers, etc. All these resulted in the industry to transform virtually overnight.
If the technology provider is not able to keep up with these changes, this will affect very much the profitability and the very existence of the forex broker. For new brokerages, it is important to consider this aspect in the business plan.
Moreover, an increase in the business size should be part of the plan and avoid technological pitfalls is critical. Therefore, knowing that the technology provider is experienced enough and can keep up with new challenges is key.
Trading Platforms and Accounts
Different types of trading accounts are being offered by forex brokers, and this means different technologies are being used. Some brokers are offering both ECB and STP, either singular or in a combined solution, and in all cases another type of account is needed.
Moreover, trading platforms play an important role. MetaTrader is the most popular one, but no matter the trading platform, it needs to be perfectly integrated into the overall system.
If the trading platform is a custom built one, it needs to be able to fulfill all the tasks the popular trading platforms do.
In an STP model, the broker must word to reduce latency, so this is where the focus on the technological aspect should be.
After the trading platform is chosen, hosting it is the next hurdle. Data centers should be selected based on the customer service, if there is a 24/7 availability, etc. Also, having a backup is key, especially in businesses that are heavily dependent on data.
These are only a few things to consider from a technology point of view when deciding to establish a forex brokerage house. Carefully solving them allows for the business to grow and be successful, standing the test of time.