Fintech Innovation in Trading Platforms Will See a New Breed of Brokers Emerge  

This article was contributed by Conor O’Driscoll, VP of OTC Platform of Devexperts

The market volatility that has resulted from the COVID 19 pandemic has prompted more people to take up retail trading. Many well-known retail brokers across equities, FX, CFD, cryptocurrencies and other markets have experienced a significant uptick in trading activity.

This hugely competitive space has become even more crowded over the past decade as technology costs have fallen and barriers to entry have reduced. As brokers compete to attract this burgeoning breed of trader, they must be able to differentiate themselves from their peers and present a comprehensive high-tech trading solution.

Although very few brokers will openly admit it, this actually presents a dilemma for them. Retail broking is heavily commoditised. Legacy technology occupies much of the current retail broker space, so that interfaces and the user experience is often similar, no matter which broker is used.

This industry is ripe for a fintech revolution. We’ve seen this occur in many other industries in recent years – in banking, payments and even online media and entertainment – where new entrants utilise modern, innovative and flexible technology to challenge the incumbents.

The online trading world is not exempt from this; challenger brokers recognise that the existing players are burdened by legacy technology and struggle to differentiate their market proposition.

A modern solution could be the answer, pairing the efficiency of an off-the-shelf solution with some of the elements of a bespoke trading system.

Tackling legacy systems

Online traders recognise they are hindered by outdated systems with significant gaps in their technology. To address this, they have turned to off-the-self technology platforms for an answer. While sensible in theory, in practice the current platforms can cause headaches to emerge over time.

In order for these platforms to work proficiently, swathes of third-party vendors are required to cover the technology gaps. This includes relatively simple dealer plugins for managing swaps and margin levels, to bridges offering straight-through-processing (STP) trading on platforms that aren’t intended for specific business models.

Adding layers of technology systems and plugins on top of each another adds complexity, increases cost and hinders operational stability. If one cog in the machine breaks down, the knock-on effect can be significant.

In addition, most brokers won’t admit that the risk management tools embedded into legacy platforms are often stretched to their limits. Off-the-shelf platforms certainly have their place in the market. The efficiency they provide for brokers is unmatched. But, the off-the-shelf products that have ruled the market up until today are not suitable to handle the levels of order flow and influx of clients they serve today. There is a gap in the market for a smart solution and fintechs should be looking to plug this gap.

Moving fast to grow and retain clients

So, where does this leave retail brokers in today’s operating environment?

The surge in popularity of online trading means that brokers are scrambling to position themselves as the go-to intermediary. But time is of the essence: in a competitive market, they have a small window of opportunity to win over new customers and gain market share.

In the case of larger brokers, that typically means tapping into their significant marketing budgets to launch widescale advertising campaigns. While this may present a short-term win, the underlying legacy issues may remain unaddressed.

For new entrants or smaller brokers seeking to cater to their customers quickly and efficiently, off-the-shelf trading platforms offer a credible and swift route to market. From signing the contract, many vendors can have their platform up and running in a matter of days.

While this is certainly beneficial for speed, the incumbent platforms lack the differentiation they require and often leaves much to be desired in terms of modern functionality.

As a result, traders are left to choose from a small number of brokers all leveraging the same technology. There is no genuine change to the status quo.

Adopting the latest fintech expertise to develop customised solutions

There is a third way. Many modern systems utilise tailored and agile solutions developed by fintech companies, helping challengers and start-ups gain significant cut-through. What this boom has taught us is that not only are people embracing innovation, but also that technology providers need to package their product in a way that delivers value for money and optimum proficiency in a manner that will attract customers.

The retail trading market has been crying out for change, and the emergence of new fintechs means there is an opportunity for brokers to differentiate themselves from the incumbents and marry off-the-shelf speed and efficiency with a bespoke and customisable trading system.  The off-the-shelf platforms provide an unmatched product in terms of efficiency but they are in dire need of modernisation.

We’ve seen in other markets how user experience is key. Providers that can adapt quickly to changing consumer and client requirements are emerging as winners, adding substance as well as their stylish interface.

It is now time to challenge the dominance of the market by existing platform suppliers and move forwards to service the technologically adept new breed of trader with systems that suit their needs. A forward-thinking trader wants to take advantage of the latest tools, and that can only happen if brokers offer an easy-to-use, secure and efficient trading platform.

The views represented in this commentary are those of its author and do not reflect the opinion of Traders Magazine, Markets Media Group or its staff. Traders Magazine welcomes reader feedback on this column and on all issues relevant to the institutional trading community.