A nonsense worth avoiding, prime of primes do not b-book, make sure your affiliate program is not being abused, GAIN Capital speaks to us about a rumor, and I head to magnificent Moscow
In this weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment.
Monday: White Elephants and MetaTrader 4
After several years of continuity, the ancillary software that has been developed by specialist providers to accompany the ubiquitous MetaTrader platform range is pretty much typecast and defined into specific categories by specific companies.
I use the word continuity, as refinement does not really apply to a suite of software that should be the subject of Norris McWhirter’s considerations for entry into the record books for the longest market domination period for legacy software in any industry in the annals of history.
When the requirement came about for adapting the MetaTrader 4 platform to accept live price feeds and aggregated liquidity from Tier 1 bank providers and non-bank market makers via prime of prime brokerages, oneZero, Gold-i, PrimeXM, Integral Development Corporation and Fortex all developed liquidity integration and management systems and these firms remain the household names in that specific field today.
When the requirement came for analytics and institutional-grade charting and comprehensive market sentiment systems, Autochartist became, and remains, the industry standard.
Social trading may well be a thing of the past, however in its day, just a few companies – Tradency and Zulutrade – dominated the third party arena outside brokers that developed their own systems.
Quite simply, in such a long period in which the third party trading software ecosystem has remained dominated by one platform company, its ancillary solutions have also been provided by equally strong and dominant firms that, most importantly, know this business inside out and have detailed experience and fully integrated understanding of every part of it. This is likely to be one of the reasons as to why the status quo is never deviated from.
There are, of course, one or two individuals that have blind faith in, to put it mildly, their woolly creations to the point of attempting to march uphill into a strong headwind in order to attempt an almost impossible penetration into an extremely well catered for arena.
On Monday, I received what constitutes another attempt by a small business that claims to be ‘revolutionizing’ the trading environment for retail traders. This apparently not-to-be-missed opportunity comes in the form of an impossible to fathom cloud-based VPN system with a user interface that looks to be at home on a 1985 Commodore 64 resplendent in its hearing-aid beige casework.
Last year, this particular company, run as pretty much a one-man-band had tried to offload its assets, at which point hawking them to several FX industry providers, all of whom valued it at zero. I at the time advised the owner to stop putting capital into it, and simply cut losses and move on.
I had assumed he had, until Monday, when said gentleman re-approached me and explained “SkyDesks has signed with Bloc10.com for ICO related services. Bloc10 provides FinTech to companies who need specialized help with token sales and ICOs.”
“There are three founders, two Indian businessmen and Joe Gelet. Joe has pulished a crypto book (splitting bits) on Amazon” he continued.
“Joe has recently narrated several skydesks videos. See the seven minute video on the skydesks.io site. IMHO, he is a rare FinTech genius.”
So, apparently he is responsible for building some kind of dubious virtual currency website which demands a variety of premium subscriptions , $66/month, $233/month, $750/month. Quite what these subscriptions are for, or what the website achieves is a mystery, as is how this marks him out as a ‘fintech genius’.
The pitch continued “SkyDesks VPS can host the $233 per month service. Need to add ~$33 per month to the $66 service. Also, SkyDesks Linux can protect all of the special features of iCATS, Predata, and BitCoinTrendBot (BTB) data.”
Goodness me, I thought.
“The are two important ‘live’ demos that I will need to demonstrate. The second demo shows the major innovation. There are three running applications plus the Google Chrome browser on the subscribers VM: MT4, MT5, and a free Microsoft Office clone call LibreOffice.”
“That’s all that will be needed to run all TC premium services in the clouds. Either from the LibreOffice applications, or from web services such as Google Docs. All TC subscriber information, account data, and setfiles stored on the VM called intellectual property is protected by Linux permissions” the rambling continued.
“No software install downloads, or upgrades are required since all applications are run in a chrome browser. Essentially- because of SkyDesks cloud automation-without programming- the PC (or Mac) will become obsolete in favor of a machine, located in a Rackspace cloud data center somewhere in the world. BTW: Rackspace is the technical force behind AWS” he said.
In my almost three-decade career in this sector, I have never seen such a superfluous and bamboozling array of layers and file systems which perform absolutely nothing.
I also am aware that last year, this firm was attempting revenue share agreements with some signal providing services which illegally promoted massive returns, I advised the firm that these appeared similar to HYIPs or Ponzi schemes, yet the desperation was so severe that no notice was taken. There has been absolutely no take up from genuine brokerages or service providers of this service, and it has never gained traction in 8 years.
My advice to any brokerage or retail trader that is approached by this is to avoid it in its entirety.
Tuesday: Prime of Prime taking risk? That’s an oxymoron….
….or indeed exactly that but without the oxy prefix!
The very taboo subject of approaching well-known providers of B2B services to retail FX brokerages, especially that relating to price feeds and liquidity – is something that most certainly should be the subject of a much more open debate than it currently is.
Rather like the supermarket business in Britain, or Ford, General Motors and Chrysler in North America, or oil refinement and logistics companies in the Middle East, the non-bank liquidity provision and prime of prime brokerage sector is contended by just a few, very highly polished and well established companies which are absolutely central to the entire component structure of the FX and multi-asset trading business globally.
Thus, making sure that good relationships exist between the brokerages, banks and prime of primes is vital to the sustainability of this business, hence an even keel is kept by the tenacity and continual innovation and perfection by firms such as IS Prime, Invast Global, Saxo Bank, Advanced Markets and CFH Clearing which strive to maintain Tier 1 bank relationships to provide top level execution to the retail market, whilst giving a keen deal and set of good quality tools to brokers.
The importance of these firms is universally understood by the vast majority of retail brokerages, which is a good thing.
However, silence is abound when it comes to firms that have achieved some degree of status as a result of marketing over substance and this week, a highly respected senior interbank FX dealer based in London spoke out about it during a conversation with me on Tuesday.
I was made aware of the firm in question, and indeed I have had similar experiences – however in the interests of compliance and dignity, we will not mention the name here, and I will readdress that later.
FinanceFeeds has been very instrumental in ensuring that the FX industry remains completely informed as to what constitutes a prime of prime broker, thus this is important.
Last year, FinanceFeeds took a close look at pricing, and whilst speaking to another interbank FX senior executive in London (at Citigroup that time), it was pointed out that out the recorded average spread for a specific trade was 0.54 pips for one particular liquidity provider, however the diagram here of the spreads reported on the website differ, thus the advertised spread is 20% lower than the recorded average.
FinanceFeeds is aware of a case in which a liquidity provider had been saddled with uncompetitive spreads, thus had missed out on a significant amount of market share, before finding a new liquidity provider and then heavily advertising the spreads offered via that relationship.
Whilst there is nothing intrinsically wrong with that, as it is not disingenuous in itself, this is a means of onboarding clients whilst low spreads are displayed before such spreads vanish. That particular company is no longer advertising such low spreads.
During my conversation this Tuesday, the subject was raised once again, relating to the same provider, this time by a different individual.
former Goldman Sachs executive, the current situation with regard to prime of prime liquidity was a major talking point.
“You probably know that European regulated brokers which don’t have a market making license are required to get their liquidity providers to underwrite their negative balance client guarantees” said the executive, who is a long term Goldman Sachs veteran.
“Some liquidity providers are prepared to offer this service, and some are not” he explained. “Interestingly, this particular firm, which claims to be very much whiter-than-white is somehow offering negative balance guarantees, and if they are marketing themselves as an executing venue and completely non-risk taking, then they are flat out not allowed to do that” he continued.
“If they are offering it through their FCA regulated broker (I’m not sure how, as an executing venue they are even allowed to own a broker), then they’re not allowed to do that, because the FCA rules require a broker to operate with $125,000 regulatory capital and that a broker cannot market make, so the only way that they can do that is if they are in turn getting that guarantee from another internal entity” said the bank executive.
“This proves that they have a vehicle within their company that can take risk and confirms the rumor that I have heard several times that this particular liquidity provider is in fact B booking trades, hence despite the ‘executing venue’ style marketing direction, realistically their execution model is similar to that of a B book retail brokerage” he said.
On the note of transparency, this particular firm has been a very staunch proponent of no last look execution and has been very vocal about it, two years ago calling the banks up on their continual proponency of last look execution.
Oddly, when I approached the CEO of this particular firm in question last year for an explanation on the variable prices, I was met with very harsh tone indeed.
All of the major banks are continuing to champion the cause of last look, and as time goes on, brokers, and prime of prime non-bank participants, have begun to see less of a problem with the banks conducting last look execution, and see it as the lie of the land in electronic trading. “Brokers want fast execution and cheap fees, those are the two main drivers of business and competitiveness in the prime of prime market” said one London based interbank dealer that I spoke to this week.
The moral of the story? Stick to the aforementioned list of genuine prime of primes and you cannot go far wrong.
Wednesday: Affiliate program abuse! Be VERY Careful. I have my ear to the ground in Moscow!
My day began very pleasantly on Wednesday morning, having driven the previous evening from Sheremetyevo airport, 35 kilometers outside the magnificent city of Moscow, to my hotel which was in the magnificent city of Moscow.
For those who have ever driven in Moscow, the experience is absolutely distracting as literally mile after mile of incredibly beautiful and immaculate architecture whizzes by.
Arriving at 11.30pm after a very thorough but polite two-hour questioning session (the first I have ever encountered when entering Russia, usually it is a 5 minute job) by the border police, I took a rest before spending Wednesday with five very interesting FX trading analytics software engineers with very extensive careers in our industry at senior institutional level.
IndogoSoft founder Valery Dolgov, who established his team of engineers 15 years ago, created software in 2002 for proprietary support for institutional business, developing systems for hedge funds which carry out trading and execution analytics, is most certainly an astute gentleman indeed.
His career in developing bespoke and third party systems has expanded globally, with many hedge funds in Russia and the West benefiting from such an international software deployment.
Valery, along with twin brother Yury Dolgov, and committed developers Andrew Grekov, Valery Soroka, Stanislav Petkevich and Andrew Pominov elaborated in great detail on the future systems that brokers will be able to use. This week, FinanceFeeds will be reporting this in full, however a very important, and often overlooked point was made during our day-long meeting, that being the abuse by IBs, partners and traders of affiliate marketing systems.
Many retail brokers rely extensively on affiliate networks, and their client acquisition and retention efforts are often borne out of this, and in some cases only out of this methodology.
Mr Dolgov has been researching the little-discussed abuse that goes completely unnoticed by brokerages, for many years.
“Within 10 seconds, we can see every exposure , every winner/loser biggest winner/loser, all unrealized profit, all net volume, and therefore brokerages do not need to analyze huge reports on separate systems which takes several hours, instead being able to see every aspect of the brokerage business within 10 seconds. With the standard systems available today, brokers have to waste a lot of time generating and analyzing reports which takes several minutes to even look at one type of trading, by which time traders have taken more advantage. This is amplified if traders are being funneled to brokers via affiliate networks or having their accounts traded automatically by IBs.”
“We have been asked to make a custom setting by one broker on what that particular brokerage deems to be “dangerous clients” who misuse partner programs. I know of one broker which had a badly developed affiliate system, and therefore within the partner program a lot of volumes were generated so it all looked ok, yet ultimately there was no profit for the company” explained Mr Dolgov.
“Most brokers have to wait far too long to analyze the entire activity of trading, and when doing this only on a monthly basis, which is what many partners teams do as partner reports are an internal matter and not a regulatory reporting matter, the amount missed can be hundreds of thousands of dollars or more” said Mr Dolgov.
“This is largely because partner programs can easily be misused. One firm in the US had experienced a lot of cheating traders that tried to built very big networks in affiliate programs, and then use arbitration or disruptive HFT-style practices to take advantage of the brokerage before they can flag it on a report, hence a broker cannot realize any adverse activity immediately” said Mr Dolgov.
“You have to detect unusual behavior and usually affiliate networks are left alone to generate revenues. It then gets looked at on the system and brokers see volumes being traded, but abusers can exist in large networks and often look toward affiliate programs to do en masse abuse. Brokers dont notice it – they see volumes mounting up from it, but then because of large scale abuse, no profitability can be gained from these groups” he concluded.
Mr Dolgov wrote a white paper in Russian on this, which we will be looking at closely as this is an important matter for brokers to bear in mind.
More to come on the entire brokerage analytics system from IndigoSoft this week!
Thursday: Time out creates focus and efficiency- Good advice!
Whilst in Moscow, a city which heralds a tremendous history of scientific leadership, classical music, arts, theater and culture, it of course goes without saying that there is no such thing as an average software developer, just as there is pretty much no ‘average’ anything in Moscow.
My visit to IndigoSoft and insight into the comprehensive brokerage analytics system that the firm has developed concluded on Thursday morning, with a conversation with CEO Valery Dolgov about focus and concentration on getting things right.
Accuracy and innovation go together in the FinTech business, and Mr Dolgov’s activities extend beyond the development and testing rigs at IndigoSoft. He is a skydiver when not programming.
As an aviation enthusiast myself, this struck a chord, and Mr Dolgov explained that activities which contrast completely to the work that he is very committed to are vital to the efficiency of the human mind whilst at work.
“Skydiving renews me every time I do it. i find that I can focus on more because such an activity refreshes my mind. It is liberating and contrasting. I am in the sky, thinking about and concentrating on something else and looking at everything from a totally different perspective. This, I believe is very important.”
Looking at some of the footage of various jumps from a Yakovlev transporter (Russian equivalent to something like a Hercules C-130 in the West), this is clear to see. Especially when spending 16 hours developing systems that brokerages rely on for their very existence and profitability, which is a very large responsibility indeed.
Driving to the airport on Thursday afternoon, I reflected on this short trip to Moscow. An outstanding city, outstanding tenacity and remarkable commitment by so many people over the hundreds of years to absolute perfection in many areas.
Mother Russia, I will be back soon.
Friday: Do NOT steal from your employer
Stealing leads from employers is a repugnant and very amateurish practice, and whilst we know that it exists in many industries which base their intellectual property on client bases gained via online marketing and telephone sales, largely, the bona fide among us (which is thankfully most of us by a significant margin) never witness such behavior and generally consider it to be restricted to the vulgarity of binary options boiler rooms in Ramat Gan.
Unfortunately, this week I spotted a recruitment advertisement from a small specialist head hunting firm which blatantly advocated the expropriation of intellectual property should a sales person wish to join a new firm, however this was no Middle Eastern bucket shop, this was an advertisement on behalf of an FCA regulated London based retail FX company!
This advert, which reads “I (the recruiter) am looking for an Institutional Sales Manager to join my FX brokerage client in London. If you have a ‘book’ of business and are successful and are from a similar business, please get in touch.”
A ‘book’ of business eh? I am quite sure that when employed and paid a salary and/or bonus for working for a particular company, any clients brought on board are the property of that company, not the individual who made the sale or maintains the relationship.
GAIN Capital is NOT making its sales staff redundant.
Rumors were abound on Friday, with many firms under the impression that GAIN Capital was making global redundancies in its sales divisions. I spoke to the ever affable Glenn Stevens, CEO of GAIN Capital about this in order to help set the record straight.
“Actually, that is incorrect information that you have” said Mr Stevens. “It’s a small service group based in our Truro office that has been advised that we will be relocating some roles back to London, re-assigning some support staff to other areas and terminating some support roles as we have automated some of the functions they performed” said Mr Stevens.
“Also, as part of this process we’ll be winding down the physical presence of our Truro (Massachusetts – ed) office over the next 6 months. You may recall that we assumed that office when we acquired Galvin Research and its Faraday service a few years back and we have since folded that business into City Index and Forex.com” he confirmed.
Onwards and upwards.
Wishing you all a super week ahead.